While the record-high volumes of 2021 are almost certain to cool, mortgage industry experts foresee a year of “robust home buyer demand” and intense competition in 2022.
At the Mortgage Bankers Association’s (MBA) 2021 Annual Convention & Expo, MBA economists and analysts described the organization’s key expectations for the coming year. Their forecast, along with the observations and predictions shared by other industry groups, create a picture of the coming year. This picture is one in which the volumes and many of the extraordinary challenges of 2021 are likely to subside, but which will also be marked by continuing growth in the housing market.
Let’s take a look at the 2022 mortgage trends that are expected to turn this picture into reality.
Purchase Originations will Climb, Refinances will Fall
The MBA 2022 outlook, presented at the annual convention by Chief Economist and Senior VP for Research and Industry Technology Mike Fratantoni, Associate VP of Economic & Industry Forecasting Joel Kan, and VP of Industry Analysis Marina Walsh, provided key predictions surrounding origination and refinance volumes.
According to the association’s forecast, purchase mortgage originations are expected to rise 9%, to a record $1.7 trillion in 2022. However, overall originations are expected to decline by 33% as higher mortgage rates and fewer eligible homeowners push the volume of refinances down.
In fact, refinance applications are already declining. The MBA’s October 15, 2021 Weekly Mortgage Applications Survey shows a drop in refinance applications for the fourth consecutive week. This puts the refinance index at its lowest level in 4 months.
Housing Prices will Stay Elevated
While the housing market has cooled somewhat, an ongoing shortage of supply will likely continue to impact housing prices into the new year. Recent Research from Realtor.com shows a shortage of 5.24 million homes, an increase of 1.4 million homes since 2019. This shortage is due to low material inventory and lack of skilled labor, and economists at Fannie Mae predict that these challenges will remain in 2022.
According to a HousingWire article, Fannie Mae’s Senior Vice President and Chief Economist stated that the agency expects “the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022”.
Mortgage Rates will Rise
Experts say it’s time to say “goodbye” to the days of sub-3% mortgage rates. Fratantoni told the audience at the MBA convention that the Federal Reserve will likely raise short-term rates by year’s end in the face of supply-chain driven inflation, reduced consumer spending and a declining rate of unemployment. MBA’s baseline forecast shows 30-year fixed-rate mortgages ending 2021 at 3.1% and climbing to 4.0% by the end of 2022.
While many other trusted sources, including Freddie Mac and the National Association of Realtors, predict slightly lower rates than the MBA, experts seem to agree that rates will rise in 2022. The reasons include the Federal Reserve’s expected policy actions, inflation, bond market expectations, resource shortages, and high home prices.
Servicing Costs will Increase Amid a More Competitive Market
The MBA’s Walsh noted that the shift away from refinances and toward more purchases will likely result in heightened competition among lenders for their share of the purchase activity. Walsh predicts lenders will focus more on the servicing side of their businesses in order to achieve financial success in 2022.
However, with the surge of pandemic forbearance program exits and millions of borrowers in need of loss mitigation strategies, servicers will confront challenges that include meeting homeowner needs and CFPB requirements. The CFPB has pledged additional scrutiny on foreclosure activity to ensure homeowners are being served adequately. These factors will create a more complicated and more costly servicing landscape.
Millennials will Drive Origination Growth
Despite previous notions surrounding millennials and their lack of desire to purchase homes, they made up the largest share of home buyers in 2020, according to the National Association of Realtors. And experts don’t predict a decline in purchases from this group in 2022.
Millennials, along with other growing households looking to add space while rates are still low, are expected to drive much of the origination growth next year. In fact, the MBA points to millennial households as the driving force behind the expected increase in purchase originations over the next two years.
With millennials leading origination growth, it’s important to consider how borrower expectations may shift in 2022. Expectations of speed, seamlessness and transparency are the baseline for these tech-savvy consumers, making the digital experience even more important.
Ongoing Compliance Demands will Remain Strong
The Consumer Financial Protection Bureau’s (CFPB) ongoing scrutiny of servicer practices for managing borrowers’ forbearance program exits will continue into 2022. The CFPB has promised to “hold servicers accountable” for complying with existing regulations and amended rules that took effect Aug. 31.
Furthermore, according to a HousingWire article, the CFPB and other top regulators announced new expectations of servicers on Nov. 10. Their announcement stated that they will be concluding the servicing flexibilities put in place in 2020 due to the pandemic. As a result, servicers will now be held accountable for meeting all requirements, including those revolving around timing. This will make for a challenging end to 2021 and start to 2022 for mortgage servicers.
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