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Lenders’ share of mortgage refinancing volume rose for the fourth straight month in November as mortgage interest rates continued to fall, according to the latest Origination Insight Report released by Ellie Mae. Since July, refinances as a percentage of lenders’ overall loan volume has climbed 13 percent from a 2014 low of 32 percent.

In addition to higher refinance volume, total closing rates on purchase loans rose to 66.5 percent, the highest since Ellie Mae began tracking this figure in August 2011. Meanwhile, the average 30-year fixed interest rate dropped to 4.273 percent, its lowest level since June 2013.

“With 2014 coming to an end, lenders are hopeful for a steady improvement in market conditions,” said Jonathan Corr, president and COO of Ellie Mae. “Winter is normally a slow time for housing sales, yet the increase in refinancing volume is protecting many lenders from the cold. Meanwhile, lower interest rates and the return of the GSEs’ three-percent down payment loan programs may help lenders and homebuyers get off to a great start this New Year.”

The Origination Insight Report mines its application data from a robust sampling of approximately 57 percent of all mortgage applications that were initiated on the Encompass origination platform. Ellie Mae believes The Origination Insight Report is a strong proxy of the underwriting standards employed by lenders across the country.

Other findings of the report include:

>> The average length of time to close a purchase loan rose to 41 days, up one day since October.

>> The average time to close a refinance loan dipped to 37 days, tying the lowest mark of the year.

>> Credit requirements are roughly the same as one year ago, as 31 percent of borrowers had an average FICO score of under 700 compared to 30 percent in November 2013.

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Refinances Inch Up A Bit

Refinancings as a percentage of overall mortgage volume jumped 3 percent from August to account for 36 percent of closed loans in September, according to the latest Origination Report put out by Ellie Mae. The September 2014 report also found the closing rate on mortgage refinancings fell nearly 6 percent to 48.3 percent in September, the lowest since February.

The Origination Insight Report mines its application data from a robust sampling of approximately 57 percent of all mortgage applications that were initiated on the Encompass origination platform. The Origination Insight Report is considered a strong proxy of the underwriting standards that are being employed by lenders across the country.

“It appears there may be life left in the refi market, as a number of consumers are still taking advantage of recovering equity in their homes and low interest rates to knock down their mortgage payments,” said Jonathan Corr, president and COO of Ellie Mae.

The percentage increase in refinancing activity was the first monthly increase in 2014, the report found. Among other findings in the report:

>> The average 30-year interest rate for all loans dropped for the fifth straight month to 4.381%, the lowest rate since July 2013

>> The average number of days to close a loan climbed above 40 days for the first time since June

>> The average number of days to close purchase loans rose 3 days from August to September

“While rates continue to fall, loans have been taking slightly longer to close since the peak of the summer buying season,” Corr said. “It will be interesting to see whether these trends continue as we head into the winter, a traditionally slower time for housing sales.”

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Purchase Lending Share Increases

In its latest Origination Insight Report Ellie Mae found that the purchase market is dominant. To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the December 2013 applications) to calculate an overall closing rate of 58% in March 2014, up from 55.3% in February 2014. “We continue to see the resurgence of a purchase-centric market as numbers inch closer to historical levels,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “Purchases increased another three percentage points in March 2014 to represent 60% of loans, quite the difference from March 2013 when purchases represented only 38% of loans.

In 2013, approximately 3.5 million loan applications ran through Ellie Mae’s Encompass mortgage management solution. The Origination Insight Report mines its application data from a robust sampling of approximately 57% of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae’s market share, the Company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.

“Credit requirements tightened ever so slightly last month. The average FICO score on all closed loans increased for the first time in 2014, rising one point to 725. The average debt-to-income ratio also tightened on both the front and backend, falling to 24/37.

“Average time to close in March 2014 fell to 40 days for all loans––five days faster than January 2014. The average purchase loan closed six days faster (41 days) in March than it did in January (47 days).”

The Origination Insight Report focuses on loans that closed or were denied in a specific month and compares their characteristics to similar loans that closed or were denied three and six months earlier. The closing rate is calculated on a 90-day cycle rather than on a monthly basis because most loan applications typically take one and a half to two months from application to closing. Loans that do not close could still be active applications or applications withdrawn by consumers or denied for incompleteness or nonqualification. The Origination Insight Report details aggregated, anonymized data and does not disclose client-specific or proprietary information.

Let’s Get Perspective

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Last year one of the big stories was that rates are going up. Why was this a big story? Because with rising rates, refinance activity will slow. With refinances slowing, that means that lenders will have to work harder to get more purchase money in the door. How much harder will lenders have to work? That depends.

“Mortgage rates have settled over the last few days in January, as we’re in-between market-moving events,” said HSH.com vice president Keith Gumbinger. “The soft December employment report is behind us; the next Fed meeting, where we may or may not get another cut in Treasury and MBS purchases is coming up. Investors are watching the incoming data closely for signals that the Fed will or won’t make a move, so interest rates are holding fairly steady at the moment.”

The Federal Reserve trimmed QE purchases by $10 billion at its December meeting, and outgoing Fed Chairman Ben Bernanke left a strong impression that the Fed would like to reduce purchases of MBS and Treasuries at a like amount over the next seven Fed meetings. However, the Fed has noted that the decision to do so is dependent upon whether the economy is performing satisfactorily, that the risks to inflation aren’t rising, and perhaps most important, that the program is still having the desired impact. With interest rates already well off their bottoms, it just may be that the program is no longer generating the economic heat that it once was, and there may not be much additional upward impact on mortgage rates if the taper continues at a measured pace.

“The Fed’s QE program certainly provided key and needed support for the housing markets, fostering sales, firming prices and reducing the number of underwater homeowners,” adds Gumbinger. “However, the economy may no longer need as much of this unusual support. Aside from refinancing, the housing market has done fairly well in the last half of 2013, even with mortgage rates a full percentage point or more above last May’s lows.”

So, let’s take a deep breadth and put things into perspective. Rates are going to rise. Refinance activity is going to lessen. Purchase business lenders will be successful. All of this is just our current and future reality. What confuses me is why this intimidates some lenders. Is it that they forgot how to do purchase loans? Of course not, even lenders that were heavy in refinances did some purchase lending. Doing purchase loans may not be as quick and easy as doing a refinance, but quick and easy isn’t going to work anymore. As the old saying goes, slow and steady wins the race.

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Closing The Page On 2013

Origination vendor Ellie Mae released its Origination Insight Report for December 2013, as well as an infographic of key mortgage statistics and trends for 2013. The report draws its data and insights from a robust sampling of the significant volume of loan applications that flow through Ellie Mae’s Encompass LOS and the Ellie Mae Network.

“Purchases represented 54% of closed loans in December 2013, which was double the share of at the beginning of the year,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “Meanwhile, refinances ticked up by 1% over November to 46% in December, helped in part by the average 30-year note rate staying below 4.6%.”

To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the September 2013 applications) to calculate an overall closing rate of 54.3% in December, up from 53.1% in November 2013.

“HARP-related refinancing activity increased for the second month in a row, as conventional refinances at 95%-plus LTV rose to 12.1% in December, the highest they’ve been since August 2013,” said Corr.

The Origination Insight Report mines its application data from a robust sampling of approximately 57% of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae’s market share, the Company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.

Corr added, “2013 closed with the loosest credit requirements of the year. The average FICO score for all closed loans last month was 727, 11 points below the 2013 average of 738 and 21 points lower than December 2012, when the average was 748. Last month, 31% of closed loans had FICO scores below 700, compared to 21% in December 2012.

“In addition, both back-end DTI (39%) and average LTV (82%) for December were at their highest points for 2013.”

TLI214-Ellie-Mae-Infographic

Magazine Feature: Capitalize On The Shift To A Purchase Market

The mortgage industry has seen a significant decline in refi activity in the recent months and the trend looks like it will continue into 2014. The change to a purchase market is happening quickly: the Mortgage Bankers Association has estimated that purchases will make up 48% of originations by the end of the year. That is up from only 26% at the beginning of 2013.

The trend toward a purchase market began as rates crept up slightly, and home values started increasing. The improved labor market, broader economic recovery and decreased mortgage delinquencies also aided in this shift. Consumers who have been sitting on the fence about selling their home are beginning to realize now is the time to make the jump, making this an opportune time for consumers to purchase their next home.

These variables combined have developed a hot purchase market throughout the country. The adjustment to this purchase market focus has left many mortgage lenders aggressively searching for ways to compliantly gain market share. Developing strong referral partners is going to be critical. Creating relationships with Insurance Agents, CPAs, Divorce Attorneys, Human Resource Directors, Financial Planners, Builders and Real Estate Agents will provide for a stable business model for the future.

Strategic referral relationships create clients for life who are more apt to refer others as well. This builds a consistent flow of referral business to everyone involved.

The challenge remains how to develop strong referral relationships with dynamic marketing campaigns while remaining efficient and compliant. The solution demands more than just pulling together disparate e-mail, print and other marketing components. It requires the use of centralized marketing automation.

Centralized marketing automation will greatly enhance referral relationships in an engaging, compliant manner while allowing loan officers to focus on what they do best: originate and close loans. Such marketing automation is easily used to address specific referral segments and groom strong relationships.

As relationships with referral partners continue to develop, customer retention efforts may then feature the partner in print and e-mail. In-process e-mails are able to provide for consistent touch points when a borrower is moving through application, keeping the referring party in the loop as well. After closing, automated retention programs can be equally branded for more future business.

Take a minute to truly comprehend the power of what can be done to create, build and nurture a referral relationship. Utilizing centralized marketing automation opens critical doors to long-term opportunity in a purchase market.

In addition to building referral partners, a purchase market is going to require marketing to first time homebuyers, those looking to down size as well as move-up buyers. These segments must be marketed to consistently and most importantly using different media.

Mortgage lenders have to focus on what is going to give them the ability to work smarter not harder when competing for purchase buyers. Again, utilizing centralized marketing automation technology provides corporate compliance and detailed reporting features for streamlined marketing efforts.

Using print as well as e-mail is going to be the game changer for many mortgage lenders, when done at a centralized corporate level. It is a way to differentiate from the competition, as many have opted to use e-mail alone. Utilizing a centralized marketing automation system will make it easy to implement compliant campaigns across all channels using print and e-mail together.

The benefit of centralized marketing automation is the ability to provide consistent, compliant, streamlined marketing from one location. This is known as a top-down marketing strategy.

Top-down marketing enhances business opportunities to build consistent loan pipelines, increase referrals and establish a recognizable brand. This strategy will drive not only a purchase market, but also a strong organizational growth plan.

Utilizing a centralized marketing automation system in conjunction with a top-down marketing strategy is going to enable mortgage lenders to excel in a purchase market. Such a structure would be implemented at a corporate level, and would need little or no interaction from loan originators. This places the lender in control of driving consistent, compliant marketing.

Inside a centralized marketing automation system is a full database to segment contacts and target them individually. In a few minutes, a person can send a campaign with print and e-mail follow-up to all the appropriate contacts in the company database, which includes those of the entire origination staff.

Such a task can be completed quickly due to an expansive library of content that can be utilized as is or even customized to best fit the mortgage lender’s brand and marketing initiative. It is imperative that content and campaigns allow for modification and customization to set one lender apart from others.

Utilizing unique marketing pieces and diversified outputs will make a mortgage lender stand out from the competition. Too many lenders use the same pre-created templates for marketing activities. When this is done on a large scale, how is a consumer to tell one company from another?

Customizable marketing activities that are managed through a centralized marketing automation platform will drive unique brand awareness and company initiatives that are not “cookie cutter.” You cannot differentiate yourself from the competition if you are using the exact same email and print marketing templates, with the only difference being your logo.

Having the ability to create a custom company library is how true differentiation is done, with centralized marketing automation. Consumers will then be able to distinguish you from your competition.

In a purchase market environment, creating targeted messages to specific consumer segments will yield the largest result. Gone are the days of a shotgun approach of “rates are low” e-mails or “now is the time to buy” postcards. Utilize campaigns that are custom designed for those first time homebuyers: for example, edit a first-time homebuyer template postcard to send your message and follow-up with a custom email. You are then reaching that segment on a personal level.

The shift to a purchase market is quite a change for the mortgage industry, but the pressure for compliant, managed marketing is also in full swing.

With a top-down marketing strategy implemented by a centralized marketing automation system, compliance monitoring and management are taken care of. A loan originator can even have access to build individual custom campaigns if they choose and the lender can approve or make changes prior to the activity being sent.

Each marketing activity that takes place is logged and authorized by the lender for compliance, eliminating the worry of unapproved marketing being sent by loan originators and creating a full audit trail for auditors.

The shift to a purchase market is not going to be the easiest transition for many lenders, but it is possible to capitalize on this change. Focusing on the creation of strong, diverse referral partner relationships is going to be imperative. The key to these types of relationships is communication. The use of centralized marketing automation will make all communication consistent and engaging to these referral partners.

Creating custom campaigns to target the specific consumer segments will boost results and create brand differentiation. Centralized marketing automation will make it easy for a lender to send unique print and e-mail pieces to large groups without having to involve the loan originator.

Loan originators are able to focus on their pipelines and nurturing of referral relationships while marketing is being produced to drive results for them. The lender is in complete control. The production of print and e-mail campaigns is done quickly and efficiently. An entire library of activities can be created from scratch or by utilizing pre-designed pieces. Connecting with referral partners, consumers and even past clients becomes seamless and consistent. Most importantly, all this is done in one location that is compliant and automated.

Refinances will continue to fall off and redundant email-only marketing is just not going to cut it anymore. Take hold of this purchase market shift by embracing the technology that is available to you today. This is what can separate you from the competition. Choose to be consistent, engaging and compliant while doing things your way, not within the constraints of “cookie cutter” systems.

Get Ready, It’s Here

*Get Ready, It’s Here*
**By Tony Garritano**

TonyG***New data from Ellie Mae tells us what we already know, the purchase market is coming back. “The share of purchase loans continued to grow in September 2013, climbing 1% to 58% of all loans even in the face of higher interest rates and seasonality,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “This was the eighth consecutive month that the purchase loan percentage has increased or stayed steady. In January 2013, purchases represented only 27% of closed loans.”

****The Ellie Mae Origination Insight Report draws its data and insights from a robust sampling of the significant volume of loan applications—more than 20% of all originations in the United States.

****“The credit standards also continued to ease in September with average FICO scores for closed loans dropping to 732 compared to 734 in August,” noted Corr. “September’s averages were 15 points below where they were at the beginning of the year (January 2013) and the lowest level since we began our tracking in August 2011,” noted Corr. “When you drill down farther, the change is even more apparent. For example, 31% of the closed loans in September 2013 had FICO scores under 700 compared to 17.46% of closed loans in September 2012.”

****To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the June 2013 applications) to calculate an overall closing rate of 52.3% in September 2013, down from 53.1% in August 2013.

****“Similarly, debt-to-income ratios rose again slightly last month,” Corr concluded. “DTIs went from 24/37 in August to 25/37 in September 2013.”

Refis Are Still A Huge Market Driver

*Refis Are Still A Huge Market Driver*
**New Data Emerges**

race-car***New data from Ellie Mae shows that refinances are still driving the mortgage market. To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the October 2012 applications) to calculate an overall closing rate of 55.0% in January 2013, up slightly from 54.7% in December 2012, which is mostly due to an increase in refinances.

****“Since last summer, the refinance share has been climbing steadily and in January 2013 it reached 73%, the highest level since we began tracking this data in August 2011,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “Continued low interest rates and home-buying seasonality are big reasons for this shift, but so is HARP 2.0 activity. Closed conventional refinances with LTVs of 95%-plus ticked up slightly to 11.6% in January 2013 from the previous high of 11.4% in December 2012, indicating that more underwater borrowers are being able to refinance thanks to HARP2.0.

****The Ellie Mae Origination Insight Report for January 2013 draws its data and insights from a sampling of loan applications that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network. The Origination Insight Report mines its application data from a robust sampling of approximately 44% of all mortgage applications that were initiated on the Encompass origination platform.

****“The share of FHA loans vs. conventional loans declined to 18% in January 2013, which has been a new low since our tracking began.” Corr continued, “This may indicate that higher premiums and other program changes are making FHA loans less attractive.”

****Corr also added, “Average credit scores for conventional loans in January 2013 were slightly lower compared to the same time last year A year ago, the average credit score was 769 for a conventional refinance and 763 for a similar purchase. In January 2013, those averages dropped to 763 for refinances and 760 for purchases. While the overall credit score requirement remains tight, it appears that we are beginning to see some loosening.”

How Long Can This Refi Boom Last?

*How Long Can This Refi Boom Last?*
**By Tony Garritano**

***Lenders have enjoyed the benefits of historic low rates all this year. But what happens next year? Most predict that the refi rate will slow, but will still be over 50% of originations done next year. According to the Origination Insight Report for October 2012 put out by Ellie Mae, refis are rising. To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the July applications) to calculate an overall closing rate of 54.5% in October 2012, compared to 50.5% in September 2012.

****“In October, the closing rate for refinances was 51.3%, up from 45.3% in September 2012, and the first time since we began our tracking, in August 2011, that the pull-through rate for refinances topped 50%,” said Jonathan Corr, chief operating officer of Ellie Mae. “The 30-year note rate on closed loans also hit a new low last month for our report, dropping to 3.671% in October 2012 from 3.773% in September 2012.

****The report draws its data and insights from a robust sampling of applications—more than 20% of all originations in the United States. The Origination Insight Report focuses on loans that closed or were denied in a specific month and compares their characteristics to similar loans that closed or were denied three and six months earlier. The closing rate is calculated on a 90-day cycle rather than on a monthly basis because most loan applications typically take one and a half to two months from application to closing.

****“The combination of record low interest rates and higher refinance closing rates pushed out the average time to close on a month-over-month basis from 53 days to 57 days for refinances,” Corr noted. We’ll see if this trend is lasting.

Hurricane Sandy’s Impact On Rates

*Hurricane Sandy’s Impact On Rates*
**By Tony Garritano**

***Personally I was without power for eight days because of the storm. Thankfully I’m back. But what will the storm mean for our industry? While the recent employment numbers and the jobs report were good, the results in interest rates and the stock market were not. This is customarily due to the Federal government continuing to purchase mortgage-backed securities (MBS) but Hurricane Sandy added yet another factor. According to Residential Finance Corp.’s chief market strategist, Barry Habib, these developments could be the catalyst for even lower interest rates.

****“It was a pretty good jobs report, however when you look at the average work week and the hours worked on a weekly level, you are seeing a decline in the amount of income,” Habib explained. “You can surmise that it is good that more jobs are being created, but they are probably lower paying jobs.”

****“A lot of people look at the unemployment rate picking up from 7.8 to 7.9 percent but there is actually a good reason for that: the labor force expanded.”

****As for homeowners looking to refinance and new borrowers, Habib shared these observations:

****“While a report like this would normally lead to higher interest rates and better stock prices, that isn’t happening today. In fact, we are seeing the reverse where the rates are very modestly improving and the stocks are declining. The reason is probably on the stock side due to the fears of the impact of Hurricane Sandy, which will clearly have some negative impact on the economy and there is some anticipation of that happening.

****“Part of the reason why bond prices are improving due to this news points to two reasons, we already know the Fed are buying mortgage bonds, which is helping MBS pricing and keeping interest low. I think you will be hard pressed to see the Feds taking their foot off the gas pedal when you see a devastating event like Hurricane Sandy creating a terrible drag on the economy.

****“If I am a homebuyer or someone looking to refinance, this probably is good news for the longer term for interest rates to remain low; it also may create – based on the psychological effects of this terrible storm – a temporary drag on housing which means this is a time period where people could get additional value.”

****Habib cautions consumers who want to wait to see if interest rates indeed dip lower could risk that not being the case or perhaps even lose the monthly mortgage savings while they wait.