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Mortgage lenders’ business priorities changed significantly last quarter compared to previous years, according to the Fannie Mae Mortgage Lender Sentiment Survey® (MLSS), cost reduction is now the most frequently cited business priority. Talent management surpassed business process efficiency as the second most important priority, while consumer-facing technology investment fell out of the top three.
As we’ve done since 2017, we recently surveyed more than 200 mortgage executives through MLSS about lenders’ 2022 business priorities and strategies and how those differ from previous years.1 About the change in the market.
In the year In 2021, the mortgage industry has seen significant growth, as loan originations have peaked.2 So far, 2022 has presented a number of new challenges for lenders to navigate, including continued significant house price appreciation, rapidly rising interest rates, persistent inflation and slowing global economic growth. The consensus among mortgage executives is that purchase and refinance origination activity is slowing significantly this year.3
As mentioned above, for the first time since 2017, cost reduction has become a top priority for lenders. After the pandemic, the importance of talent management has gradually increased, and this year, it became the second most important priority. He also revealed that after peaking in 2019, the importance of consumer-facing technology has declined over the past three years and has completely dropped out of the top three priorities this year. Additionally, investment in business process streamlining has been among the top three priorities since 2017, which we believe can be attributed to its relationship with cost control.
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Lenders cite improving the origination process and customer experience as their top strategies over the past year as they prepare to transition to a more purchase mortgage-oriented market.
For the third year in a row, a majority of respondents cited “online direct-to-consumer lenders” as their biggest expected competitor in the next five years, citing many of those companies’ perceived advantages, including lower costs. mortgage processes, and advanced analytical and marketing skills. Additionally, compared to last year, lenders are more likely to view traditional banks as their main competitors in 2022. Many lenders have commented that traditional banks have advantages in accessing capital, offering lower rates and building relationships with customers.
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Overall, mortgage lenders seem to be adjusting their business priorities to meet what they believe are a new set of challenges. In an environment of weakened mortgage demand and rising rates, lenders tell us that operational efficiency, strong customer relationships and the ability to offer low rates are critical. Earlier in the year, some firms in the mortgage industry announced layoffs and mortgage closings as sales of both existing and new homes slowed. What’s more, the profitability of credit origination has declined significantly this year, as the average production cost of credit has risen to a new high.2, 4 With rising costs and increased contract volume, lenders’ ongoing investment in business process efficiencies can be critical to increasing productivity in today’s challenging, low-margin environment.
To learn more, read the study deck or visit our database.
Doug Duncan
Chief Economist and Senior Vice President
Economic and strategic research
July 27, 2022
The opinions, analyses, estimates, forecasts and other opinions contained in these materials are based on assumptions made by Fannie Mae’s Economic and Strategic Research (ESR) team or survey respondents that indicate Fannie Mae’s business prospects or expected results, and are subject to change without notice. How this information affects Fannie Mae depends on several factors. Although ESR Group bases its opinions, analyses, estimates, forecasts and other opinions on information it believes to be reliable, it does not warrant that the information presented in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these assumptions could cause results to differ materially. Analyzes, opinions, estimates, forecasts and other views published by ESR Group or survey respondents represent the views of the group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
1 2021 MLSS Survey on Lenders’ Business Priorities: https://www.fanniemae.com/research-and-insights/perspectives/mortgage-lenders-cite-business-process-streamlining-and-talent-management-top-business- Priorities
2020 MLSS Survey on Lenders’ Business Priorities: https://www.fanniemae.com/research-and-insights/perspectives/lenders-describe-covid-19-related-challenges-and-business-priorities
2019 MLSS Survey Results on Lenders’ Business Priorities: https://www.fanniemae.com/research-and-insights/perspectives/technological-investment-necessary-evolving-mortgage-landscape-lenders-say
2 In the year In 2021, the mortgage industry had $4.4 trillion in mortgage originations, up from the previous record of $4.3 trillion in 2020. Purchase loans will end the year at $1.7 trillion, the highest level on record, Blackgate January 2022 Mortgage Monitor, https://www. .blackknightinc.com/black-knights-january-2022-mortgage-monitor/
Fannie Mae projects nearly $1.36 trillion in the single-family loan market in 2021, with $451 billion in purchase loans up from $411 billion in 2020 and $313 billion in 2019.
Fannie Mae 2021 10K: https://www.fanniemae.com/media/document/pdf/q42021.pdf
Fannie Mae 2020 10K: https://www.fanniemae.com/media/document/pdf/q42020.pdf
Fannie Mae 2019 10K: https://www.fanniemae.com/media/document/pdf/q42019pdf
3 Please see the Economic and Strategic Research (ESR) Group website for up-to-date economic and housing forecasts at https://www.fanniemae.com/research-and-insights/forecast.
For example, the National Association of REALTORS® Pending Home Sales Index, which tracks contract signings on existing homes and typically leads to closings within one to two months, fell 3.9 percent to 99.3 in April, the sixth consecutive monthly decline.
New single-family home sales fell 16.6 percent to 591,000 SAAR in April, the third straight monthly decline and the lowest level since April 2020, the Census Bureau said. This follows a downward revision of about 7 percent on March data.
4 According to the Mortgage Bankers Association March 2022 Quarterly loan performance report of banksIndependent Mortgage Bankers (IMB) and Chartered Banks mortgage subsidiaries reported a net profit of $223 per loan originated in the first quarter of 2022 and $1,099 per loan in the fourth quarter of 2021. -Tax yield was 5 basis points (bps) in the first quarter of 2022, compared to an average net yield of 38 bps in the fourth quarter of 2021, and down 124 basis points year-over-year. Total loan production costs – commissions, compensation, occupancy, equipment and other production costs and corporate allocations – increased to a new high of $10,637 per loan in the first quarter of 2022, and increased by more than $1,000 per loan in the fourth quarter of 2021. Loan production costs averaged $6,829 per loan from the third quarter of 2008 to the fourth quarter of 2021.
https://www.mba.org/news-and-research/newsroom/news/2022/05/24/imb-production-profits-decrease-in-the-first-quarter-of-2022
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