bankingciooutlook

Emerging Trends Transforming the Mortgage Market

Banking CIO Outlook | Saturday, August 20, 2022

Investors in the mortgage industry have opportunities created by new technologies and lenders.

FREMONT, CA: Over the past two years, low-interest rates have made refinancing attractive to consumers due to the COVID-19 pandemic and an increase in home buying. Banks, non-bank lenders, and investors will continue to see strong purchase demand despite rising rates. Mortgage lenders have been gradually adopting technology to streamline the front-to-back mortgage process, aiming to make the experience smoother and faster for consumers. Home financing and home-buying services can be expanded with investor support at origination, processing, underwriting, and loan servicing.

Third parties are streamlining mortgage processing

Significant banks and non-bank lenders invest in proprietary or third-party technology across multiple value chain processes. The software solutions improve customer experience, lower lender costs, and speed up the mortgage application process. Despite these strides, challenges remain. Many mortgage originators still engage in labor-intensive and repetitive fulfillment and servicing. Failure to update legacy processes can trickle down into elevated origination costs and delayed cycle times. Moreover, when demand rises, many originators cannot take full advantage because they cannot scale operations quickly enough.

Market share grows for non-bank lenders

In recent years, non-banks have gained market share. About half of total originations were made by non-bank lenders years ago. Lenders that focus on technology are reimagining their front-to-back operations, including document management and delivery. Many non-bank lenders have invested heavily in digitized interfaces, which make submitting applications, uploading documents, and communicating with lenders easier. In competitive real estate markets, tech-enabled lenders also offer home buyers cash up front, enabling them to make cash offers. Due to the speed, convenience, and transparency that digital-focused originators provide mortgage customers, they expect them to maintain their share.

Mortgages are bundled with home-buying services

Mortgage lenders and real estate brokerages have long predicted when home buyers could have a one-stop shop for everything from home searches to mortgages to warranties and inspections. A few players work on making this vision a reality by building their own products or acquiring and partnering with others. The home-ecosystem business model may attract other lenders and brokerages. Home buyers would consider one-stop shopping for their home-buying journey, while other buyers say bundling services make buying or selling process more manageable and efficient.

The market reopens to nonqualified lenders

Liquidity services offered by non-QM institutions play a crucial role in providing borrowers with options when it comes to obtaining a mortgage loan, particularly those who do not qualify for traditional mortgages due to their income stream or other financial factors. Following the COVID-19 pandemic, lenders stopped accepting applications from non-QM applicants due to tightened credit guidelines and a lack of capital availability. Due to the economic recovery, lenders are again underwriting non-QM loans after the pandemic.

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