This Month in Retail Banking
Nowhere is the mortgage shakeout more apparent than in the wave of mergers and acquisitions that have washed across the industry ever since interest rates started to rise. And that wave is occurring even though credit trends aren’t deteriorating significantly.
Courageous buyers view the upheaval as an opportunity to enter new markets and then cut costs from overlapping operations. As these are early days, it is unclear whether these classic strategies to grab market share will ultimately succeed. If economic conditions deteriorate and credit trends weaken, some lenders may experience buyer’s remorse.
What’s clear is that the industry’s trends aren’t showing any signs of recovery, with volume down 53.3% year over year. Market trends are showing lower weighted average FICOs (dropping from 760 to 745), higher LTVs (increasing from 72% to 81%). Both metrics are associated with a move away from the refinance boom and toward a stronger purchase market.
This means that buyers can’t rely on new geographies to guide them to better times. Instead, lenders will need to keep charging ahead with efforts to optimize margins by using granular pricing strategies. They also must have a clear retention strategy for their mortgage servicing portfolio because recapture will represent a significant opportunity when rates start to come back down.