不安定な市場において住宅ローンの機会を見つける：融資を増加するポータブルモーゲージなどの商品イノベーション

Many homeowners who’d like to move are staying put because they have an attractive mortgage rate that they don’t want to give up; a portable mortgage would solve this problem. A portable mortgage–one associated with the borrower, not the property–would enable homeowners to move house and keep their low-rate mortgage. This would stimulate real estate sales and mortgage transactions. It’s time for lenders to think about developing this product in addition to the other product innovations introduced recently in the new, high-rate mortgage market.

Market volatility (caused by inflation, interest rates) has driven down lending markets, fintech vendor valuations, and financial institution expectations for revenue/profit growth. Loan and deposit accounts are being repriced and asset valuations are going up or down depending on their relationship to interest rates. For the retail consumer, low interest rates helped them buy homes but now that situation is reversed. Mortgage lending markets are down significantly and could be locked up for a year or two because first-time home buyers can’t afford a mortgage at higher rates and existing homeowners don’t want to move house and lose their existing low-rate mortgages.

This blog examines how lenders are adjusting or could adjust to mortgage lending markets in Canada, the UK, and US in terms of mortgage product design and technology innovation to increase mortgage lending as the overall market continues to struggle with high home prices, lower affordability, and homeowners locked into existing mortgages.

Mortgage Market Challenges

After 3 years of declining loan rates and record new loan volume, rising inflation caused central banks to raise benchmark interest rates. Mortgage interest rates also rose significantly, and almost overnight, mortgage lending demand declined, home price growth slowed, and prospective home buyers were hurt by the double whammy of significantly higher borrowing costs and record high home prices. Mortgage lenders began laying off staff in 2022 and again in 2023.

The only happy segment of the mortgage market is existing homeowners who had purchased or refinanced their homes at record low interest rates and have no interest in moving house in the near future. Most have fixed rate mortgages with fixed loan payments. However, not all existing homeowners are happy:

• Some homeowners have adjustable-rate mortgages and will experience rising interest rates and mortgage payments.
• Homeowners who want to sell their current home and buy a different one are faced with a higher interest rate and mortgage payment on the new property. This is a disincentive for homeowners to move and reduces the supply of homes for sale to first-time home buyers and others.

Mortgage Market Funding and Product Design Varies by Country

The current market situation has kindled interest in niche mortgage products including home equity loans (HELs) and lines of credit (HELOCs), portable mortgages, buydown mortgages, adjustable-rate mortgages, and other niche products. These mortgage types have different levels of availability in Canada, the UK, and the US. Celent finds that the availability of–and demand for–niche mortgage product types is highly dependent on the structure of country lending markets, product types, and types of permanent loan funding (securitization versus portfolio lending) available. Figure 1 summarizes the mortgage product characteristics and funding options in Canada, the UK, and US.

Figure 1: Shorter Term Mortgages Typical in Canada and UK; Long-Term Mortgages in the US

Source: Celent, Canadian Mortgage and Housing Corporation, UK Finance

Canada and the UK have shorter term mortgages than the U.S. This means they get remortgaged more often and are easier to remortgage when rates are declining. However, many mortgage products have prepayment penalties which create a disincentive to remortgage and it is harder for consumers to lock in a low rate long term when rates are increasing. In contrast with Canada and the UK, most mortgages originated in the US are 30-year, fixed-rate mortgages that don’t have prepayment penalties. It is easier to refinance when rates decline and mortgagors can lock in low interest rates long term before rates increase.

The second insight is that mortgage product design features are often determined by how lenders fund the mortgage. Lenders have more flexibility in product design if they keep the loan on balance sheet, which is more often the case in Canada and the UK. If lenders securitize the mortgage, then the product must meet design criteria acceptable to the mortgage-backed security (MBS) investor in the mortgage capital markets.

All Markets Can Innovate Their Products to Help Fill the Mortgage Revenue Gap

These country market characteristics create product differences. For example, Canada and the UK have portable mortgages while the US does not. Why?

• The portability feature is attractive to mortgagors; it’s also attractive to the lender that typically keeps the mortgage in its loan portfolio, wants to retain the mortgagor, and cross-sell the mortgagor other banking products.
• A portable mortgage lets a mortgagor transfer the existing interest rate and terms to a new home.
• Unlike a traditional mortgage, the portable mortgage is attached to the mortgagor, not the property.
• Canadian and UK borrowers can’t lock in a low rate for longer than the typical 2-5 year fixed rate term (whereas in the US borrowers can lock in a low rate for 30 years) but lenders offer the portability feature in part to retain good clients.

Why don’t portable mortgages exist in the US? Most US mortgages typically have long-term fixed rates and generally don’t have prepayment penalties. Mortgagors love these features. The one product asymmetry mortgagors don’t like, however, is that they can’t keep their mortgage when they want to move house; they have to give up their low-rate mortgage. A portable mortgage would solve this problem for the mortgagor but create problems for investors in mortgage-backed securities (MBS).MBS are the primary funding mechanism for US mortgages, with the loan prepayment rate and default rate being two main levers to value the MBS. Portable mortgages would not fit in with the current MBS structure.

Prospects for portable mortgages. Portable mortgages would be relatively difficult to segment, monitor, and value if they were combined with pools of other mortgage types. However, if lenders retain a mortgage in portfolio they can design it any way they’d like for any customer segment and manage the balance sheet risks while developing loan performance history. These mortgages could eventually be sold in the secondary market after the lender monitors and shares its loan portfolio performance with potential investors. This path could lead to growth in the portable mortgage market segment.

Consumers would have to understand and accept the typical terms of a portable mortgage:

• Lenders would likely charge a fee and/or higher interest rate for a portable mortgage because they have to manage the interest rate, prepayment and price risk.
• The lender will need to re-underwrite the borrower and new property and could deny the loan
• The existing loan amount may be less than the required new loan amount; the borrower would then have to incur the cost of additional funding at market rates in addition to the ported low-rate loan.

Celent believes that the issues outlined above are the main reasons why portable mortgages are rare in the US. Nevertheless, Celent sees portable mortgages as a potential niche product for lenders and borrowers that are willing to understand, create, and pay for portable mortgages. Celent sees the best target market as high net worth and mass affluent customers market that are potentially more profitable customers.

Other product innovations. New loan product innovation often flourishes when lending markets worsen because lenders need to find new ways to originate more loans. For example, adjustable-rate mortgages (ARMs), loan buydowns, home equity loans, and home equity lines of credit are being more actively sold in the current market environment.

Product Innovation Technology Requirements

Lenders need flexible lending systems if product innovation is to occur. Technology has improved in terms of data management, integration, workflow, analytics, and decisioning, so the potential to create new loan products is stronger.

Loan Servicing. After a lender determines that a new product services a customer need, the starting point for modifying systems should be, “can the loan servicing system (also called loan administration system in some countries) support the new product? The loan servicing system is generally more difficult to update and updates take longer to implement. Some of the required changes include:

• Create a new loan product type
• Change loan status to ported or modified
• Create data field and data logic to change the loan collateral information
• Create new loan modification, documents, and disclosure agreements
• Change how salespeople are compensated on the modified loan and incented to modify it
• Obtain regulatory approval

Loan Origination. The challenge of updating the loan servicing system doesn’t mean that updating loan origination systems is easy. Loan origination systems need to accept new loan type codes that indicate the specific loan’s features.This information then needs to be presented on customer-facing sites and potentially added to pre-qualification calculators and web site product search/selection. In addition:

• New or modified custom loan document types may be required, such as regulatory loan disclosures.
• From a sales and marketing perspective, loan officers will need product training, and marketing must determine a customer segment to target market, do outbound marketing to, and where to send the leads (contact center or branch).
• Update existing data fields such as loan product codes, presentment of the product and its features, loan pricing parameters and underwriting criteria are just a few of the changes.

Conclusions and Recommendations

Mortgage lending volume will continue to be driven by the high rate, high home price environment. Challenges will remain until affordability improves. This means that new product innovation will remain critical for the foreseeable future. Now is the time to rearchitect solutions to support product innovation.FIs can learn about product innovations in different country markets even if there may be some limitations in your home market.

For more information on country mortgage markets, see Celent reports:

• Canada: Technology Innovation and Investment Considerations in the Canadian Mortgage Market
• UK: Technology Innovation and Investment Considerations in the UK Mortgage Market

Contact us at info@celent.com or cfocardi@celent.com if you would like to mortgage industry trends, strategy, and technology. I look forward to speaking with you.