The mortgage market is hemorrhaging. In the three months ended March 31, originations at the nation's four biggest banks fell by a combined 66% compared with the year-ago period. It was the worst cumulative performance in over a decade.
While all four banks fared poorly, Citigroup (NYSE:C) took the biggest hit in terms of relative volume. Its quarterly production came in at $5.2 billion, or half that of the next largest originator, Bank of America (NYSE:BAC), which underwrote $10.8 billion in mortgages during the quarter. The figures at the two banks were down by 71% and 55%, respectively, on a year-over-year basis.
The obvious explanation for the drop concerns mortgage rates -- which, mind you, are still ridiculously cheap. Since the Federal Reserve said it would begin tapering its monthly purchases of mortgage-backed securities, the average rate on a 30-year fixed rate mortgage has gone from under 3.4% at the end of 2012 to 4.3% today.
The move has markedly increased the cost to purchase a home and largely closed off any interest in refinancing. Had you gotten a $200,000 mortgage a year and a half ago, the monthly payment would have been in the neighborhood of $880 (excluding taxes and insurance). Today, it's nearly $1,000, equating to an increase of 13%.
There has been a large increase in the capital required to service and hold mortgages. Servicing itself has become far more costly and dangerous to the servicer -- servicing costs alone have gone up 20 basis points. We still have been unable to reform the government-sponsored enterprises or to get the securitization markets healthy again. This has real costs to consumers, especially for lower credit-quality consumers and particularly for government-guaranteed mortgages, which have become more expensive, more time intensive, and less available for consumers.
The problems, in other words, are multifaceted and seemingly not susceptible to a simple solution.
What does this mean for the spring home selling season? At present, the statistics don't look good, as both new and existing home sales are anemic, to put it mildly. Even more concerning are pending home sales, a critical metric at this time of year, which recently dropped to the lowest level since October 2011.
Could things turn around? Absolutely. But for the time being I certainly wouldn't bet on it.