MReport May 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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24 | M R EP O RT FEATURE D uring the pandemic months, as interest rates dropped to record lows, the mortgage industry cashed in. The housing market boomed, and originators benefitted from a surge in demand from new homebuyers as well as a rush to refinance from homeowners wanting to lock in his- torically low rates. However, the housing market is moving into a new season, and its "winter months" are coming. While all focus is on the Federal Reserve's interest rate moves after its latest rate hike in March, one of the greatest impacts to mortgage rates is the Fed's drawback from the mortgage securities market. As the central bank provides less liquidity to the market, mortgage rates have quickly risen. Whether or not the Fed will continue this trend or reverse course to try to slow infla- tion will remain a guessing game for the remainder of the year. Heading into 2022, mortgage rates hovered near the 3% mark, according to data from Freddie Mac. However, as the first quarter drew to a close, rates were well above 4%, with some economists even beginning to question when they may breach the 5% mark. As rates rise, the demand from homebuyers and homeown- ers will continue to fall, leaving mortgage lenders to compete for the borrowers that remain, for top talent, and to find a way to build a more elastic infrastructure. The right technology and attention to quality will determine who comes out on top in that competition. Is the Housing Market Headed for Disaster? I nterest rates are rising, hovering near the 4.5% mark at the end of the first quarter of 2022, according to Freddie Mac data. Some econo- mists predict rates could rise as high as 5% by the end of the year. This is putting significant strain on the housing market when it comes to affordability, especially as home prices also continue rising. Home prices consistently rose near 20% year over year in the final months of 2021, and while this increase has slowed, the gains remain significant, accord- ing to the Home Price Index from CoreLogic. In fact, it predicts that by December 2022, home price gains could slow to just 3.5% an- nually. However, the COVID-19 pandemic presented unprecedented challenges, and not all economists agree on how much home prices will slow in the year ahead. For example, Ed Pinto, American Enterprise Institute's (AEI) Housing Center director, predicts the boom will continue, and home prices will decrease to 10% gains in 2022, staying in the double digits. As both home prices and inter- est rates rise, it could price many potential homebuyers out of the housing market. Inflation is also running at a 40- year high, according to the latest Consumer Price Index (CPI) data from the Bureau of Labor Statistics (BLS). This could also slow eco- nomic growth and make it harder for consumers to save for any sort of down payment to buy a new home. While the economy does not appear ready to crash like the housing crisis in 2008, mortgage lenders should certainly prepare for a significant drop in demand for originations in the year ahead. As mortgage demand drops, a focus on quality will become critical for mortgage lenders' lon- gevity. In fact, using technology to improve quality could even help lenders improve margins as they scale to the new level of demand. The key challenge is how to de- liver quality with increasing cost. Technology can deliver a cost- effective solution for more lenders to deliver better process outcomes. Today's market is seeing in- creased volatility due to inflation in the United States, geopolitical conflicts, emerging COVID-19 variants, and much more. When the market shows volatility, it is important for lenders to be ready for every direction it could take. Technology that produces high- quality mortgages will help them do that without the cost of adding new staff in today's difficult labor market or worrying about how to retain staff as demand drops back down. AI Solutions Deliver Both Quality and Cost Savings M any lenders may be hesitant to focus on quality because of the staff levels required to attain desired levels during the manufacturing process. Heading into a down market some may make the difficult choice to contain volume rather than risk a high payroll. However, a constructive outlook reveals that Autonomous Intelligence solu- tions such as Candor Technology's Loan Engineering System, combined with task automation and document indexing products, could cut a lender's costs while also managing quality control. This year, Freddie Mac has The Cost of Quality Here's why implementing the right mortgage tech could help mitigate the next housing crisis. By Sara Knochel

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