Pennymac's 2025 correspondent outlook: cautious optimism

As we head into 2025, the outlook for correspondent lending remains cautiously optimistic, though challenges persist. While many hope the most turbulent market volatility is behind us, uncertainty remains — particularly around interest rates. The direction of the market in the year ahead will depend largely on where rates ultimately settle.

As we close out an election year, signals suggest that rates in 2025 will likely mirror those of 2024, with continued volatility shaping the market throughout the year. Market size may see modest growth, though various fluctuating factors could significantly influence the extent of that increase. Regardless, many companies have used the past few years to streamline operations and reduce costs, positioning themselves for growth when the cycle shifts. As 2025 approaches, some lenders are already scaling operations, hiring talent, and preparing for the next cycle, despite ongoing market uncertainty.

Three key operational focus areas for 2025

As correspondent lenders look to the future of an uncertain environment with some optimism on the horizon, they should focus on three key areas: 

Scalability:

If and when the market fully stabilizes, lenders will need to effectively scale to capture opportunities from any refinancing "boomlets" that may emerge. Technology and offshore labor are key considerations for scaling efficiently, but lenders must ensure that they are prepared to manage these changes without compromising service quality or operational integrity.

Manufacturing Quality:

As volume increases, maintaining high-quality loan production will require a careful balance. It is imperative that lenders remain diligent in times of growth. Ensuring that loans are defect-free and compliant will be a key driver of long-term profitability and risk mitigation. 

Technology:

Going forward, technology will play an increasingly important role in reducing costs, improving efficiencies, and enhancing the customer experience. It will be important for all origination systems to evolve their capabilities to execute on these key metrics.  

While AI and automation can be game changers, technology must be vetted thoroughly to ensure it integrates seamlessly into existing processes and enhances efficiencies. There are numerous tech vendors and solutions available in the market today, with new ones emerging almost daily. The challenge for correspondent lenders will be ensuring that these providers can truly deliver on their promises of reduced costs and process improvements.

Strategies for long-term success amid evolving servicing valuations

The volatile landscape of servicing valuations and the changing strategies of servicers will continue to have significant implications through 2025. When selling servicing, lenders must carefully consider the downstream impact of that transaction, particularly as it relates to borrower experience and long-term servicing relationships. 

Correspondent lenders should have a comprehensive understanding of their servicing investor partners' strategies -- and how these strategies affect their borrowers' experience.

Be prepared for market volatility

While volatility is expected to continue in 2025, correspondents should be ready with a plan. First, determine what that plan looks like for you. Some might want to remain lean and protect their P&L, while others may want to carry additional staff to take advantage of any refinance boomlets created by that volatility.  

Affordability is likely to remain a challenge next year, with housing supply and insurance costs continuing to put pressure on the market. The purchase market will likely dominate, while refinancing activity may be more muted. Nonetheless, for borrowers who purchased during the higher-rate environment of the past few years, 2025 will bring opportunities for refinancing.

The role of correspondents in a competitive market

As competition intensifies, correspondent lenders must find ways to protect and add value to their relationships with top loan officers (LOs). The battle for talent is fierce. To stay competitive, correspondent lenders must support their LOs with the right tools, marketing resources, and a borrower-first approach to maintain loyalty and drive success.

Ultimately, the key to thriving in 2025 will be adaptability. The correspondent lending space has experienced a challenging couple of years, but with careful planning, a focus on scalability, quality, technology, and a strategic approach to managing servicing rights, lenders can position themselves for success in a still-volatile market. As the industry looks to the future, one thing is clear: the opportunities are there for those who are prepared to seize them.