With the mortgage industry still rightsizing, mortgage professionals are worried about regulation of the industry and inflation that thins already tiny margins. Industry players are largely pessimistic about the economic climate and expect interest rates to trend up in the near term future, according to the HousingWire Q2 2023 LenderPulse survey.

Roughly 30% of 155 respondents of the LenderPulse survey pointed to increased regulation, rising interest rates and inflation as the biggest challenge they face in the next three months, out of a total of 11 options that included lender stability, underwriting problems and competitiveness of product offerings.

About 19.4% of the surveyed mortgage professionals said loans falling through was the biggest challenge, ranking as the second most challenging factor. Lead generation ranked as the third biggest hurdle at 15.5% and staying motivated trailed at the fourth place at 14.2%.

Other challenges selected by mortgage professionals were relationships with real estate agents at 8.4%; competitiveness of rate sheet and underwriting problems at 5.8%; lender stability at 3.9%; competitiveness of product offerings at 1.9%. None of the surveyed mortgage professionals said staff cuts caused decreased ability to close loans and lack of training were the challenges they faced. 

LenderPulse requests surveys from 24,000 mortgage professionals across the country on market trends and lender opportunities and challenges. Of the 155 completed surveys, 32.3% of the respondents were from the Southwest, 21.3% from the Midwest, 16.8% from the Northeast, and 14.8% of the respondents from the Northwest and Southeast. RealTrends LenderPulse is a forward-looking quarterly survey. The survey was conducted from February 27 to April 3.

Economic and Housing Market Outlook

Amid the Federal Reserve‘s efforts to tame inflation, 44.5% of surveyed mortgage professionals expressed pessimism about the economy in the next three months. Of the total, 36.1% were neutral and 19.4% were optimistic. 

Mortgage professionals’ pessimism about the economy in the near term stemmed from expectations of interest rates trending higher. 

About 47.1% of the respondents said rates will likely go up in the next three months, 30.1% of the survey participants said rates will remain flat while 22% said rates will trend down. 

A total of 45% of participants said home sales in their markets will remain flat for the next three months; 30.3% said sales will go up more than 5%; and 25.2% expected sales to go down more than 5%

In the latest report from the National Association of Realtors (NAR), existing home sales rose 14.5% in February month over month for the first time after 12 months of decline.

Incentives in the Market 

In a higher-rate environment, temporary rate buydowns funded by sellers, lenders or builders were widely offered as an incentive for buyers.

The majority of the 155 respondents – about 70% of the total – noted temporary rate buydowns funded by the seller, builder or lender are offered as incentives to buyers. 

“Sellers are entertaining offers with rate buydowns and concessions to keep this market going but also to sell their property,” a loan originator in California said.

In a high-rate environment, lenders call the temporary rate buydown a win-win strategy for both sellers and buyers when used appropriately. 

For example, a 2-1 buydown can be paid for by the homebuyer or the home seller can pay for it as a seller concession. That payment can be made in the form of mortgage points or a lump sum deposited in an escrow account with the lender and used to subsidize the borrower’s reduced monthly payments.

“As it pertains to buydowns and or seller funded buydowns, in my opinion and from my perspective I feel this product is really only viable and something that makes sense for a borrower if the buydown is seller or builder funded,” an operations manager based in California said. “It is essentially free money that would be credited back to the borrower should they pay the loan off within the buy down structure (1/0, 2/1, or 3/2/1).”

Seller credit for closing costs, price reductions waiving of fees, and adjustable-rate mortgages (ARMs) were also mentioned by mortgage professionals as incentives offered in the market. 

“The 2/1 buydowns were working great, but now the market has tightened with a lack of supply of homes on the market, so a lot of the sellers quit offering this or accepting this,” a mortgage broker in Arizona said.

“Borrowers opt for ARMs more often than a fixed rate for a more competitive rate. Many are curious about buydowns but we are currently operating in what is still a seller’s market so not seeing many seller-funded buydowns,” a loan officer in Boston noted. 

Pivot to a purchase mortgage market 

In a purchase mortgage-focused market, getting referrals from real estate agents is key to landing business.

Keeping in contact with Realtors periodically, forming new relationships at open houses and setting up in-person meetings were how mortgage professionals strengthened relationships with realtors, according to the submitted written responses.

“Volunteering with our local Board of Realtors, on three (3) committees; Education, Banking & Finance and Membership Engagement. Looking to form relationships that I can turn into referrals down the road once they realize how organized I am, how smart I am and that I am a relationship lender in a local community bank!” a loan officer in Washington noted.

Sharing leads and sending out newsletters are ways loan officers try to get themselves to stand out in a highly competitive industry. 

“Actively engaging with them, monthly lending newsletter, training opportunities [is how we strengthen relationships with Realtors],” an executive at a regional bank in Michigan said in a written response. 

“Our goal is to strengthen our Realtor partners relative to their competitors. To do this, we’re holding skills and knowledge classes and meeting face to face to share best practices,” a loan officer located in Texas said. 

If you have questions about LendingPulse email RealTrends Editorial Director Tracey Velt at [email protected]. Also, be sure to sign up for the new Data Digest newsletter, a weekly breakdown of news, tips and strategies for success.