As lenders look ahead to a new year and a new administration, they offer insights into what lies ahead for nonbank lenders and servicers.
2021 predictions for mortgage lending
November 30, 2020 4:23 PM
Fannie Mae predicts 30-year FMR will stay between 2.8% and 2.9% through 2022
Fannie Mae predicts average rates for the 30-year fixed loan will remain at 2.8% through 2021 and only rise to 2.9% for 2022.
The GSE's November forecast calls for $4.12 trillion in mortgage originations this year,up from $4.08 trillion in the October outlook. For 2021, the latest projections call for $2.72 trillion in volume, up from the $2.62 trillion that Fannie Mae Chief Economist Doug Duncan last predicted.
Total home sales will increase 5.7% this year over 2019, to 6.37 million units on a seasonally adjusted annual rate basis, Fannie Mae said. That will be driven by a 21.5% increase innew-home sales. Existing-home sales will be up 3.6% on a year-over-year basis.
While total home sales are expected to increase by 0.8% next year, new-home sales will be up by 6.2% whileexisting-home sales should remain flat in Fannie Mae's forecast.
The GSE's November forecast calls for $4.12 trillion in mortgage originations this year,
Total home sales will increase 5.7% this year over 2019, to 6.37 million units on a seasonally adjusted annual rate basis, Fannie Mae said. That will be driven by a 21.5% increase in
While total home sales are expected to increase by 0.8% next year, new-home sales will be up by 6.2% while
The MBA, however, projects rates will rise to 3.3% in 2021 and to 3.6% in 2022
The MBA is more conservative than Fannie Mae, predicting the 30-year FRM will go from 2.9% in the current quarter to 3.3% one year from now and to 3.6% by the end of 2022. However, the MBA's chief economist, Mike Fratantoni, recently said he expects rates to go even higher if both Senate seats in Georgia flip to the Democrats after January's runoff election.
In November, Fratantoni raised his projections for 2020 to $3.39 trillion from October's $3.18 trillion. Next year, he projects $2.56 trillion, compared with $2.49 trillion one month prior.
The forecasts for 2022 and 2023 were also raised to $2.2 trillion and $2.17 trillion, respectively.
While Fratantoni's total forecast remains conservative compared with Duncan's, he also boosted his prior prediction forrecord purchase activity over the next three years. The MBA expects 2020 to end with $1.42 trillion in purchase volume. That will increase to $1.59 trillion next year, then to $1.63 trillion in 2022 and $1.65 trillion in 2023.
In November, Fratantoni raised his projections for 2020 to $3.39 trillion from October's $3.18 trillion. Next year, he projects $2.56 trillion, compared with $2.49 trillion one month prior.
The forecasts for 2022 and 2023 were also raised to $2.2 trillion and $2.17 trillion, respectively.
While Fratantoni's total forecast remains conservative compared with Duncan's, he also boosted his prior prediction for
Staffing will continue to be a point of concern
Staffing issues will continue to be important to lenders but the specific concerns will depend on broad market conditions. If rates remain low, recruitment and retaining staff will be at top of mind for lenders, according to Jim Cameron, a senior partner at Stratmor Group. However, if rates do rise substantially and the hot streak of refinancing ends, we can expect companies who staffed up in 2020 to begin reducing staff.
A rise in early payment defaults could continue through 2021
The Federal Housing Administration's temporary waiver of its required monthly early payment default quality control reviews could result in some trouble in 2021, according to Trevor Gauthier, the CEO of Aces Quality Management.
Through July, Aces software tracked a 75% uptick in early payment defaults, from the average monthly rate of these reviews for 2019, the company noted in a September report. That rate continued to grow through the third quarter, he added.
Through July, Aces software tracked a 75% uptick in early payment defaults, from the average monthly rate of these reviews for 2019, the company noted in a September report. That rate continued to grow through the third quarter, he added.
Mortgage defects are likely to increase
If interest rates rise and refinancing activity consequently dies down, the ratio of purchase loans will grow. Given the increased opportunity to introduce defects in purchase loans, the amount of those defected mortgages in the market could increase,
“Purchase is that much more complex [than refi] and in addition to that, you’ve got a number of things from an operational perspective that are new to the process, whether that be COVID-related or agency and state requirements, which have been changing regularly,” Gauthier said.
“You’ve got reverification turnarounds that are superfast, and you’ve got a lot of potential for human error,” Gauthier added. “Not to mention the different processes to handle these purchases because they are at home, with your processor, underwriter and closer handling different bits of that process.”
“Purchase is that much more complex [than refi] and in addition to that, you’ve got a number of things from an operational perspective that are new to the process, whether that be COVID-related or agency and state requirements, which have been changing regularly,” Gauthier said.
“You’ve got reverification turnarounds that are superfast, and you’ve got a lot of potential for human error,” Gauthier added. “Not to mention the different processes to handle these purchases because they are at home, with your processor, underwriter and closer handling different bits of that process.”
Investors may return to the secondary market
While the onset of the pandemic caused most investors to temporarily abandon the secondary market, a few notable developments over the past several months have made industry watchers hopeful about a revival.
“From my talks with account executives at the larger aggregators, I sense folks have been coming back,” said Brian Gilpin, senior vice president, treasurer and head of capital markets at Embrace Home Loans.
However, given how hard the private-labelmortgage-backed securities market was hit at the onset of the pandemic, there is little expectation that the market will grow by much in the next year.
“The private label MBS market is not currently viewed as likely to be more robust than it is today,” said Tim Rood, head of government and industry relations at SitusAMC.
“From my talks with account executives at the larger aggregators, I sense folks have been coming back,” said Brian Gilpin, senior vice president, treasurer and head of capital markets at Embrace Home Loans.
However, given how hard the private-label
“The private label MBS market is not currently viewed as likely to be more robust than it is today,” said Tim Rood, head of government and industry relations at SitusAMC.
With so many unknowns ahead, mortgage servicing rights values could suffer
If low rates continue into 2021, the value of mortgage servicing rights could remain depressed due to prepayments that erode their value. Persistent economic distress could lead to other servicing market challenge. For example, it's unclear how many loans currently in forbearance will ultimately enter the foreclosure process.
Because government-related secondary market agencies dominate the market currently, they may play a key role in setting policy standards in servicing as the pandemic continues.
Because government-related secondary market agencies dominate the market currently, they may play a key role in setting policy standards in servicing as the pandemic continues.
Hybrid mortgage closings could increase as much as 30%
With social distancing measures neccessitating a change in how closings are conducted, much of the mortgage industry has gotten up to speed with the technology that facilitates those deals. And experts expect those hybrid closings to continue increasing in 2021.
"I expect at least 30% of all U.S. closings in 2021 to be hybrid in nature, driving massive efficiency across the board and creating a much improved borrower experience," said Aaron King, CEO of Snapdocs. "On the other hand, the lack of standardization means RON will continue on its 20-year voyage of still not making into the mainstream."
"I expect at least 30% of all U.S. closings in 2021 to be hybrid in nature, driving massive efficiency across the board and creating a much improved borrower experience," said Aaron King, CEO of Snapdocs. "On the other hand, the lack of standardization means RON will continue on its 20-year voyage of still not making into the mainstream."
If rates increase, industry consolidation will come next
A potential decline in origination volumes and continued lockdowns could place too much of a strain on smaller lenders, particularly if they haven't updated their technologies to handle remote closings, or AI-enhanced servicing.
"2021 is going to separate the wheat from the chaff when it comes to those who claim they're building tech-enabled companies and those who actually are," said Karl Jacob, CEO of LoanSnap. "You just can't hire your way out of the mess a lot of these mortgage companies got themselves into. Given interest rates are going to stay low, I worry 2021 is going to be this reckoning around companies that can actually thrive in an environment where volume continues to stay extremely high."
"2021 is going to separate the wheat from the chaff when it comes to those who claim they're building tech-enabled companies and those who actually are," said Karl Jacob, CEO of LoanSnap. "You just can't hire your way out of the mess a lot of these mortgage companies got themselves into. Given interest rates are going to stay low, I worry 2021 is going to be this reckoning around companies that can actually thrive in an environment where volume continues to stay extremely high."
The incoming Biden administration may backburner the GSEs' exit from conservatorship
While some experts like Robert Broeksmit, president and CEO of the Mortgage Bankers Association, believe the president-elect could continue the process of allowing the GSEs to exit conservatorship, others feel he will refocus the efforts of the FHFA.
“FHFA is driving the ship of housing finance at breakneck speed in one direction, and that is not the direction the Biden administration is going to want them to be heading in ,” said Jim Parrott, the owner of Parrott Ryan Advisors and a former Obama administration official. “The question is, how and who turns the ship?”
“FHFA is driving the ship of housing finance at breakneck speed in one direction, and that is
