Year in Review: The biggest mortgage industry themes of 2021

December 29, 2021 9:11 AM

The past year was noteworthy for many reasons — and within the mortgage industry, some might even argue that 2021 was even more momentous than the 12 months preceding it. What all can agree on, though, is that the ongoing pandemic continued to reshape the lending landscape. As 2022 approaches, we look back on a few of this year’s running themes.

Another month, another record broken — but affordability suffers as a result

As the country recovered from the economic effects of the coronavirus pandemic, each new month or quarter seemed to bring a report of a new record broken — most notably in home prices, annual appreciation and overall inflation. Not only did

housing costs

and purchase demand skyrocket to new highs, the industry also witnessed records broken among

cash-out refinances

bidding wars

, home equity, interest rates and

all-cash offers

.

Record home prices received the lion’s share of attention, and while the upswing in property values was good news for sellers and homeowners, it spelled

trouble for buyers

, particularly those looking for starter homes. The

downturn in affordability

left many hopeful buyers on the outside looking in, and has turned into a situation that actively needs to be addressed in the coming year, said Jeff Taylor, managing partner at mortgage processor and risk compliance consulting firm MPhasis Digital Risk and a chairman of the Mortgage Bankers Association Political Action Committee.

“If you're looking at people needing affordable housing and getting their start as a home buyer, their salaries may increase 3% annually, and the bottom of home price appreciation is 5%,” Taylor said. “That's just an issue we're still trying to solve.”

The other shoe never dropped

With mortgage originations finishing 2020 strongly amid a global pandemic, many in the mortgage industry braced themselves for

a largely anticipated slowdown in 2021

. But among some lenders, it didn’t happen.

“We're just continually shocked and surprised that trends that started in ’20 lasted all through ‘21,” said Brian Koss, executive vice president at Mortgage Network, which has offices throughout the East Coast. While the pace has become “less frantic,” interest among home buyers from across age demographics has continued, with multiple generations sometimes bidding on the same house.

“We had really come in at the beginning of the year believing in a lot of the forecasts that we were going to hit some big headwinds,” echoed Paul Buege, president and chief operating officer of Inlanta Mortgage, the majority of whose business is concentrated in the Midwest and south-central U.S.

“We just didn't know how bad the storm was going to be by summer, early fall for us. It was a great surprise that what we found out was that the market was very, very strong. We set some new historical records this year.”

COVID's continued impact shakes up key decisionmaking

While the year began with promising news of a vaccine rollout, limited uptake and the emergence of two new variants meant COVID-19 still played a huge factor in industry decision-making. One lender began

offering discounts

on closing costs to borrowers with proof of vaccination. In the latter weeks of the year, lenders pondered over

the impact of the omicron variant

on the direction rates. In the summer, the delta variant forced banks to

revisit their return-to-work plans

, while Rocket Mortgage instituted a testing requirement for its unvaccinated staff.

But just as COVID brought about the quick adoption of new work-from-home policies in 2020 with many employers, further guidance this past year has also removed some of the uncertainty among their staff, who can now make choices regarding possible relocation, benefiting lenders.

“More businesses are saying you may not have to go back to work indefinitely, or it will be a hybrid situation, and therefore, that kind of clarity has really helped people making that decision,” Koss said.

To Koss’s surprise, it has not been a one-way exodus from the North toward sunnier, Southern climes either, as some predicted. “They may have left the city and gone farther out,” he said. “But it's still surprisingly well balanced.”

Technology now plays an even greater role in customer service

As COVID changed how offices operate, mortgage companies are still learning to adapt, trying to combine the technology needed for a largely remote workforce with the ability to provide personalized interactions that home buying and lending demands. With more software solutions now available, the current environment presents opportunities for mortgage companies wishing to upgrade their digital capabilities, a trend technology developers may want to heed.

“There's never been a richer environment where you can go shopping for technology partners and data providers,” Buege said, also adding that consumers are behind the push for enhanced digital tools.

“They can access us digitally if they want to. They mostly still want to talk to us. So it's this combination of the need to talk to an expert, but then having to do business electronically, digitally. Consumers really love it, and we like it because you can be more efficient.”

Rates stayed low — refinances boomed again

The 30-year fixed-rate started 2021 at a record low — 2.65% based on Freddie Mac’s weekly survey. With the U.S. economy picking up more rapidly than many expected, annual inflation increased at a record pace in the summer and fall, leading many economists to look to the central bank for moves that might lead mortgage rates upward. But Fed Chairman Jerome Powell spent much of the summer reiterating that the pace of inflation was transitory, shooting down talk of policy moves that could cause an upward spike — namely the tapering of bond purchases and a hike in the federal funds rate.

Although mortgage rates would not approach the early January record again, they stayed relatively low throughout the year, rising above 3% for several weeks in the spring before settling under that mark for most of the spring and summer — “moving sideways,” as Sam Khater, Freddie Mac’s chief economist, noted. Investors for the most part appeared to shrug off both good and bad economic data and fluctuating COVID cases.

Stable low rates led to a continued boom in

refinances

, which are expected to account for

59% of 2021 originations

, according to the Mortgage Bankers Association. The MBA also expects the value of purchase originations to set a record this year.

By the end of the year, “transitory” had disappeared from Powell’s description of inflation, with the Fed unveiling a taper plan,

later accelerated

, as well as signaling three potential rate hikes in 2022. In November and December the average 30-year fixed rate stood near

3.1% for several weeks

, falling in between

predictions made by the MBA and Fannie Mae

a year ago before 2021’s trends emerged.