Why Apple’s New Bank Will Increase Mortgage Rates; Will Apple Do Mortgages Too?
Apple just launched a high-yield savings account, offering 4.15%, and $60 billion in deposits drained from three major U.S. banking institutions yesterday alone, per this tweet.
There has been a “yield war” of sorts amongst all the regional banks over the last several months; most of them are offering higher and higher yields on Certificates of Deposits (CDs) and deposits – in an effort to keep depositors from fleeing to brokerages and/or Treasury Bills (T-bills) for more yield or to the big banks for more safety.
Bank OZK near my home in Texas, for example, is offering 5.2% for CDs right now.
Despite all this, regional bank deposits are still draining at record levels, and it is far more serious than most people realize.
This is because deposits are the lifeblood of regional banks – as they need them to meet reserve requirements, to provide cash/liquidity to meet customer needs, to generate fees, and to make loans.
And regional banks are the lifeblood of the American economy, as they are the primary funding source for most of America’s small businesses.
And – small businesses in turn employ half of America’s workers and are the primary job creators for the American economy.
So – losing regional banks would be a devastating blow to the American economy.
All this is to say that Apple’s foray into banking is one more enormous threat to regional banks, as well as to big banks.
This is because Apple is so large and well-trusted and because Apple is making it so easy to set up an account and deposit funds.
As a result, Apple is going to continue to exacerbate the enormous deposit-drain that is already threatening so many regional banks.
All the banks can do in response to Apple is raise their yield offerings to rates higher than what Apple is offering because they are often less trusted and do not have Apple’s tech/ease of use.
This in turn will push mortgage rates up because it will increase banks’ cost of funds and force them to charge higher rates for their loans.
It will probably not impact Conforming (Fannie and Freddie) and FHA rates, but it will impact jumbo rates, as banks are the primary source for those loans.
WILL APPLE GET INTO MORTGAGES?
The average cost to fund one loan last year was over $10,000. In addition, lenders lost an average of $300 on every loan they funded.
Long story short: with the exception of boom years, the margins are way too thin for the likes of Apple.
And – no, they can’t use their tremendous tech resources to make things easier because it is mostly regulations that make everything in our industry so cumbersome and difficult – and tech can’t fix most of those issues.
The fintech graveyard is littered with the tombstones of the many companies that tried to use superior tech to make money in the mortgage world.
I am well aware of the troubles those firms faced too – not just because I am in the industry but also because several of those firms visited our Bay Area office seeking advice (shortly before dying, but after burning through tens of millions of dollars).
The big rumor a few years ago was that Amazon was going to jump into mortgages – and wipe us all out.
But alas, Amazon didn’t, and Apple won’t either for the same reason.
Founder | JVM Lending
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