Specialist
SVP at Ocwen Financial Corp US
Agenda
- Bank and non-bank mortgage lenders’ operating environment across channels and credit categories
- Macroeconomic climate’s performance implications and scenario analysis around a potential recession
- Competitive landscape, highlighting Freedom Mortgage, Mr Cooper (NASDAQ: COOP), Rocket Mortgage (NYSE: RKT) and others, and industry operators’ relative positionings in the shifting mortgage cycle
- 3-5-year sector outlook, discussing biggest winners and losers
Questions
1.
Can you give an overview of US mortgage lenders’ operating environment, highlighting 2-3 key trends or drivers the investment community should monitor?
2.
The MBA [Mortgage Bankers Association] has the 30-year fixed mortgage rate hovering around 5-5.1% over the next two years, but other estimates have it touching 7%. What’s your interpretation of where mortgage rates are poised to go over the next 2-3 years and what informs that view?
3.
Would you expect any material decline in purchase volumes and originations? Can home price appreciation outweigh declining unit volumes?
4.
You mentioned some nuance around markets, and I’m assuming that’s regional markets. How should we think about the expected regional nuance in terms of pressure? I assume highly urbanised areas and the surrounding suburbs would likely experience the most pressure based on the population concentration.
5.
How does the potential recession in the next 18-24 months influence your outlook for the sector’s near-to-mid-term performance?
6.
How quickly can originators cut expenses without meaningfully reducing their market share outlook? What levers can they pull in terms of cost structure flexibility?
7.
What is your estimate for the cost per funded mortgage going forward, given the operating environment? You said it tripled over the time period you mentioned. Are you expecting a similar upward pressure, or could price competition drive that down slightly?
8.
What levers can operators pull to maintain liquidity or tap some incremental funding sources?
9.
Can you outline the competitive landscape and the biggest winners or losers? What makes some models more compelling than others?
10.
I’m trying to understand the driving forces behind mortgage activity essentially being transferred from larger depository banks to some non-bank lenders. It’s been posited that this was a product of the regulatory landscape post-global financial crisis or perhaps a confluence of other factors. Banks seem to have adopted the narrative that the shift primarily occurred in higher-risk loans, which would, in theory, mitigate default risk for bank lenders. What are your thoughts on this narrative? What would you say as a counter argument if you’re not seeing much truth in it?
11.
Are any players positioned in the market with outsized exposure to the sub-prime space you’re highlighting?
12.
You mentioned the split between the wholesale and D2C models. Does the current operating environment favour either type? Do you expect any more meaningful volume in either category?
13.
What range can you give for the average margin you’d see on the D2C channel, to compare it with the spread between the break-even and 10bps margin you’re seeing on the wholesale channel?
14.
There’s a lot of talk about layering on ancillary services to capture more margin per customer. How would you assess the difficulty of cross-selling ancillary services such as title and homeowner’s insurance? Who do you feel is best-positioned to cross-sell some additional lines?
15.
What consolidation or M&A are you expecting for the non-bank lending side to cope with the operating environment over the next few years?
16.
Is anything else worth highlighting on US mortgage lending and servicing? Do you hold a contrarian view anywhere regarding a broader market narrative or how the investment community approaches the mortgage sector?
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