Mortgage Originations Are Down by 60-70% Year-Over-Year… But Everything’s Okay


Mortgage originations for the first quarter of this year fell off a cliff.  JPMorgan reported a decline of 71 percent, as I recall, and I think Citibank reported a drop of 66 percent.  Now, the second quarter’s bloodletting has come in and the numbers are about the same… down more than 60 percent year-over-year, if memory serves and it often does.

I’m not bothering to look any of these numbers up and doing this by memory because the details don’t matter… my point will be the same regardless of a few percentage points in one direction or another on any given statistic.  I’m close enough in all cases, anyway.

Forbes reported that the first quarter of 2014, “saw the lowest mortgage origination volumes since Q3 1997.”  And the headline, “MBA Lowers Mortgage Originations Forecast, came with a story explaining thatthe updated refinance total is around 60 percent lower than 2013 refinance originations.”

Even credit unions went straight into the tank this year, originating an annualized $42.6 billion in real estate loans in the first quarter, down from $102.9 billion in the first quarter of 2013, according to an Nation Credit Union Association (NCUA) press release.

Black Knight Financial Services released in March that loan originations were down 60 percent year-after-year, declining to the lowest level since November of 2008.  And on August 12th, Origination News ran the headline: “The Refi Boom is Officially Over – And Won’t return Soon,” explaining that Freddie Mac has finally recognized that the refinancing boom that ended last summer… has ended… last summer… and that home sales this year have remained “lackluster.”

The Mortgage Bankers Association released its first 2014 forecast last October, predicting $1.2 trillion in total originations for the year, but those numbers were revised down in January and again in May.  The current forecasts are for $1.01 trillion in total origination volume for the year.  Last year total volume was $1.8 trillion, and $1.1 trillion of that volume came in the form of refis.

And finally, HARP origination volume has been down a staggering 70 percent year-over-year with only one third as many eligible loans remaining as compared with 2013.

Estimates are that cash sales are running at 40 percent of sales, which combined with the data provided above, should tell you how few sales there actually are in the aggregate.  My grandmother would say the mortgage industry is furchtbar, I would use a similar sounding word also beginning with the letter “F,” but we’d mean roughly the same thing.

90908Okay, so you’ve got the picture, right?  Now, name another industry that’s ever seen year-over-year drops in sales volume like that.  I’ve been trying to come up with one… maybe typewriter sales in 1996, 1987 or 1988?

I don’t actually think there has ever been an industry that reported year-over-year declines in sales volume of 70 percent, and if there was, I’m betting the industry became the corporate equivalent of the Dodo bird sometime shortly after that.

And I was sure that the housing market and mortgage industry were, at one time anyway, considered really important to the U.S. economy… wasn’t that what a lot of smart people were saying a few years ago?

So, how can everything be okay?

In April of this year, the New York Times ran a story about, “Why the Housing Market is Still Stalling the Economy.”   The author seemed to think housing is pretty darn important to our economic growth or malaise.

“Investment in residential property remains a smaller share of the overall economy than at any time since World War II, contributing less to growth than it did even in previous steep downturns in the early 1980s, when mortgage rates hit 20 percent, or the early 1990s, when hundreds of mortgage lenders failed.”

“If building activity returned merely to its postwar average proportion of the economy, growth would jump this year to a booming, 1990s-like level of 4 percent… The additional building, renovating and selling of homes would add about 1.5 million jobs and knock about a percentage point off the unemployment rate… That activity would close nearly 40 percent of the gap between America’s current weak economic state and full economic health.”

Holy crap!  Okay, so how is everything okay?

The Times article meanders around a bit, talking about builders and their reasons for under-building or over-building, but finally broaches the 800-pound gorilla in the room, calling it the “Mystery of the Missing Buyers.”

Frankly, I’ve answered this question too many times to have any interest in doing it again.  If no one has learned anything from my last 25 attempts at de-mystifying the mystery, then why would I even take a shot at 26?  From now on, I think I’ll just string a bunch of words together whenever the “mystery” presents itself and I feel compelled to respond.  Like how about, “underwater, underpaid and underwhelmed.”  That about covers it, doesn’t it?

The Times story quite correctly does go straight for “household formation,” as a major contributor to the problem, pointing out that, “The number of households rose by an average of 569,000 a year from 2007 to 2013, according to census data, down from 1.35 million a year from 2001 to 2006.”

You don’t need to be any sort of economist to understand that people forming households would be a major driver of any country’s economic growth, right?  I mean, all you’d have to do is look in my garage to figure out why that would be the case.  If I weren’t married, I might not even own a full set of dishes.

So, if household formation is running at 569,000 annually for the last 4-5 years, but was 1.35 million for the prior five years… well, how is everything okay?

Young people aren’t forming households like they did before the collapse of the housing market, but is that really any sort of mystery?  I read some say that it’s student loan debt that’s holding things back… others point to our economy’s apparent inability to create good paying jobs in sufficient number… and I’m sure those factors are involved.

But you want to know what I never read as a potential cause for household formation having had its legs cut off beginning in 2007?  Maybe it has something to do with younger people having watched their parents struggle to keep their suffering from them as they lost homes to foreclosure.  Couldn’t that be a factor here too?

If you have any trouble answering that question, for one thing, you’re not qualified to talk to me about this subject, but the more important question is… how can everything be okay?

So, the mortgage industry has seen originations fall in a single year by 60-70 percent, but the housing markets are okay, in fact they’re recovering all around us every day, and prices are up.   Mortgage originations get more than cut in half over six months, but everything’s okay… GDP is still rising and the June jobs report was strong… because obviously the mortgage industry and housing doesn’t contribute to any of it.

But that can’t be right, can it?



Any industry that experienced a 70 percent drop in sales would see bankruptcies popping like popcorn, but not this one.  And we could be talking about the Pet Toys industry… if Pet Toys saw sales decline by 70 percent in a single year, it would be front-page news, would it not?  Pet Toys… squeaky pet toys… sales down by 70 percent and Anderson Cooper is doing a special report on the situation.

But not this industry… not mortgage originators.  Somehow housing and mortgages have been painted with invisible ink, and can no longer be seen by anyone.  Mortgage originators can’t be harmed or cause harm to anyone or anything, because even with originations down by 60-70 percent… am I to believe everything’s okay because of these sorts of things”

Bouncing Back — Economy Grew by 4% for Quarter  New York Times, July 2014

5 Reasons Why U.S. Economy is Recovering Fox News, July 2014

U.S. Housing Market Improving, Inflation Pressures Muted  Reuters, August 2014

But, how can anything be okay?  

It can’t, and it isn’t.  What I really can’t figure out is why no one seems terribly concerned.  Are we all just tired?  Because that, I would understand.  Other than that… no.  It’s not okay, and I’m not okay pretending it’s okay.


Mandelman out. 

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