Let's Talk Loans Vol. 20
Welcome back to another discussion about lending. Each week we tune in to chat about what's trading and trending in the whole loan market. If you're interested in shop talk from the Raymond James whole loan desk, you've come to the right spot.
With the recent very hawkish tone coming out of the Fed, rates have seen a fairly significant move up. The 2 year started August at 3.05%, it sits at 3.48% this morning. The 10 year started August at 2.77% and now sits at 3.25%. The 30 year started August at 2.91% and now sits at 3.43%. Roughly a 50bps move across the curve in about a month. Unsurprisingly, mortgage rates have seen a spike and has nearly hit 6%. The graph below continues to astound me that we've see mortgage rates DOUBLE in just this calendar year. Remarkable. Per the MBA on rates:
With the rise in rates, while mortgage originations are falling, we have seen the rise in HELOCs. The Urban Institute does a lovely job mapping out what's happening in the mortgage market monthly. The bad news is mortgage originations in the first half of 2022 have been cut in half. Was 1.13tn in 1H2021 and was 650bn in 1H2022. The good news for HELOC originators:
"In the first five months of 2022, $100.8 billion in HELOC and $38.1 billion in home equity loans were originated, representing increases of nearly 50 percent from last year. These levels are also the highest since at least 2011"
I'll continue to harp on liquidity for the coming future. S&P chimes in on "US banks likely to tap other liquidity sources before selling bonds at losses". It's been well covered that the rapid rise in rates has put the bond portfolio in the red. The graph below on the left shows unrealized gains (loss) in the portfolio and the one on the right shows the growth in the bond portfolio over time. I've got news for you, it's done the same thing to the loan portfolio - and the loan portfolio is considerably larger. The good news for loans is you don't mark to market. The bad news for loans, when you come to market to sell from your portfolio, you're still subject to current market rates (see 2nd paragraph). As you start to run into liquidity issues, do please keep this in mind. Yes, you can tap the loan portfolio for liquidity, it's an active, robust market but it's also subject to where loans are trading in the current rate environment.
Personal note. It's been a rough week here in Memphis. An active shooter, shelter in place, a very public tragedy that caught national attention. This morning, thousands poured out into the streets of Memphis at 4:20am to celebrate the life of Eliza Fletcher and "finish Liza's run". A wonderful show of support by Memphians and something that seems to have spread to other cities around the country.
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