The 2024 Mortgage Market Outlook: It’s Déjà Vu All Over Again
Next week’s US Mortgage Bankers Association (MBA) Annual Convention in Philadelphia (https://www.mba.org/conferences-and-education/annual-convention-expo) from October 15-18 finds industry participants at a strategic crossroads heading into 2024. Over 3,100 mortgage banking and technology professionals will meet to discuss the state of the industry, discuss product, distribution, and customer segment strategies, and shop for new technology solutions to help them succeed through the current downturn.
While attendance is down from 2022, the convention is as important as ever to help the industry plan and act during the current inflection point in the market. October is a critical decision period for lender planning, hiring, and technology investment heading into the new year, and beyond. Let’s look at where the industry has been recently, where it is at today, where it is heading in 2024, and how to plan for it.
What’s Past is Prologue
Since the 2022 convention in Nashville, average 30-year fixed rate mortgage increased to 7.0% during the third quarter, up from 5.7% from the year earlier quarter and 2.9% from Q3 2021 according to September MBA forecasts. Similar to 2022, the MBA again forecasts declining interesting rates throughout the coming year.
Lenders continue to pivot from two record high years of new lending volume to two years of record declines in lending volume since interest rates began increasing in March 2022. Most lenders reduced staffing in 2023, some more than others depending on their plans and lending outlook. Lending volume-and lender staffing-had to ramp down almost as quickly as they ramped up when rates plummeted. The main point is that interest rates are difficult to predict, and lenders need to plan for the worst as well as the best forecast of interest rates and lending volume.
The Role of Technology
If lenders can’t increase revenue by increasing market share or volume, they can increase it by increasing loan origination operating margins. Technology can’t fix everything, but it keeps loan origination costs from being higher than they otherwise would be, shortens processing time, and helps make better decisions. Declining volume has negatively impacted lender IT spending budgets, but not completely.
In Celent’s State of Digital Lending: Automation is Accelerating survey published in May 2023, we examined many areas of loan origination. In the loan closing technology area, survey participants indicated that digital loan document preparation is the first essential step and has the highest level of adoption (73%). The digital eClosing system (the portal through which lender and borrower meet to digitally authenticate the borrower and sign the documents) was also being used by 73%. Periods of stable lending volumes are opportune times to upgrade existing systems, add new ones, and work with vendors to utilize more functionality in existing systems.
Firms that are not yet Celent clients can download a complimentary copy of our survey report, courtesy of SimpleNexus, an nCino company, from their website here: Get report
MBA Convention Technology Themes
Lenders of course, need to continue focusing on technology that helps them capture purchase loan business. In addition, credit scoring and reporting innovation is a major theme. These tools help lenders make analytically superior loan decisioning and pricing decisions. Appraisal automation and eClosing systems are other areas of continued investment interest for lenders.
Artificial intelligence (AI) solutions continue to proliferate, and I believe that generative AI (GenAI) could be Time magazine’s 2023 Person of the Year. While there have been many major technology innovations since The Computer (Machine of the Year, 1982) won the award, GenAI could be as transformative as the computer itself. Most lenders are investigating, testing, and implementing GenAI, and the convention has many sessions on this topic. Applications include data and analytics to refine loan underwriting and pricing, and solutions that lower costs by improving workflow and reducing manual data entry.
In Philadelphia, my research agenda will focus on these and other topics. Also watch out for new product innovation for home equity loans/lines, customer retention, and cross-sell solutions to mortgage customers locked in with low interest rates.
Contact me at info@celent.com or cfocardi@celent.com if you would like to meet in Philadelphia. I look forward to seeing you there.
