We’re already through the first month of 2021 and well on our way to a solid year in the mortgage market. Currently, the conventional 30-year mortgage fixed-rate is 2.745%, while 15-year rates sit at 2.313%.
With the Biden Administration settling into office and approaching its third week, we’re already starting to see and hear about new changes. The Consumer Finance Protection Bureau (CFPB) plans to ramp up regulation and oversight on mortgage servicers, Biden proposed a first-time homebuyer tax credit, the Fed is aligning economic projections with vaccine distribution, experts seem excited about 2021, and loan officers are making more money now than ever. Despite this, continued reductions in consumer spending are making some a little nervous.
Loan officers achieved incredible volume.
In Q4 2020 alone, the average loan officer (LO) handled $2.6 million in loan originations. That’s a 63% increase from Q4 2019. Even with 27% more loan officers working within mortgage firms, each still managed a million dollars more in volume compared to 2019, keeping their wallets full and their days busy.
“Low-interest rates flamed an increased demand for mortgage activity, which in turn benefited LOs and processors,” said LBA Ware Founder and CEO Lori Brewer. “They were rewarded for their long hours with robust compensation checks.”
Throughout 2020, the average loan officer funded $20.4 million in total volume, split evenly between refinances and purchases. Experts continue to anticipate a reduction in refinance volume as the summer nears.
How does this affect you?
While loan officers saw a massive influx of refi volume in 2020, they should expect that volume to begin to subside this year. Still, be prepared to support your LOs, as burnout may begin to set in on the heels of last year’s chaos. The same goes for processors, who cumulatively handled 99% more loan files compared to Q4 2019.
Check out our free Lend from Home ebook for actionable tips on how to proactively prevent employee burnout in remote-work environments.
Experts seem excited about 2021.
Even though pending home sales continue to slide in December (-0.3%), it’s lower than November’s 2.6% drop, perhaps signaling an upward trend after four consecutive months of decline. One of the reasons housing experts are expecting a great year is because interest rates continue to remain low and the probability of more Federal stimulus remains high. Also, contract signings increased 21.4% year-over-year from December 2019, suggesting that low inventory has been the culprit of the autumn/winter declines instead of a drop in demand.
“There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings,” said Lawrence Yun, the National Association of Realtor’s (NAR) chief economist. “This elevated demand without a significant boost in supply has caused home prices to increase and we can expect further upward pressure on prices for the foreseeable future.”
Yun believes existing home sales will outpace last year by about 15% when 5.64 million units were sold.
Should you be excited about this year?
Probably. There appears to be no sign of any upcoming slowdown in the housing market. If the pandemic couldn’t hurt it last year, it’s unlikely to hurt it this year. As long as your company stays on top of the trends, it’s business as usual.
Get ready for the government.
An email sent from the new acting director (until Rahit Chopra is confirmed) of the CFPB, Dave Uejio, to staff called for “aggressive action” in dealing with and scrutinizing mortgage servicing practices. According to the email, the CFPB’s focus in the coming months is to provide relief for consumers being displaced by COVID-19 and to create greater racial equity in communities across the United States.
“One thing we can do immediately is focus our supervision and enforcement tools on overseeing the companies responsible for COVID relief,” Uejio said in the email. “I am concerned about the findings described in last week’s Supervisory Highlights edition that companies are failing to properly administer relief through the crisis.”
Uejio’s directed attention comes after reports of loan servicers denying thousands of student loan forbearance extensions because the holder never responded, misreported accounts to credit bureaus, incomplete and inaccurate information given by mortgage servicers about CARES Act forbearances, and other unfair and illegal practices.
What to make of the new-look CFPB?
Any news of unethical practice in our industry is troubling, and fair regulatory oversight is welcome in order to protect consumers. If you were in business during the Obama Administration, when Richard Cordray was the CFPB director, then you might start to see some familiar oversight. How far the CFPB will go remains up in the air, so be ready for anything.
The housing market is hot, but U.S. consumers aren’t spending as much.
Consumer spending in the United States fell by 0.2% in December, making it the second straight month of decline. Business restrictions, unemployment expirations, and reduced hospital spending seem to be the culprits, but there’s also been an upward trend in inflation—a worrying sign for some, but economists seem to believe it won’t become an issue.
“The Fed would like inflation to average 2%, so it would like inflation to temporarily move above 2%,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “Inflation pressures will remain limited to a few sectors as high unemployment will restrain wage growth.”
Consumer spending accounts for two-thirds of the U.S. economy, making it the most critical element of the nation’s economic environment. It’s not expected to decline in January due to the loosening of COVID-19 restrictions in states like California and New York. However, spending is not expected to pick up either. Projections suggest that the economy will decelerate to 2% growth in the first quarter and not catch steam again until Q2 and Q3 when vaccine distribution covers a larger segment of the nation and COVID-19 cases decrease.
President Biden proposes $15,000 first-time homebuyer tax credit.
The Biden Campaign’s long-promised $15,000 first-time homebuyer tax credit was proposed this past week. Some experts think the credit will help those who need the extra incentive to get moving on purchasing a home, but there’s some indication that the credit may be ineffective or hurt more than help.
“The real estate market is so hot that hurting investors now may not have a big effect, but long term it could cause major issues,” says Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial. “Real estate investors tend to buy more real estate in even in bad markets as a long-term strategy. If it becomes more expensive for them to do so, because of taxes, I believe some will shift strategies long term so when [the] market cools there will be a lot less of them to support home buying.”
NAR chief economist Lawrence Yun says that a $15,000 credit won’t do anything in the low inventory market we’re experiencing right now. “Only with added supply will the homebuyer tax credit be effective in boosting homeownership and enlarging the middle class,” Yun said. “Without supply, home prices jump much higher with no meaningful gain to new homeownership.”
Will it even get passed?
With a Democratic-led House and Senate, there’s a decent chance that it will get passed. However, it will need bipartisan support from Republicans if it wants any chance at clearing the 60-vote Senate filibuster. The Democrats could opt for a divisive path by using budget reconciliation to ram it through, but that doesn’t do them much good for future votes that have much higher consequences, as Republicans are unlikely to work with them if they use undercutting tactics.
Fed policies stay put as vaccines are distributed.
The Fed has been extremely consistent with its policies combating the pandemic. Last week they reaffirmed their commitment to low-interest rates as vaccines are rolled out across the nation. This means the Fed will continue to purchase bonds at a rate of $120 billion per month, an activity instrumental in keeping mortgage rates as low as possible, keeping housing demand up.
When should we expect change?
For now, we don’t have any set date. Economists continue to debate whether decreases in unemployment and increases in inflation will do much to deter the Fed’s policies. But as Mortgage Bankers Association Chief Economist Mike Fratantoni says: “The announcement of such a change in plans would impact market rates well in advance of the actual change.”
Thus, we can expect status quo for the next couple of quarters until COVID-19 begins to wane and the nation can start to relax.