Current market presenting plenty of issues
Declining purchase volume and surging interest rates have helped pour cold water over the US mortgage market during the past two years – and margin compression is also proving a significant hurdle for loan officers in the current climate.
Danny Meier (pictured), of Academy Mortgage, recently acquired by Guild Mortgage, told Mortgage Professional America that lenders in the present market were grappling with the challenge of keeping business coming in with prospective clients doing more legwork than ever before making a decision.
“There’s still a significant amount of margin compression, so it’s really hard to be profitable in mortgage right now,” he said. “The buyers’ mentality hasn’t changed from last year. They still want the best rates. They’re still shopping like crazy.
“It’s just something that you have to deal with. The margin on a loan has come down about 200 basis points over the course of the year – that’s hard for companies to withstand, and it’s hard for them to be profitable, and it’s hard to win a lot of business on price as a loan officer.”
A likely byproduct of that trend is a lower number of loan officers across the US by the end of 2024 compared with the current figure, Meier said, with mergers and acquisitions also set to spike as margins remain thin.
“It’s hard as a branch to make a profit [and] it’s even harder as a company to make a profit,” he said. “When you squeeze the industry 200 basis points on margin in the course of the year with fewer mortgages on top of it – it’s not like fixed expenses for a company just go away. So corporate cost structure has gotten really expensive.”
Mark Fleming of First American Financial Corporation anticipates gradual improvement in the housing market but cautions that even with potential rate cuts, the increase in activity may be only slight. https://t.co/3muNfcrK7t#mortgagenews #housingmarket #interestrates
— Mortgage Professional America Magazine (@MPAMagazineUS) February 21, 2024
Is the number of loan officers in the US set to plummet?
What could change that uncertain outlook for 2024? Meier said it would take either rates coming down and more buyers entering the market, or an uptick in refinances, for bright spots to emerge.
Still, the most plausible outcome at present seems to be a thinning out in the loan officer field. “What’s probably more likely at this point is that there’s just fewer of us by the end of the year,” he said. “The pie is getting sliced too many ways right now, and it’s got to get smaller. So I think that’s probably, unfortunately, the most likely outcome.”
Optimism in the field had been based on the assumption that interest rates would eventually tick downwards this year – but they’ve remained resolutely high, increasing for a third straight week last week and with persistent inflation and a robust economy seeing many market observers push back their expected timeline for Federal Reserve rate cuts.
“In the middle of last year, we were all thinking, ‘Oh, we’ll see rates down in the fives by sometime in 2024,’” Meier said. “They don’t have to. Rates can do what they want. They do what they end up doing. So if that doesn’t happen, then you’re going to continue to see consolidation and people simply leaving the mortgage business.”
Buyers remain optimistic despite still-high interest rates
Still, one positive in the opening months of the year has been that the housing market is off to a “pretty good start” despite remaining subdued in comparison with the heights it reached during the COVID-19 pandemic.
“It’s all relative compared to last year,” Meier said. “We’re still dealing with a lot of the same problems that were existing for 2023 – higher rates, lower inventory, can’t get buyers off the fence to make decisions. Sellers aren’t really coming out in droves.
“The difference that I’m seeing, though, is we’re back in a multiple-offer environment in a lot of places. So that’s been a good, healthy sign that buyers have gotten used to these elevated rates. It felt for a moment if rates dropped a half percent, you get really busy. If they went back up a half percent, the tap shut off completely.”
Even when rates jumped above the 7% mark in recent weeks, Meier added, consumer confidence and homebuying interest remained strong – a “positive” sign for the market. Still, that’s not to say a pronounced pickup will take effect throughout the year.
“I don’t believe that there’s going to be some magic sauce that comes in and changes things dramatically,” he said. “I think that rates are going to be a little higher than people expect for a while. It’s going to be tough to get to a point where it’s going to make any significant impact on pipelines with a flood of refinances. You’ll probably get a few here and there.”
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