March 2022: What do mortgage experts think about current market conditions?

Mortgage market survey March 2022 with Tom LaMalfa

The steep run-up in interest rates, especially mortgage rates, since the start of 2022 prompted me to call 20 members of my panel of experts to ascertain how the sharp increase was affecting different elements of their businesses. I spoke with 17 members of the panel during the first week in March.

In advance of the calls I prepared a 10-question survey. The 17 individuals I spoke with are all senior executives at 17 different mortgage companies. Included among those surveyed were 2 former MBA chairpersons and an SVP at the firm of a third former chairman. The other shared characteristics among the 17 were MBA membership and industry veterans of 20 years or more.

The executives I surveyed were from 9 IMBs and 8 banks. Both groups were divided in size by production volume. Each of the 17 was classified as small, medium or large based on their 2020 agency volumes, and an equal number were represented in each size group.

The survey covered: office return rates; production volumes; changes in margins, revenues, expenses; employee retention; house price expectations; and “buy to let” investors’ effect on homebuyers. My 10 questions dealt with trends in these areas, comparing 1Q22 with the same period last year.

Here is the survey questionnaire with the tallied responses from the 17 executives.

1Q22 Industry Update Scorecard

  1. What percentage of your 1Q20 work force is back in the office in 1Q22? Mean 25% / Median 10%
  2. Is your firm’s 1Q22 refi volume off more than 33% from 1Q21? Y-14 / N - 2
  3. Is your firm’s 1Q22 purchase volume off more than 15% from 1Q21? Y - 3 / N - 14
  4. Are GOS margins off more than 25% in 1Q22 vs the same time last year? Y - 13 / N - 4
  5. Will 1Q22 revenue be down 25% or more compared to 1Q21? Y - 15 / N -2
  6. Are expenses in 1Q22 up more than 10% from 1Q21?Y - 5 / N - 12
  7. Is employee retention more challenging today than usual? Y - 8 / N - 9
  8. Year over year, in December 2022, how much will house prices have risen? Mean 11% / Median 10%
  9. Do you expect aggregate loan production to drop 33% or more in 2022? Y - 12 / N - 5
  10. Are investor purchases of houses becoming a problem for home buyers? Y - 12 / N - 5

The Findings

The purpose of the survey is to provide a peek at the mortgage banking industry’s situation as of mid-quarter. The findings are as follows:  

  • First, a relatively small number of firms have more than 10% of their 1Q20 workforce back in the office in the current quarter. The mean response was 25%, within a range of 4-75%. 
  • Second, virtually all the executives reported that refinance volume was off 33% or more in 1Q22 vs 1Q21. Two executives said refi volume was down year over year but by less than one-third, and another indicated no change year over year. Purchase volume, however, was off less than 15% year over year for the vast majority of the respondents. 
  • Third, compared to the same period last year, revenues in the current quarter are reported down by 25% or more by nearly all those surveyed, while expenses were said to be up year over year by less than 10% according to more than twice as many executives as those reporting expenses 10% higher in 1Q22.  
  • Fourth, it seems that mortgage personnel are once again moving around, job to job, given the contracts and bonuses being offered that one hears about. Opinions on the issue of whether or not employee retention was more challenging today than in the past were found to be evenly divided. 
  • Fifth, how much more will house prices rise this year? The mean and median increases expected by the executives were 11 and 10% respectively, within an overall range of 5-20%. The 18.9% increase in house prices last year, per the NAR, prompted the query. 
  • Sixth, the executives were asked if they expect aggregate industry loan production to drop by 33% or more year over year. More than twice as many executives expect production to decrease by at least one-third this year compared to last year’s $3.99 trillion. MBA’s economists are forecasting a 51.7% drop this year from last. 
  • Finally, more than twice as many executives view investor purchases of houses as problematic for homebuyers since it removes inventory from the market at a point in time when inventories of for-sale houses sits at a record low of 1.1 months as of December 2021.

In sum, this survey suggests that the mortgage industry is in for a challenging year due to reduced production volumes and extant excess capacity across the industry. That, of course, results in weaker profits, which requires expert expense management and quick right-sizing to fit changing production volumes. All of this is more pronounced given the industry’s record profitability the past 2 years. For many the objective is and will remain to protect profits. For some, especially those who mostly refinanced borrowers, the gig is up and doors will close. For others, the goal will be to right-size and/or sell or merge with a larger lender, especially with firms that are well capitalized.

History suggests there will be fewer mortgage lenders in 2023.

The opinions and insights expressed in this blog are solely those of its author, Tom LaMalfa, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.

Tom LaMalfa

Tom LaMalfa, President, TSL Consulting

Tom LaMalfa is a 35-plus-year veteran mortgage-market analyst and researcher. He has done pioneering work in the areas of secondary markets, wholesale mortgage banking, mortgage brokerages, financial benchmarking and GSE reform. He may be reached by e-mail at Tom.LaMalfa@gmail.com.

Comments

Joe Lindau

Great questions and comments Tom for the industry to ponder. We are certainly returning to a more normal cycle with reduced volume and margins in the 4th QTR 21 and 1st QTR 22 and all the challenges that involves. After back to back two $4T Years it certainly presents "fresh" challenges. It will also be interesting to see how the remote work/Hybrid schedules play out as the year unfolds too. Thanks again for the insight.

Tobias Peter

great work! very interesting.

Sergio Gomez

What is your outlook with regards to rising interest rates and how they impact borrowers lending affordability? We have seen high interest rates before but never combined with this level of house prices. In Michigan for example, the average home price in 2021 was just over $200.000. The monthly payment on a $200,000 30 year mortgage at 5% compared to the same loan and term at 8% is $400 more per month. Real wages will not keep up with mortgage payments especially for first time buyers.

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