DETROIT–While the housing market is as hot as ever, the mortgage market appears to be cooling a bit, according to one new analysis. Even as home values climb, lenders are preparing for mortgage demand to cool in the coming months, the result of rising interest rates that make refinancing less attractive for a huge chunk of borrowers, the Wall Street Journal reported.
One result of the predicted slowdown in mortgage volume has been a price war across the industry, which has driven down margins, the Journal stated.
For example, Rocket Cos., parent to Quicken Loans, said last week it expects its gain-on-sale margin, the measure of how much it earns when selling loans, to decline in the second quarter. The profit margin would be the company’s narrowest since before the mortgage boom, according to the Journal.
2020 was a banner one for the mortgage business, with lenders originating a record $3.83 trillion in home loans, according to the Mortgage Bankers Association. This year, total originations are expected to fall to $3.3 trillion, a 14.2% decline, which would still be one of the best years on record, the report stated.
Slowdown in Refi’s
The slowdown in volume is being attributed to a drop in refinancing activity. Mortgage data firm Black Knight said with the 30-year mortgage rate near 2.97%, about 14.5 million Americans could lower their monthly mortgage payments through a refinancing. That is down from 18.7 million near the start of the year, when mortgage rates reached a record low of 2.65%, the Journal said.
“Still, the good news for borrowers is that lenders are now vying for customers by lowering the rates they charge,” the Journal added, noting the same development isn’t good news for lenders.
Wholesale Competition
Analysts told the Journal competition among lenders in the wholesale mortgage channel, where borrowers secure loans through individual mortgage brokers instead of banks or nonbank mortgage lenders directly, is driving much of the decline in lending margins.
In Rocket’s case, it reported a margin of 3.74% in the first three months of the year, down from 4.41% in the fourth quarter of 2020. It also said it expects the measure to fall to a range between 2.65% and 2.95% in the second quarter, the Journal report added.