Magazine article Mortgage Banking

KBW Forecasts Declining Earnings for Servicers in 2015

Magazine article Mortgage Banking

KBW Forecasts Declining Earnings for Servicers in 2015

Article excerpt

Keefe, Bruyette & Woods Inc. (KBW), New York, released its mortgage research outlook for 2015 and the forecast calls for a "slight increase" in residential origination volume this year. The research group pegs this year's home mortgage volume at roughly $1.18 trillion. That is up from KBW's baseline for 2014 of $1.17 trillion.

KBW noted in its mortgage sector research report that its origination volume forecast is more bullish than either the Mortgage Bankers Association (MBA) forecast ($1.2 trillion) or the forecasts from Fannie Mae and Freddie Mac. Fannie Mae is projecting a $1 trillion estimate and Freddie is forecasting $1.1 trillion, according to the report.

The analysts also said in 2015 they "do not expect any progress on government-sponsored enterprise (GSE) reform." KBW noted that it does expect the new mortgage insurer (MI) capital requirements to be issued in the first quarter of this year for MI companies eligible to insure GSE loans.

KBW also said it expects to see servicer capital requirements issued during the year, but was generally confident about servicers' ability to comply.

On the earnings front, KBW said it generally expects "declining earnings from mortgage servicers, modestly increasing earnings for the mortgage originators and title insurers, and meaningfully higher earnings from the mortgage insurers." (The forecast for higher earnings for MI companies was made before the Obama administration announced it was cutting insurance premiums for Federal Housing Administration-insured home mortgages. KBW's research note predicted that FHA would not reduce premiums.)

The lower earnings forecast for servicers was driven by portfolio runoff, higher compliance costs and declining mortgage profitability, as the opportunity associated with the Home Affordable Refinance Program (HARP) declines, KBW analysts said. …

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