A Major Decline for 2013
Mortgage volume was given a great boost last year after President Obama expanded the Home Affordable Refinance Program (Harp). HARP 2.0 allows qualified borrowers with mortgage loans held by government-sponsored enterprises -- including Fannie Mae and Freddie Mac -- to refinance their loans at today's historically low interest rates, no matter how much the value of the collateral home as dropped. Mortgage lenders in 2012 also enjoyed very wide gain-on-sale spreads, which are expected to drop significantly in 2013, in part because the rising yield on 10-year U.S. Treasury bonds is causing a corresponding increase in mortgage-backed securities yields. Scinicariello late on Thursday said in a report that mortgage gain-on-sale spreads had declined by 30 basis points since the end of last year. The Mortgage Bankers Association expects total mortgage loan originations in the United States to decline by 20% in 2013 to $1.396 trillion from $1.750 trillion in 2012. The MBA expects mortgage volume to decline by another 24% in 2014, to $1.055 trillion.
What This Might Mean for Fifth Third
Fifth Third's $845 million in mortgage banking net revenue made up 13% of the company's total revenue during 2012, increasing from 10% in 2011. In light of the MBA forecasts and the declining mortgage gain-on-sale spreads, UBS conducted "a scenario analysis to assess the EPS effect of a 50% decline in mortgage origination revenues; taking into account several revenue and expense offsets."