%1

Residential lender First Guaranty Mortgage Corp. filed for bankruptcy, citing worsening conditions in the mortgage market as home sales slow and fewer home borrowers refinance due to rising interest rates and tight housing supply, WSJ Pro Bankruptcy reported. First Guaranty cut 471 jobs, nearly 80% of its workforce, and ceased loan originations ahead of Thursday’s chapter 11 filing. The company turned to chapter 11 as mortgage refinancings slowed nationwide and a series of margin calls on hedging instruments drained its cash, court papers show. First Guaranty is backed by investment firm Pacific Investment Management Co., which has teamed up with Barclays PLC to offer the company roughly $150 million in total financing to carry it through chapter 11. First Guaranty said it is lining up a financing package to carry it through chapter 11 and enable it to fund consumer loans for borrowers in the mortgage pipeline who haven’t yet closed. The bankruptcy stems from “intense pressure on mortgage originations due to the dramatic collapse of the mortgage refinance market and the weakening mortgage purchase market,” First Guaranty said. The average rate on a 30-year, fixed-rate mortgage sits at 5.70%, pushed up from 3.22% at the beginning of the year as the Federal Reserve increases interest rates and pulls back its purchases of mortgage bonds. That has made it the least affordable time to purchase a home since before the financial crisis, according to the Federal Reserve Bank of Atlanta. Rising rates also reduce the number of borrowers who would save on monthly payments by refinancing. The Federal Reserve Bank of New York has said mortgage originations fell 25% in the first quarter compared with the previous year, dragged down by a 40% annual decline in refinancings. In court papers, First Guaranty said it faced a series of margin calls on financial hedges, causing a liquidity crisis in the weeks before the bankruptcy filing. A slowdown in refinancings cut down the company’s mortgage originations this year to a projected annual pace of $5 billion to $6 billion, compared with the $10.6 billion it originated last year, according to a sworn declaration by Chief Executive Aaron Samples.

U.S. mortgage rates reached their highest level in more than 13 years, the latest sign of market tumult tied to the Federal Reserve’s campaign to cool inflation, the Wall Street Journal reported. The average rate on a 30-year fixed-rate mortgage rose to 5.78%, mortgage-finance giant Freddie Mac said Thursday, the highest level since November 2008 and well above the 3.11% recorded near the end of last year. Last week, Freddie Mac reported an average mortgage rate of 5.23%. The surge marks the largest weekly increase since 1987. It stands to add to the pressure on U.S. home prices, which remain strong despite rising rates and tumbling affordability. The Fed has been raising its benchmark interest rate to try to curb inflation and cool the housing market and the broader economy, but it’s a delicate dance. No one knows for sure what the impact from higher rates will be, but some investors worry that the Fed could tip the U.S. into a recession. On Wednesday, the central bank raised interest rates by 0.75 percentage point, the biggest increase since 1994. Mortgage rates don’t move automatically when the Fed raises rates, but they are heavily influenced by it. The short-term rate that the Fed directly controls has risen by 1.5 percentage points this year. The average mortgage rate has risen nearly 2.7 percentage points, the steepest such increase in decades.

Mortgage delinquency rates in March fell below the 3% mark, reaching another historic low as a strong labor market and income growth drove down the number of property owners who are late on their mortgage payments, HousingWire.com reported. About 2.7% of all mortgages in the U.S. were delinquent in March, dropping 2.2 percentage points from the 4.9% posted in March 2021, according to CoreLogic‘s latest loan performance report. Other contributing factors to the decline were rising home prices and the resulting equity gains providing alternative options to those who may be coming out of forbearance or facing foreclosures, said CoreLogic’s report. “The share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022,” said Molly Boesel, principal economist at CoreLogic. While the share of borrowers in any stage of delinquency was at an all-time low in the first quarter of 2022, Boesel expects distressed sales to rise over the coming year.

Sales of new U.S. single-family homes fell more than expected in April likely as higher mortgage rates and prices squeeze out first-time buyers and those in search of entry-level properties from the housing market, Reuters reported. New home sales plunged 16.6% to a seasonally adjusted annual rate of 591,000 units last month, the Commerce Department said on Tuesday. March's sales pace was revised down to 709,000 units from the previously reported 763,000 units. Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would fall to a rate of 750,000 units.

Mortgage lenders are scrambling to survive a sharp drop-off in the number of homeowners refinancing their loans, with demand drying up as interest rates rise, the Wall Street Journal reported. Mortgage giants including Wells Fargo & Co. and Rocket Cos. have trimmed staff this spring. Online lender Better.com has laid off or offered buyouts to about half of its workforce since last December. While home prices continue to rise and Americans are still buying houses, the drop-off in refinancing activity is a giant blow because refinancings made up the bulk of U.S. mortgage originations throughout the pandemic. Some lenders are considering selling themselves, convinced it is the only way to make it through, according to industry executives and advisers. Some lenders are selling assets, such as their rights to collect mortgage payments. Others are trying to drum up business by offering lower rates or cutting their fees. In March, mortgage lenders made $2.36 in profit on every $100 of a loan, the smallest amount since 2019, according to the Urban Institute. In 2020, that figure was as high as $5.99.