Mortgage Originations Could Sink More Than Expected

The year-to-date drop-off in mortgage originations exceeded Fitch Ratings expectations, indicating a larger decline is likely than either the Mortgage Bankers Association or Fannie Mae predicted.

When combined with lagging reduction in capacity, it will create pressure on earnings at the nonbank lenders Fitch covers. Other factors include: continued monetary policy tightening; the Federal Reserve’s tapering of mortgage-backed security purchases; housing inventory deficits; and sustained double-digit home price appreciation.

"The challenging operating environment is pressuring all issuers, although issuer-specific effects will depend on the mix between origination and servicing as well as channel and strategy, with weaker players that lack scale or have outsized exposure to the wholesale channel facing potential consolidation," a Fitch report said.