The mortgage market is in transition; industry trends are not showing signs of recovery and volume is down 53.3% compared to 2022. Lenders focus should be on optimizing margins by using granular pricing strategies. Should interest rates start to drop again, recapture will present a sizable opportunity for mortgage servicing portfolio lenders, so they need have a clear retention strategy in place.
Mortgage Market Update
Rich Martin, director of real estate lending at Curinos, would describe the mortgage market as challenged given today’s environment. The industry is scrambling from a cost cutting or an expense standpoint right now and are volumes down across the marketplace. We are seeing traditionally independent mortgage banks pivoting to equity – something they have never done previously. We’re also seeing a little bit of credit availability open up, meaning people are going deeper into the buy box. There is potential for those that have strategic focus on what’s occurring based on their experience of what has happened in the industry previously – this is a very cyclical business – however, even seasoned leadership throughout the industry have not seen the rapid and exponential rise in interest rates that we are going through.
Origination Costs Are At An All-Time High. What Does That Mean For Lenders And Borrowers?
From the lender side of the equation profits are constrained, and from a cost perspective that means that where capital markets are at play, originations are at all-time high. If we look at the secondary markets where loans are sold, those execution levels are coming down from where they’ve been historically. Uncertainty across the market is having an impact on liquidity which is the lifeblood of the mortgage business. Competition is rife and everyone is fighting harder to get loans – it is a much smaller overall market for residential lending and price wars are continuing. What is unique about this cycle is that there is no long game for what we are currently experiencing, and we cannot be sure we can expect to see a significant refinance wave to ultimately get inflation to come down to the true fed target of 2%.
Fixed Rate Trends – 2022 Into 2023
- Unsecured Loan rates continue to remain steady at an average 7.6% in September
- Secured Loan rates flattened at 5.4% for the entire month of September
- Overall, fixed rates are 177 bps higher in September 2022 versus prior year and continue to see a rise each month since February of this year
Fixed Rate Over Time
Variable Rate Trends – 2022 Into 2023
- Unsecured variable rates had peaked at 11.32% in August and remained around 10.65% for the first part of September until a recent increase
- Average interest rates on Unsecured Lines of Credit are 212 bps higher in September 2022 than previous year
- Secured Lines of Credit rates increased 114 bps from August
Variable Rate Over Time
Given the current market conditions, we can expect the US mortgage market to remain stable for the foreseeable future. Interest rates are likely to remain near historic lows and lenders will continue to offer more flexible terms and conditions. This will help to ensure that more borrowers are able to qualify for mortgages, and that the US mortgage market remains strong.
How Are Fintechs Performing In The Mortgage Market?
Fintechs are creating healthy competition in the mortgage space to attract borrowers’ attention and custom. We are seeing several fintechs outperforming competition by offering better terms of services than traditional providers. It will be interesting to see how they capture market share in terms of not just going after rates but how quickly and easily they can make that journey to close for the customer over the coming 18-24 months.
Mortgage Market Landscape
Mortgage rates in the US have been on a steady downward trend since the start of 2021, with the average 30-year fixed mortgage rate dropping from 3.56% in January to the current rate of 3.24%. This is being driven by a combination of increasing consumer confidence and a stabilizing economy. Going forward, we can expect mortgage rates to remain low as the US economy continues to recover.
Mortgage Hot Topics By Curinos
According to Curinos, March 2023 funded mortgage volume decreased 53% YoY and increased 46% MoM. In the retail channel, funded volume was down 61% YoY and up 46% MoM. The average 30-year conforming retail funded rate in March was 6.36%, 19bps higher than February and 238bps higher than the same month last year. Purchase rates were 21bps higher MoM and 233bps higher YoY, while refinance rates were 12bps higher MoM and 250bps higher YoY. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures.
About LendersBenchmark Analyzer
LendersBenchmark Analyzer is a competitive intelligence solution that allows lenders to examine lending performance in near real time against a market consortium, delivering a scalable and dynamic framework to proactively manage revenue and optimize operational performance. With LendersBenchmark Analyzer you can expect:
- Granular coverage – the largest market consortium for mortgage and consumer lending with $2.2T volume tracked in real estate, 7MM total transactions
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- ROI Calculation – express monthly subscription cost as a % of monthly loan volume and, certainly, that cost will be <1 bp in execution
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