2022 Market Forecast: These 5 Factors Will Shape Mortgage Lending

With 2021 coming to an end in a few short weeks, the question on every lender’s mind is: How can I continue to thrive in next year’s changing mortgage market? As volume decreases and loan costs rise, lenders may find themselves struggling to remain profitable. These coming challenges will require lending teams to act strategically, become more efficient, and think creatively to ensure they’re resilient to margin compression.

Forward-thinking lenders know that now is the time to look ahead, audit current processes, fix inefficiencies, and consider investments in technology. With preparation today, lenders still have a chance to find opportunity in 2022’s market while building strong systems that insulate them from fluctuations in years beyond. In fact, smart planning may be the single most vital factor that separates those who thrive and those who become obsolete in coming market cycles.

Want to get ahead of your competition and future-proof your lending business? Channeling my 33 years of industry experience and research, I put together the following predictions for 2022’s market. Armed with these tips, your team will be well equipped for success despite the changes ahead.

Prediction #1: Shrinking margins will challenge profitability

Shrinking margins will impact lenders nationwide, making technology and workflow automation increasingly vital for profitability, especially within the small and midsize lending segment.

You’ve heard it from leading economists before: Rising loan costs will put pressure on already-thin margins in 2022. This compression will eat into lenders’ profits across the board, but smaller players that don’t have other resources, scale, or channels to offset losses will bear the brunt of compression.

In light of this dynamic, local lenders need to access the obvious advantages technology-powered lending offers, including efficiency, speed, and accuracy. That means leveraging well-designed point-of-sale technology—including a mobile-friendly loan app, automated document collection, task management, and the ability to integrate with essential services—as well as solutions that streamline the loan fulfillment process. The savings this kind of technology provides go right to the bottom line and allow local lenders to continue to invest in their backyard.

Maxwell’s Point of Sale solution, for instance, offers measurable economic benefits through strategic automations and productivity-enhancing features. Loan officers using Maxwell close over 15% more loans per month than their peers, and loans on Maxwell close over 13 days faster than loans not on the platform. Meanwhile, Maxwell’s newest solution, Maxwell Processor Edge, provides powerful gains in the loan fulfillment process by leveraging leading technology and machine learning. This first-of-its-kind product platform accelerates the document review process and detects data discrepancies before underwriting. The result is reduced costs and diminished loan approval times—benefits that support profitability no matter the market cycle.

Prediction #2: Rates will rise sooner rather than later

If inflationary pressure continues, the Fed will hike mortgage rates sooner than you might think. 

The Mortgage Bankers Association has forecasted that the average 30-year fixed mortgage rate will rise to 3.7% by the third quarter of 2022, reaching 4% by the end of 2022. In other words, rates are likely to increase in 2022, though they may remain low by historical standards. 

This trend will increase competition among lenders and make 2022’s market a challenge. Combined with tightened margins and the rising cost to originate a loan, smaller lenders may struggle to make the numbers work. Because of this environment, they will need to put in work to uncover borrower business. By doing so, lenders can mitigate potential year-over-year losses while building out strong lead funnels that make them more resilient to market ebbs in future years.

So, how can local lenders find opportunity in 2022’s changing landscape? First, these lenders should consider how they’re capturing the business of millenial borrowers. The largest cohort of millennials is approaching prime first-time home-buying age, a trend that continues to present potential business to lenders across the country. Specifically, the small and midsize lending segment should look to leverage the relationships they’ve formed in their communities along with a modern, technology-driven borrower experience.

Second—and what many lenders may not recognize—is the sizeable percentage of borrowers who still stand to reap benefits from refinancing. While much of the country has already taken advantage of rock-bottom rates, certain cohorts simply haven’t considered this avenue. With dedicated outreach and strategic data-mining (while keeping industry data regulations in mind), local lenders can uncover the remaining opportunity within the refi space.

Prediction #3: There will be a renewed focus on housing affordability.

That includes home equity, pulling cash out for renovations, and more sustainable homes such as manufactured housing. 

The U.S. has long grappled with its housing affordability crisis, and 2022 will see renewed effort towards combating this pressing issue. Strategies will likely include a focus on down payment assistance, low-down money programs, and increased community outreach to underserved communities.

The impact of these actions remains to be seen. Solving the housing shortage has historically been tricky, and recent trends don’t look promising. National homeownership, in fact, is at its lowest level since 2013. To make progress in closing the gap, borrowers will need to grapple with barriers to entry in terms of available funds along with the fundamental shortage of affordable homes throughout the U.S.

While policy changes will be a necessary component of tackling this issue, lenders can still play an important part in addressing underserved communities. Here, lenders should focus on leveraging affinity relationships to make in-roads with potential borrowers they may not traditionally connect with. In many cases, the most effective strategies will involve simple people-first interactions. You might send dedicated loan officers into underserved communities, for instance, and educate those audiences on loan offerings catered to their needs.

Similarly, lenders should gear up to push a wider range of loan products that support homeownership access in 2022. While low-money-down offerings like FHA or VA loans may not be the simplest or most profitable, now is the time to work harder on the loan origination side to support business where it’s available. Embracing the business that comes with these niche offerings will provide a more diversified lead funnel and will help differentiate you as a go-to for specific borrower needs.

Lastly, local lending institutions can help expand the supply of affordable housing by syncing up with regional builders in their locale and exploring partnerships. These builders may be seeking financing, and small to midsize lenders involved in their communities can provide a good fit for this need. With high demand for cost-effective homes across the country, supporting these projects can offer local lenders strong opportunities while helping to alleviate the housing shortage.

Overall, local lenders, with existing connections to their communities, are naturally suited to become involved with efforts that increase the accessibility of homeownership. If these lenders cater to underserved borrowers, they will not only help ease a long-standing driver of inequality, but they’ll open up valuable origination opportunities. For the many lenders that begin to exhaust their lead funnels as 2022 progresses, these potential borrowers can provide valuable ongoing business.

Prediction #4: The regulatory environment will tighten

Additional scrutiny from mortgage-related regulators, especially the CFPB, is probable.

Industry-wide, lenders are preparing for additional regulatory scrutiny in 2022. The CFPB is expected to embrace a “watchdog” role with a level of enforcement not seen for quite some time. Items the CFPB will focus on include Fair Lending, especially redlining; RESPA; and more enforcement of mortgage servicers, especially related to foreclosure policies. Because the changes the CFPB enacts now will last for years, lenders need to ready their practices for the regulatory environment ahead.

Specifically, small and midsize lenders, who may not have the resources for in-house compliance teams and systems, need to be incredibly vigilant in coming years. This means auditing existing procedures with a fine-toothed comb and identifying areas of concern. Failing to do so could result in costly violations during a year where every dollar counts.

Sound daunting? Luckily, technology now exists that provides additional checks in the diligence process. These fail-safes support higher-quality results and minimize risk during QC/due diligence. Maxwell Diligence, for instance, leverages leading technology to create trusted, predictable outcomes. This solution helps local lenders ensure they stay compliant during periods of high scrutiny like 2022.

Prediction #5: Processes will make or break lender profitability

Market forces and increased competition will force lenders to take a hard look at their business policies and procedures.

If you lived through 2020 in the mortgage industry, you know the frenetic pace of loan origination didn’t leave time to work deliberately, much less focus on systems and operations. 2022, in contrast, will challenge lenders to return to basics. That means ensuring your business hasn’t lapsed into complacency in key areas and tightening up your processes to prevent leakage. 

As 2021’s weeks dwindle, now is the time to review policies and procedures. Get together with your leadership team and create a checklist of areas to scrutinize, test, and improve. You should test, for instance, the percentage of existing locks to make sure they’re meeting corporate margins. You should perform or create a stagnation report to identify any bottlenecks in your  loan manufacturing process.  

The goal here is to identify negative trends before they affect profitability and opportunities before it’s too late to capitalize. In a year like 2022, for instance, you might consider delivering loans on a mandatory basis and hedging. Further, you might think through the pros and cons of holding loans in your portfolio versus partnering with a dedicated investor like Maxwell Capital. It may not be profitable to service every loan you originate, and you might find that a secondary market trading solution reduces your risk, increases your profitability, and helps you maintain valuable relationships with the borrowers you serve.

Regardless of the individual policies and procedures you scrutinize, keep an eye towards improvements that additively create a measurable impact to your bottom line. The Maxwell Mortgage Optimization Platform, for example, saves significant time while introducing thoughtful automations that free your lending team up to work on higher-value tasks. By adding value at each step of the loan manufacturing process, Maxwell’s suite of solutions adds real basis points to every loan, offsetting rising costs and creating improved economics immediately.

As lenders look towards 2022, it may be easy to feel discouraged by rising challenges to profitability. Rather than focus on potential obstacles, though, use this time to strengthen your business with stronger processes, increased efficiency, and leading technology. For local lenders to succeed, they need to embrace strategic partnerships with trusted providers who know the industry and anticipate trends. As volume slows and your business falls into a new cadence, take advantage of this opportunity to invest in the solution set you need to thrive in 2022 and beyond.

Want to stay ahead of 2022’s lending market?

Click here to learn more about Maxwell’s comprehensive suite of mortgage solutions.

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