[ad_1]
US Treasury yields are spiking. For non-bank mortgage lenders, that points to a slowdown in business, triggering short selling and interest from meme traders. The rise represents better times for ordinary Americans. Mass vaccination is progressing. A huge $1.9tn pandemic relief package should prime a recovery.
The yield on the 10-year Treasury note — which began the year at 0.93 per cent — hit an intraday day high of 1.62 per cent on Friday, before slipping to 1.54 per cent this week. TD Securities reckons it could hit 2 per cent by the end of the year.
Low rates helped lenders originate $3.69tn worth of loans in 2020, according to the Mortgage Bankers Association. That is a 64 per cent jump from 2019 and the most since 2003. Refinancing accounted for the bulk of the activity.
The MBA expects purchase originations to fall by a fifth to $2.95tn this year. Refinancing is forecast to drop even more steeply: by 39 per cent to $1.38tn.Â
The deceleration has been reflected in the stocks of non-bank mortgage lenders. Rocket Companies, which owns Quicken Loans, the country’s largest non-bank mortgage lender, has seen its market worth sliced more than a third to $50bn since the start of March. Rival UWM Holdings is down 10 per cent over the past month. Two lenders that listed this year — Home Point Capital and loanDepot — are trading either near or under their initial public offering prices.
Rocket looks the better bet for now. This direct seller has one of the best gain-on-sale margins in the business because it does not pay third-party brokers to originate loans. The metric increased 127 basis points to 4.46 per cent last year. A forward earnings valuation is an affordable 14 times.
Rocket and UWM were recently tipped on websites such as Reddit’s WallStreetBets. But attempted short squeezes appear to have largely run out of steam. Both businesses need to prove detractors wrong on fundamentals, notably a slower uptick in yields than the latter anticipate.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button ‘Add to myFT’, which appears at the top of this page above the headline
This story has been closed to comments due to a history of posts on this subject that breach FT user guidelines
[ad_2]
Source link
