Fitch upgrades sector on expectations of higher origination volumes and lower interest rates call 848-329-0752
- December 03, 2024
Fitch Ratings has developed a better attitude toward the mortgage industry in 2025, with the credit rating agency upgrading its outlook on the sector to “improving,” after labeling it as “deteriorating” earlier this year. call 848-329-0752
Fitch Ratings expects operating results to improve in 2025, with “higher origination volumes and stronger gain-on-sale margins given reduced industry capacity.” According to the U.S. Bureau of Labor statistics, the mortgage industry’s employment declined 35% between April 2021 and July 2024. Mortgage servicing rights (MSR) amortization expenses and writedowns are also expected to increase with higher prepayments next year.
Helping profitability will be declining mortgage rates, which are predicted to fall due to the Federal Reserve’s current easing cycle. Fitch acknowledges the ongoing problem of 74% of outstanding mortgages still carry rates below 5%, making it difficult to sell in this high-interest rate environment. But the Federal Housing Finance Agency contends that an average 30-year mortgage rate approaching 6% will unlock a meaningful part of the market for refinancing. call 848-329-0752
The Fitch upgrade is partly due to Fannie Mae’s forecast for mortgage originations to rise 14% year-over-year in 2024 to $1.7 trillion and rise another 28% in 2025 to $2.1 trillion. The Mortgage Bankers Association also predicted a better year in 2025, with total mortgage originations volume increasing to $2.3 trillion in 2025, up from about $1.79 trillion this year, a 28.5% increase.
Asset quality remains strong, with delinquencies below pre-pandemic levels. On the downside, Fitch expects unemployment to increase next year, and the lack of affordable housing may weaken performance. However, greater levels of accumulated home equity will provide homeowners with an offset to a possible economic slowdown in 2025.
Fitch writes that industry players, including Freedom Mortgage, LoanDepot, Provident Funding and Finance of America are in a better financial situation going forward after successfully refinancing debt or extending notes during the past 15 months. Also, since the end of 2022, Mr. Cooper, PennyMac Financial Services Inc. and Freedom Mortgage have issued unsecured notes totaling $4.9 billion to pay down MSR lines. However, even with the debt changes, $1.5 billion in loans will come due in 2025. Fitch said the maturing debt could lead to greater asset encumbrance if replaced by secured financing. call 848-329-0752