With interest rates reducing in the 2nd half of 2019, several mortgage lenders experienced improved profitability. The scenario for interest rates in 2020 is likely to be no different. Based on an analysis by Freddie Mac, Fannie Mae, and First American, we would continue to see mortgage rates staying low or going further lower. According to Freddie Mac’s recent report, the current mortgage rate at 3.75% is nearly 1% lower compared to the monthly average a year ago. This trend was a surprise to many and was quite contrary to the majority forecasts drawn in the early part of 2019.
The drop in the interest rates led to a surge in home buying, refinancing, and the overall housing sector got a boost. While that was a positive for the housing industry, continued low-interest rates in 2020 may not mean affordable home prices for consumers. The recent reports state that home prices might continue to climb upwards because of tight inventory and relatively high demand pertaining to low-interest rates. Arch MI suggests that home pricing growth may continue for the next two years, and the chances of declines are merely at 11%.
All of these forecasts suggest that we should expect to see home buying market bloom this year. However, mortgage lenders would face their set of challenges, including turn time, closing ratios and competition. Mortgage lenders who continue to adapt to the changing environment will thrive.
We jotted down three trends that will drive the year for the mortgage industry.
- FinTech or digitization of the mortgage products to grow
Mortgage lenders will most likely continue to invest in technology to deliver an enhanced consumer experience to their borrowers. While some lenders would prefer having the newer technologies implemented in-house, others would opt for mergers and acquisitions to keep up with the changing regulatory and technological requirements. More lenders will find ways to integrate technology into their mortgage processes to lower costs and streamline their operations.
There are plenty of technology solutions already existing in the industry today, such as e-signing, e-notary software, fully-digital mortgage applications, automated income verification, and more. In 2020, we would see them team up together to become more of a comprehensive solution for the lenders.
We are also likely to see companies such as Zillow, Quicken Loans, Opendoor, Redfin, and many other companies grow their market share. Their iBuyer experience business model is gaining popularity with their instant and digital approach to the real estate market. And many more companies in the mortgage and real-estate industry will add iBuying programs to their offerings.
The collaboration of technology and implementation of intelligence will be on the rise this year; we might also see some newer FinTech start-ups entering the market with some unique offerings for the mortgage industry. In this vastly changing technological landscape, mortgage lenders will be forced to adapt quickly to the environment.
- Millennials to continue their home buying sprint
According to data from Realtor.com, Millennials accounted for 46% of all mortgage originations in September 2019, as compared to 43%, one year prior. We will continue to see this trend as mortgage rates are expected to go lower, making monthly mortgage payments more manageable. There may not be enough inventory though, leading to home prices rising in 2020.
Based on a blog from ‘The Mortgage Reports’, homeownership is a top priority for nearly 72% of the millennials. That accounts for a vast number of groups wanting to buy a home in the next few years. This demand will play a significant role in determining how home prices are changing. It will also affect the loan volumes that mortgage lenders receive, and their ability to make profits.
While mortgage lenders can’t control the home-buying market, they can certainly fill the gaps in their operations to deliver faster, take on more loan volumes, and maintain profitability.
- Mortgage Brokers to grow their market share
The increasing competitiveness of the mortgage market is leading to a rise in mortgage brokers over the years. Consumers prefer mortgage brokers as they can shop around and understand the availability of mortgage rates from different lenders. Additionally, many times a broker can offer better rates than the actual lender. This trend is evident, as we see the same lender participating in many channels, but in most cases, brokers price their products better.
We will most likely see brokers picking up a larger market share in 2020 and promoting awareness about how it’s beneficial to use a broker. Some reports also state that a significant number of loan officers are migrating from distributed retail to the mortgage broker channel. Naturally, we might see mortgage brokers becoming one of the largest sellers of mortgage products for mortgage lenders.
Partner with Visionet – An end-to-end services provider for Mortgage
It will make sense for mortgage lenders to partner with a service provider who understands the home buying market well and is ready to offer end-to-end support in every scenario. Visionet is one such provider, who is always focused on its customers’ requirements to streamline their operations. That has helped our customers to deliver faster, take on more volumes, and maintain profitability.
Visionet offers a comprehensive suite of solutions to the mortgage and related industries. It is one of the very few end-to-end solution providers that provide BPM delivery, digital technology solutions, and IT services to the mortgage industry. The fully comprehensive range of technology-related offering includes business consulting, software products, administration, helpdesk, content migration, database management, and other technology services, and technology-driven business process outsourcing.
To know more about Visionet’s end to end solutions, write to us at firstname.lastname@example.org.
Thomas is a Real estate professional with over 25 years of experience in the mortgage banking and financial services sector specializing in client relationship management, business process management and digital technology sales within the mortgage originations and servicing space. He has additional experience in default mortgage servicing and commercial portfolio/asset management. He is a strategic thinker, the performance-driven leader with broad origination and servicing experience, excellent communication skills, and experience in strategic planning.