HomeStreet: Q4 results 'significantly affected' by impacts to mortgage business
"HomeStreet's Q4 results were significantly affected by market changes adversely impacting our mortgage banking business. Notwithstanding the impact on Q4 results, we do not expect these factors will have a materially negative effect on our results going forward... During Q4, the financial markets were impacted by dramatic increases in long-term Treasury rates beginning in November in reaction to the results of the U.S. presidential election, and an increase in short-term interest rates by the Federal Reserve in December. Higher interest rates drove lower than forecasted mortgage application volume and interest rate lock commitments of $1.8B, and a lower level of 'pipeline fallout,' which in turn resulted in a higher volume of mortgage loan closings of $2.5B. Both of these volume changes have a negative impact on earnings for the period as most of our mortgage origination revenue is earned at interest rate lock commitment and most of our mortgage origination expense is incurred at closing. The unexpected and sustained increase in interest rates also resulted in asymmetrical changes in valuation between hedging derivatives and servicing valuations. This market dislocation reduced the value of our hedging derivatives to a greater extent than the value of our mortgage servicing rights increased in the quarter, resulting in lower risk management results," the company said.