MReport January 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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22 | M R EP O RT FEATURE B y all appearances, 2022 could be another banner year for the mortgage industry, particularly for purchase mortgages. Employment is rising as the U.S. economy continues to rebound from the grips of the COVID- 19 pandemic. Demand for housing remains strong and purchase loan originations could even reach record levels. Meanwhile, innovation within the mortgage industry is at a peak and lenders are adopting digital processes at an unprecedented pace. Amid this optimism, however, some lenders face a number of choices in the coming year, given current market conditions and consumer trends. One of those choices will be deciding whether to maintain old business practices that may have worked before the COVID-19 pandemic or to rec- ognize new borrower preferences, untether themselves from legacy technologies, and do business faster, remotely, and more conve- niently with the digital processes available today. A Transitioning Market T here are plenty of reasons to feel good about this year's housing market, but many unknowns remain. For example, markets continue to struggle with inventory shortages based on issues left over from the pandemic, as well as labor short- ages, supply chain issues, lumber shortages, and the rising costs of building materials in general. The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) found that builder confi- dence is rising in spite of supply chain issues, but that builders themselves are worried about buyer affordability, especially with interest rates set to rise in the near future. With that in mind, hous- ing prices should continue to rise—perhaps not at the pace we've seen in the past couple of years, but enough to entice more consumers into becoming homeowners and enable current owners to leverage home equity for major expenses, which will boost economic growth. Despite an outlook for rising mortgage rates, any rate increase should not be significant since employment levels still lag enough to draw concern. However, rising rates will likely lead to the mortgage industry flipping back to a more purchase-driven market in the years ahead. In October, the Mortgage Bankers Association projected purchase loan volume will increase 9% in 2022 to a total of $1.73 trillion, which would be a new record. Yet originators' prof- its will be muted somewhat as refinance volume is expected to drop by 62% and the total number of originations will decline by 33%, which will fuel rampant competi- tion between lenders. This year's market challenges will likely drive a large uptick in non-QM and nonagency mort- gages to accommodate borrowers who don't fit traditional products. Earlier this year, S&P Global esti- mated the non-QM market would reach a record $25 billion by the end of the year, while Angel Oak Mortgage Solutions, one of the largest providers of non-QM loans, expects the market to soon reach $200 to $300 billion annually. As the number of loan options increases, lenders will need to exercise greater flexibility in underwriting strategies and due diligence in the year ahead. Already, many lenders are using alternative forms of income and asset verifications with new au- tomated technologies. These tools will continue to help originators meet demand for the growing number of self-employed work- ers, who currently account for slightly more than 10% of the U.S. workforce. How Lenders Have Performed W ith the exception of forward-thinking organi- zations, most lenders maintained traditional operations at the start of the COVID-19 pandemic and had trouble transitioning to remote processes. Many lenders that adopted digital mortgage processes during the past 18 months did so not necessar- As Market Evolves, 2022 Could Be a Tale of Two Lenders In the new year, lenders must decide whether to maintain old business practices or to embrace change. By Joey McDuffee

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