As we plan for a gradual cycle turn in 2024, a few hot topics feel especially hot right now. What’s next for the inflation fight and rates? How do we help homebuyers navigate affordability? And how should mortgage firms rethink tech strategy? Below I run down these hot topics and look forward to going deeper with fellow mortgage CEOs on a HousingWire webinar December 5. Please reach out with your intel so we can all sharpen up ahead of 2024.
What’s next for the inflation fight and mortgage rates?
The Mortgage Bankers Association predicts rates will end this year at 7.2%, and that feels realistic now.
Thanks to a rate hike pause and dovish Fed statement on November 1, mortgage bonds rallied and rates dropped from near-8% to 7.5%.
But when the Fed’s preferred Core PCE inflation measure is 3.7% and their goal is 2%, it means the inflation fight isn’t over. Here’s what Fed Chair Jerome Powell said at his November 1 press conference: “Inflation has moderated since the middle of last year, and readings over the summer were quite favorable. But a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. The process of getting inflation sustainably down to 2% has a long way to go.”
Here are the MBA’s 2024 rate predictions by quarter: 6.8% for Q1, 6.6% for Q2, 6.3% for Q3 and 6.1% for Q4.
How do we help homebuyers navigate affordability?
This implies easing inflation next year, and mortgage rates near 6% would help affordability issues caused by two things:
- The inflation fight has fueled the mortgage rate spike
- Low inventory and a steady job market have put a floor on home prices
The good news is that GSEs remain committed to loan approval guidelines that help in these tough cycles.
Media stories about home affordability rarely cover how the GSEs allow for low down payments and higher debt-to-income ratios. Media headlines make borrowers nervous, but lenders make loans.
And when lenders — not headlines — explain cash-to-close and monthly all-in costs relative to incomes, the lights go on for borrowers.
Can flexible GSE guidelines help today’s challenged homebuyers in a systemically safe way?
I think so because total U.S. mortgage delinquencies — which include conventional, FHA and VA loans — are still near record lows of 3.37% per the MBA.
Also, U.S. housing value is now $44.5 trillion per Urban Institute, and total mortgages outstanding are $13.9 trillion per MBA. That implies there’s 68.7% equity in the American housing system.
Originators and servicers must double down on educating consumers and coaching them through this cycle.
How should mortgage firms rethink tech strategy in 2024?
Mortgage tech is a huge part of enabling this education, but in this lean period, originators and servicers will keep looking at how to streamline their tech.
In originations, lean shops have argued during this cycle that they need loan manufacturing (LOS, POS), pricing, marketing and everything else is expendable.
This implies continued mortgage origination fintech consolidation in 2024.
A good example here is CoreLogic buying a POS this year and bringing it together with their valuation and automated underwriting capabilities. This makes the POS more relevant as a loan manufacturing tool, giving loan officers and underwriters a more complete borrower and property profile sooner in the process.
In servicing, the must-have capabilities are more comprehensive: core servicing, consumer, default and loan movement (onboarding, transfers, etc.).
And there are two things these systems must do to ensure servicers can affordably educate and engage consumers:
- Provide a single user experience (UX) and share data so all users — consumers, servicers, investors, regulators — see the same things across the entire system in real time.
- Run on a cloud-native, open-API ecosystem giving servicers operational flexibility to manage easy and inexpensive integrations.
A good example here is Sagent, which will start demoing these capabilities after we move into 2024. We cannot wait to show it to you.
This is what creates a world-class experience for consumers when they need it most.
And throughout this cycle, Sagent is the only fintech player making major investments in this future when servicers need it most.