The leaves are falling, and so are mortgage volumes. The past two years have been kind to mortgage originators with record volume and profit levels. According to our Curinos proprietary data consortium (accounting for more than 60% of all retail originations), total lock volume in September represented the lowest level since May 2020 and eroded 12% month over month. At the same time, refinance volumes declined 14%.
All of this is occurring despite only a modest uptick in rates; the 30-year conforming rate moved up five bp to 3.05%. (See Figure 1.) Rates rose only modestly because we’re already starting to see lenders reduce margins to feed the manufacturing machine as primary and secondary spreads tightened by roughly 20 bp from August to September.
Most industry experts predict interest rates to increase and mortgage volumes to continue to erode as we head into next year. Most of this erosion will likely occur within the refinance space because the purchase market remains healthy.
This tightening marketplace reinforces the need to ruthlessly manage your firm’s pricing decision-making process in a timely manner in order to optimize the volume/margin trade-off. This process should include a thorough understanding of your firms’ margins at a loan level (revenue versus variable and fixed costs), operational capacity and external market dynamics in a timely manner (market opportunity, market share, competitive pricing, etc.). The entire process should leverage the best industry intelligence to inform your decisions.