Mortgage lender optimism fades as more normal market looms

Mortgage lender optimism fades as more normal market looms
Written by Publishing Team

Federal Reserve decision Accelerate its withdrawal from monetary policy stimulus Could indicate the return of the mortgage market more normal. And while lenders saw that coming, it could arrive more quickly than they thought.

Immediately after the Fed’s announcement, the MBA did not change its forecast for rising mortgage rates from just above 3% to 4% by the end of 2022. However, the group also noted that with the announcement, rate expectations have become uncertain, and may change. estimate when it subsequently releases its final forecast for the year.

“While market participants are likely to anticipate this change [the Fed’s] “Asset buying, the more hawkish view of interest rate hikes, may have caught the market by surprise,” Mike Fratantoni, MBA chief economist, said in an emailed news release.

He added that interest rates “may be more volatile as the Fed pulls back from the market.” “Although this will lead to a decrease in refinancing, we expect a strong economy to support an increase in home sales in 2022.”

Even before the Fed’s announcement, nearly two-thirds of respondents to Fannie Mae’s last quarterly lender survey were already expecting profit margins to decline, up from 46% previous quarter and 48% a year ago. That’s because they already knew they would face increased competition, a shift from easy money refinancing to more labor-intensive purchase lending, and perhaps a slight weakening in what was unusually strong consumer demand.

Rates, waning pandemic-related stimulus and pressure from rising home prices are the main reasons why 31% of lenders surveyed by Fannie Mae expect a change in borrower demand that could lead to lower profit margins. This concern about consumer confidence has risen from 21% in the previous quarter and 23% a year earlier. The percentage of lenders considering this to be a major concern hasn’t been this high since the last quarter of 2019, when the proportion of respondents in this category was 36%.

Lenders such as Caliber Home Loans are increasingly looking for alternative ways to meet the needs of new families without straining consumer finances.

“With demand for single-family homes continuing to strongly amid the supply chain crisis, potential buyers will drive new demand for alternative home types such as condos, Reno and multi-family properties,” said James Hecht, executive vice president of retail lending at Caliber. , in an email, noting that products like unsecured apartment loans being offered through a new division, “Open the Doors to Home Ownership for Beginner Buyers.”

Lenders are likely to help with the unusually strong profitability they’ve seen from interest rate stimulus over the past year and a half.

“While margins are lower, they are incredibly broad compared to what they were in 2019,” Fannie Mae chief economist Doug Duncan said in an interview. “They’re still up where they were in the pre-pandemic period.”

With the difference between the interest rates lenders charge borrowers and the price they could get to sell their historically high loans, the mortgage outlook remains relatively strong, he said.

The primary and secondary difference was 127 basis points in the third quarter. That number is 13 basis points above the 2019 average, but is down from its peak of 174 in the third quarter of 2020, based on an analysis of data from the Mortgage Bankers Association, the Federal Reserve, Fannie Mae and Freddie Mac. At $2,594 per loan in Q3 2021, net production income Calculated by MBA Up from $2023 from previous financial period, but down from a peak of $5,535 a year ago.

While housing and profit margins can remain attractive historically, it is likely that many lenders will need to focus more on expense management. That was limited So far with higher rates.

“The competition will force lenders to create some efficiencies, or they will be in trouble from a net profit perspective,” Duncan said. “The trick is to invest in technology that turns fixed expenses into variable costs, so when volumes come down, they can adjust to the current level of activity.”

This will likely be addressed through increased use of automation, and How effective is the technology used to achieve this end? He said it still has to be seen.

“It’s an open question, and the pace at which interest rates change is going to affect that,” Duncan said.


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