2020 = BEST YEAR EVER FOR MORTGAGE INDUSTRY
The mortgage industry had its best year ever last year (over $4 trillion of funded loans), as rates fell to all-time lows and both purchases and refis shot up to record levels.
Industry capacity could not come close to meeting demand, and lenders were able to charge much higher rates than they could have in a “normal” market.
As a result, almost every mortgage company had record profits and expanded rapidly to take advantage of the demand…which fell off a cliff when rates went up this year.
Last week, mortgage applications surged about 20%, year over year, in response to a dip in rates.
APPLICATIONS DOWN 30%; INSANE COMPETITION
But, despite that surge, the total number of mortgage applications is still almost 30% lower than the number we saw last year at this time.
What that means is that we are seeing insane competition right now.
Lenders that massively increased capacity are doing whatever they can to maintain enough volume to justify their expansions.
And worse, the many mortgage companies that went public (Guild, Finance of America, loanDepot, Rocket, etc.) are being pushed by Wall Street to maintain market share at all costs.
Mortgage lenders are hoping to hang on until the next refi boom comes – at which time they will need all of their excess capacity.
Or, they are hoping for a liquidity event (going public, buyout) based on their market share and business model (even if they are not profitable).
Lenders are fighting tooth and nail right now by improving systems, finding better tech, improving sales and marketing efforts, and cutting costs.
It is an enormous and frantic battle going on behind the scenes, made more interesting by the fact that most agents and borrowers are oblivious to it.
WHAT CRAZY COMPETITION MEANS FOR AGENTS, BORROWERS AND LENDERS
- Nordstrom AND Walmart. In April, I blogged about how consumers now demand both Walmart price levels and Nordstrom service levels. It used to be impossible for firms to offer both, but in markets like this every mortgage company will have to be both, benefitting borrowers greatly. Borrowers should only be careful to make sure promises of Nordstrom service are legit, or they could be stuck with late closings and blown transactions altogether.
- Rates Matter Again. Consumers can compare rates and lender reviews more easily than ever nowadays, and in slower mortgage markets like today’s, consumers shop for rates more than ever. We saw the same thing in 2018. The “premiums” lenders could charge in years past for being more reliable, closing on time and offering smoother borrower experiences are diminishing. Lenders, as mentioned above, have to offer it all, and this is why we are keeping our rates lower than ever while actually augmenting our already hyper-attentive service levels. We are using Virtual Assistants and new tech to cut our costs, so we can compete in this market, and it is working. In light of this rate awareness though, I think agents should be leery of referring clients to lenders with higher rates, but that’s just me. 😊
INFLATION, DEFLATION, AND THE NEXT REFI BOOM
I always find it humorous that the business models of most mortgage companies look like this: 1) Recruit commissioned loan officers. 2) Wait for rates to drop so a refi boom can start.
Most lenders don’t consider what might happen if rates don’t drop, or if home values decrease sharply.
When home values plummeted in 2008, for example, most refi opportunities disappeared for years and the mortgage industry was almost wiped out.
So will there be another refi boom with so much “inflation” looming? Very possibly, yes.
This is b/c continued inflation requires bank lending and money turning over in the economy.
But, b/c gov’t stimulus will end at some point, b/c banks are not lending money (here is a great video explaining this), and b/c consumers are saving more (instead of spending), money is not getting spent and/or turned over as much as the Fed hopes.
As a result, many macro pundits believe we are actually in a deflationary environment and that rates could in fact fall again within the next several months, despite all of the inflation concerns.
And I know a lot of mortgage company owners who are praying that this is true… 😊
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
