By: Greg Spurgeon | SVP of Secondary Marketing
Unlike any year in our collective memories, we welcomed 2021 with eagerness, anticipation and excitement. The new year represents a chance to turn the page and an opportunity to move past the chaos and turmoil we all experienced in 2020.
And while the year was certainly challenging in more ways than we have room to unpack here, from a mortgage market standpoint, 2020 was a tidal wave of success, activity and production unlike anything we’ve ever seen.
In fact, it was a record year by nearly every metric.
Over $4,000,000,000,000 (yes, that’s 4 trillion dollars) in U.S. mortgage origination production last year set the bar incredibly high.
4 KEY TAKEAWAYS FROM 2020:
- Mortgage Rates Dropped to All-Time Low – The Federal Reserve countered aggressively to the economic uncertainty and financial pressure most Americans experienced in 2020 as a result of the pandemic. Mortgage rates hit an all-time low, with 30-year rates dropping under 2.7% for the first time in history. This low-water mark pushed many would-be homebuyers from the sidelines, right into the middle of the action.
- Record Mortgage Origination Activity – Cause: All-time low mortgage rates. Effect: All-time high mortgage origination activity. This set credit unions up for a robust originations market. And we witnessed a 75% increase over a very strong 2019 originations year, which no one could have predicted or planned for.
- Major Processing Challenges – The unprecedented level of activity, coupled with all the ways COVID impacted business operations across the country, flooded many operations. The massive spikes in activity and volume presented major challenges from a process and flow perspective. There was no playbook for how to handle the record volumes, and credit unions had a tough time hiring the right number (and kinds) of employees to handle the business, while maintaining high-quality member experiences. In far too many cases, members faced months of processing times, compared to weeks in a more typical year.
- Missed Opportunity for Credit Unions due to Inadequate Staffing and Technology – As booming as the mortgage market was in 2020, many credit unions couldn’t cash in because they weren’t prepared for the incoming wave. Major mortgage originations, primarily refinances, passed them by due to insufficient staffing and technology solutions within their four walls. Members of these institutions turned to lenders who could meet their needs, robbing credit unions of the opportunity to strengthen member relationships and increase revenue.
Forecasts don’t predict the same surge of frenetic activity for 2021, but the year still promises to bring robust mortgage business.
FOUR INSIGHTS FOR 2021:
- Federal Reserve Commitment to Continued Low Rates – The Federal Reserve solidified their position in December 2020 to continue its investment in mortgage-backed bonds, to the tune of roughly $100 billion additional per month. They’re not backing out of the mortgage market anytime soon. This show of support represents a major economic boost and a housing market stimulus unlike anything we’ve ever seen. This alone will probably keep rates low throughout 2021, which would lead to another big year for mortgage activity.
- Origination Projections Lower than 2020 but Still 40% Higher than 2019 – According to Fannie Mae’s projections, 2021 will be off pace from 2020’s high-water mark by 19%. However, that number is a bit misleading because those same projections show 2021 activity will be 40% higher than 2019’s final volume, and 2019 was a banner year in and of itself. While we’ll likely be off pace from the 2020 record production, 2021 has all the potential makings of another incredibly productive and busy year.
- Refinances to Slow, New Purchases to Emerge – The numbers show that there are still over 20 million homeowners who have a significant refinance incentive of at least $300 in potential monthly savings. While a significant number of homeowners refinanced in 2020, we will see a natural dip in this type of loan in 2021. The momentum will shift into new purchases, like resales or new construction. With the emergence of new mortgage originations, it is critical for credit unions to offer the full suite of mortgage offerings, including VA, FHA and conventional options.
- Staffing and Technology Opportunities –Strategically, credit unions should be thinking now about how to further adopt and embed technology into existing processes so they can flex up during periods of robust volume. It’s also advisable to consider a flexible staffing plan. Improving technology capabilities internally or working with a reliable outsourced partner will help credit unions bring their members home for mortgage loans instead of losing them to competing institutions.
With other business lines anticipating a challenging 2021, prudent credit union leaders will be well-positioned to capitalize on what’s sure to be another successful year for the mortgage market.
Interest rates are still near all-time low. Members are hungry for a great experience characterized by a financial partner who treats them like a person, not a number, as they make one of the biggest purchases of their lives. Opportunities for you to Bring Your Members Home will abound in 2021, so be sure you’re set to realize the high hopes we have for this new year.