August 5, 2021

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Mortgage News

Refi slowdown means no more ‘lazy mode’ for mortgage lenders

Banks with large mortgage lending businesses will face challenges later this year, and many will need to be more aggressive and adapt their business models to be competitive.

Preparing for a slowdown in overall activity, the Mortgage Bankers Association predicts that volume could drop 47% year over year to $ 1.2 trillion in the second half of 2021. Refinancing volume is projected to decrease 77% to $ 340 billion as interest rates rise.

A sharp drop in refis will put more pressure on bankers to fight home-tied mortgages, with volumes remaining relatively stable as interest rates rise. This will increase competition between mortgage lenders, forcing many to focus more on marketing, real estate professional relationships, and customer service to increase volume.

“Competition will intensify – we’re already seeing that,” said Chris Nichols, South State strategist and head of capital markets with $ 37.8 billion in Winter Haven, Florida.

“If it was just about refis, banks may have gotten a little fat and lazy and made calls,” added Nichols. “Now we have to be even better bankers. We need to spend more on marketing, more publicity, be more active salespeople – we need to get out there and make connections and win business. “

Several other factors will affect the dynamics of the mortgage market, including changes in interest rates, the effectiveness of vaccines and an acceleration in housing construction activity, industry observers said.

“I think we’ll get answers in the spring and summer,” said Stephen Scouten, analyst at Piper Sandler. “I think it’s pretty clear that Refi is going to be a lot slower, but there is room for buying activity as we get out of the pandemic.”

Long-term interest rates have risen nearly 20% this year, which is limiting refinancing. But interest rates remain historically low, and bankers said home demand is starting to pick up as the spring weather sets in.

Certain markets such as South Florida have remained buoyant for mortgage lending.

“Demand remains very high right now,” said Jorge Gonzalez, vice chairman and CEO of the City National Bank of Florida, with $ 18 billion in assets. “The prices are still so low. I think the market can “absorb more rate hikes” because they hit such a low point. “

“Prices have gone up, but I think there are a lot of buyers out there who want to take action now before prices go really higher,” said Nichols.

While some lenders could get aggressive with prices or terms, most still remember how this played out during the 2008 financial crisis, according to Nichols. At the same time, the lenders continue to monitor an estimate 2.7 million mortgages left in indulgence.

“Credit quality is paramount,” said Nichols. “I think the banks will remain pretty disciplined. … We have to compete by working harder. “

The buying market is slowly warming, which should help the mortgage-dependent banks to gain momentum in the coming months.

Homeownership applications were up 3% last week from the week before and 26% higher than in 2020, according to the Mortgage Bankers Association. The increase was “due to both households looking for more housing and more.” to younger households looking for home ownership, “said Joel Kan, MBA economist.

Kan said the demand for home purchases continues to improve Coronavirus vaccinations roll out and an end to the pandemic comes in sight. Builders and real estate agents expect interest to accelerate Pandemic is fadingThe weather is improving and the economy is back on track.

“I still expect sales this year to be higher than last year. With more COVID-19 vaccinations distributed and available to larger populations, the nation is on the verge of a return to a sense of normalcy.” said Lawrence Yun, chief economist at the National Association of Realtors.

While bankers are optimistic about the next few months, they hesitate to forecast what the market will look like through 2022.

“In the longer term, it will be very difficult to predict,” said Nichols. “Will interest rates rise to the point where buyers clump? Will the economy hold up? At some point anyone can guess. “