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According to mortgage consulting firm Stratmor Group, many lenders have no déjà vu about the current mortgage industry downturn.
A recent Stratmor report, citing mortgage industry executives, said “the sentiment is different.”
This time, sharp increases in mortgage rates, huge declines in lending, and tight margins “could create unprecedented overcapacity and many lenders will be forced to sell or not survive,” said Jim Cameron. Stratmor’s main partner. Strathmore said.
Three of the five most significant monthly mortgage rate increases since 1984 occurred in the first 10 months of 202, one for September (89 bps), one for April (81 bps), and one for October (79 bps).
Projected volumes in 2022 are also expected to decline by $2.18 trillion, the largest volume decline on record.
According to the Mortgage Bankers Association, the 49% decline expected this year will be the largest annual decline since 1990.
Meanwhile, more lenders are chasing microloans, and the pace and severity of the recession have cut revenues and margins on “steroids,” the report said.
While mortgage rates have been on a downward trend for more than 35 years, rates in 2020 hit record lows, limiting “the potential for a massive refinancing boom to support the industry.”
While 2021 was a record year with $4.4 trillion in production, the company reported the biggest revenue declines in 2021 were in retail, down 68.8 bps, and wholesale, down 137 bps, with the arrival of the first half of 2022 according to MBA programs and Stratmor Peer Group Roundtables (PGR).
That doesn’t mean there’s no hope. Strathmore said demographics, low crime rates and moderate household wealth were among the factors contributing to the shorter-than-normal recession.
Cameron says a large group of 28- to 38-year-olds, the prime homebuying age, will increase buying activity over the next three to five years, and historically low default rates mean more borrowers will be eligible for new purchases or leases. he said yes. refinancing loans.
Household net worth has also increased since 2009. Additionally, the household financial debt ratio was 14.27 and the debt service ratio was 9.58, well below historical averages and lower than in 2007 and 2008 when the US economy entered the Great Recession.
According to the report, the good news for lenders is that as they emerge from this downturn in the mortgage market, borrowers and potential borrowers will be in a better position to qualify for mortgages and make prompt payments.
Although the risk of a recession is high, households are in any case much better off in terms of wealth, arrears, and ability to meet financial obligations.
Non-bank lenders, particularly independent mortgage banks (IMBs), are more likely than banks to be responsible for layoffs during a downturn, the report added.
Deposit lenders require non-bank institutions to continue to meet their profitability, capital, and liquidity commitments. Usually, non-banking organizations have no business other than paying loans to subsidize mortgages.
In other words, cost reduction and capacity reduction are a matter of survival, especially for organizations without a maintenance portfolio. With the non-bank sector set to account for 63 percent in 2021, up from 24 percent in 2010, “consolidation is more likely, suggesting a truncated recession,” the report said.
Cameron also said the recession could be the worst in the history of mortgage banks, both in terms of severity and rate of occurrence.
Cameron also said it has a bright spot in terms of its population, a low crime rate, and higher-than-average household net worth that could be reasonable depending on the risk of your business.
Reference Source: Housing Wire
