Challenging times ahead are likely to lead to increased consolidation in the mortgage industry as origination volumes and profitability are pressured
Challenging times ahead are likely to lead to increased consolidation in the mortgage industry as origination volumes and profitability are pressured.
That’s one of the findings of a new report from the Urban Institute which considers the effects of rising interest rates on the mortgage industry and identifies some key challenges.
It highlights that mortgage originations are predicted to fall due to a lower percentage of homes being financeable.
The study says that the Mortgage Bankers Association, Freddie Mac and Fannie Mae are all forecasting a decline in dollar volume of mortgage originations from 48% in 2016 to 25% in 2018.
That drop will likely see profitability of home loans fall and cites the Federal Reserve Bank of New York’s measure of originator profitability and unmeasured costs which shows a decline from a peak $5 per $100 loan in 2012 to $2.39 in June 2017.
This lower profitability for the industry is set to drive further consolidation in the mortgage industry.
The Urban Institute’s report also expects a slowing of prepayment activity as interest rates rise, exacerbated by borrowers staying in their homes longer and a decline in US housing mobility.
Another factor that the reports suggests will hamper the sector is further rises in house prices as the economy continues to improve, as evidenced by the interest rate increases.
This will have an effect on the repeat homebuyer market and will see more existing owners remaining in their current homes and locking in rates.
The report also expects cash-out refinancing to increase and a return of the second-lien mortgage market:
“If rates rise another 200 bps, credit card debt looks more appealing, but credit card debt is expensive. We would expect to see the emergence of a second-lien market, with rates higher than for first-lien mortgages but below the rate for credit card debt.”
The full report is available here.
That’s one of the findings of a new report from the Urban Institute which considers the effects of rising interest rates on the mortgage industry and identifies some key challenges.
It highlights that mortgage originations are predicted to fall due to a lower percentage of homes being financeable.
The study says that the Mortgage Bankers Association, Freddie Mac and Fannie Mae are all forecasting a decline in dollar volume of mortgage originations from 48% in 2016 to 25% in 2018.
That drop will likely see profitability of home loans fall and cites the Federal Reserve Bank of New York’s measure of originator profitability and unmeasured costs which shows a decline from a peak $5 per $100 loan in 2012 to $2.39 in June 2017.
This lower profitability for the industry is set to drive further consolidation in the mortgage industry.
The Urban Institute’s report also expects a slowing of prepayment activity as interest rates rise, exacerbated by borrowers staying in their homes longer and a decline in US housing mobility.
Another factor that the reports suggests will hamper the sector is further rises in house prices as the economy continues to improve, as evidenced by the interest rate increases.
This will have an effect on the repeat homebuyer market and will see more existing owners remaining in their current homes and locking in rates.
The report also expects cash-out refinancing to increase and a return of the second-lien mortgage market:
“If rates rise another 200 bps, credit card debt looks more appealing, but credit card debt is expensive. We would expect to see the emergence of a second-lien market, with rates higher than for first-lien mortgages but below the rate for credit card debt.”
The full report is available here.
