In his 20 years in mortgage banking, no year has compared to 2023 in terms of difficulty, said Ben Cohen, Guaranteed Rate’s managing director and a top-producing loan officer.
“This is a lot different than 2008 where you needed a credit score and a heartbeat to get a mortgage. Now, you need to be very qualified in order to get a mortgage,” he said.
Coming off of the pandemic banner years, thinning origination volume, low inventory and soaring home prices made business much harder to come by for LOs in 2023. It was another brutal year, pushing loan originators to work longer hours, close loans faster while diversifying their mortgage product offerings.
According to data from Ingenius, tens of thousands of loan officers exited the industry in 2023. In October, 67% of current LOs produced less than one unit of closed loans in October. An additional 21% closed 1.5 units per month and only 12% closed greater than 2.5 units.
With the Federal Reserve signaling interest rate cuts in 2024, mortgage rates are expected to trend lower going forward. But the industry was on a roller coaster with rates climbing near 7% in February and hitting 8% in October as the central bank battled to bring down high inflation.
LOs had to fight an uphill battle of targeting the purchase market in an environment with a rate ‘lock-in’ effect, go after first-time homebuyers and offer customized solutions to bring down monthly mortgage payments.
“Every single client scenario is different,” said Hunter Marckwardt, executive vice president of CrossCountry Mortgage. “[The year] 2020 and 2021 was all about how quickly a lender could execute. To me, 2023 is really all about understanding a buyer’s motivation and ability to qualify, and then determining where to go from there.”
Wrapping up the year, HousingWire analyzed some of the key factors that defined 2023 for loan originators and how they stayed competitive.
Rate ‘lock-in’ effect
By some measures, it was always going to be a difficult year for originators. According to Black Knight data, 40% of all U.S. mortgages were originated in 2020 or 2021, when the pandemic drove borrowing costs to historic lows. The customer pool by 2023 had already shrunk dramatically.
And about 90% of mortgage holders had a rate that was less than 6%; some 80% with a rate less than 5%; and almost a third had a rate less than 3%, meaning refi opportunities would be hard to come by.
Having already secured a mortgage with a sub-4% rate, homeowners were highly reluctant to sell their homes and move into another property.
“All things generally equal, and you’ve just wanted a little bit of a bump in the quality of your home, you’re not moving based on the difference in payments,” said Marckwardt.
The so-called mortgage rate ‘lock-in’ effect gave homeowners an incentive to stay put, preventing more housing supply from reaching the market.
“We’ve seen a consistent theme of potential sellers – many with first-lien rates a full 3 percentage points below today’s offerings – pulling back from putting their homes on the market,” said Andy Walden, Intercontinental Exchange, Inc. (ICE) vice president of enterprise research.
“The inventory puts a cap on how much business we can do. When loan officers don’t have refinance business, half of their businesses are gone,” said Andrew Marquis, regional vice president at CrossCountry Mortgage, in a previous interview.
The lack of inventory led to rising home prices, creating multiple-offer situations in some parts of the country. It all put more pressure on affordability.
“I’ve got several pre-approvals out there where people just can’t find what they want and the rates are throwing them off,” Don Monson, branch manager at Sente Mortgage, said of the challenges he faced in 2023.
Targeting first-time homebuyers
Those who catered to first-time homebuyers’ needs – offering Federal Housing Administration (FHA) loans and down payment assistance loans – fared relatively well compared to other colleagues who didn’t expand their target clients.
“Loan officers, myself included, who have worked a lot with first-time buyers and have working knowledge of various programs – whether it be FHA, Home Ready/Home Possible, bond programs (DPA/grant programs). They are staying busy relative to the market,” said Michael Ullmann, producing branch leader at Movement Mortgage.
About half of Ullmann’s production in 2023 came from VA and FHA loans as well as mortgages that require down payment assistance. Most years that number is closer to 30%, said Ullmann, who’s been an LO since 2012.
Borrowers extended their qualifications beyond where they would have been in the past at lower interest rate environments, choosing FHA loans that have more lenient qualification requirements than other loans.
“Today, in a higher interest rate environment, they (borrowers) might be pushing the limit to a 45 or 50% DTI ratio to achieve the same type of home in a higher rate environment,” said Steve Miller, branch manager and senior loan officer at Embrace Home Loans.
Mandatory mortgage insurance premiums were reduced to 55 basis points (bps) for most borrowers in February, and FHA loans tend to come with lower interest rates than conventional loans while the difference in interest rates could often be offset by the greater number of fees — including the MIP charges.
A myriad of down payment assistance programs — offered through state housing finance agencies, cities and counties — made it possible for some first-time buyers to stop renting and own a home without a large down payment.
With origination volume thinning, nonbank lenders also rolled out DPA programs where the lender would cover 2% of the required 3% minimum down payment on a conventional loan.
Due to lack of origination volume and higher rates, mortgage lenders are “pushing the envelopes again,” said Bill Gourville, president at Atlantic Coast Financial Services.
“They in the past shied away from just because there was other volume to be had. So they’re consistently pushing the envelope on programs that have technically always been available by agencies – Fannie Mae, Freddie Mac, FHA and VA – but now they’re rolling it back out,” Gourvill explained.
Lowering monthly mortgage payments
“The biggest factor and the biggest pain point that the consumers are having is what they’re willing to pay per month,” said Adrian Gastelum, senior vice president and branch manager at Nova Home Loans.
“So when I look at what’s deterring clients right now, is sticker shock,” Gastelum added.
As buyers’ affordability got crushed with elevated rates, homebuyers demanded that their loan originators provide options to lower monthly mortgage payments.
Temporary rate buydowns – a product that lenders started rolling out in 2022 – often made more sense for buyers planning to live in the home long term as they are more likely to have a refi opportunity during that time period.
While a seller-funded temporary buydown may not be available depending on how hot market conditions are, builders are more willing to provide these concessions as they are more incentivized to fill up new inventory.
“If buyers wanted to get a new build, this is definitely a good time to get a new build even with rates being a little bit higher because they’re going to come back down at some point and then you can just refinance,” said Simon Herrera, a loan officer at Highlands Residential Mortgage.
“Sellers are funding temporary rate buydowns but It’s really kind of a case by case. Builders for sure are doing it,” Herrera noted.
Some borrowers were more comfortable permanently buying down points as they preferred predictability when it came to making monthly mortgage payments.
“I let them know their options. These are the options you can do and here are the pros and cons of this (…) About 90% of the conversation we’re having, [I’m hearing] we don’t want to look at something temporary. We want to make sure we know what our payments are going to be,” said Jared Sawyer, a sales manager at loanDepot.
Nurturing referral partners, training agents
Mortgage origination volume for 2023 are expected at around $1.64 trillion, according to the Mortgage Bankers Association (MBA). About 80% of that figure, or $1.32 trillion, are projected to be purchase origination.
To go after the purchase market, LOs prioritized focusing on nurturing relationships with real estate agents — their main referral partners.
“People always know people [who are] buying. People always have friends doing something — and people [are] becoming investors buying second homes, third homes — so it’s just good to stay in front of them, because you don’t realize until you look back on how many people you actually probably lost by not staying in front of them,” said Christopher Gallo, senior vice president and mortgage consultant at CrossCountry Mortgage
“We look to follow up with those agents, invite them to lunches or dinners, coffee, etc. It’s all about the referral partner positioning. How can you make them look good in their business? Because ultimately, they want to be able to close more business, and you have to be an ally in that process. That’s the tactic that we take.” Marquis said.
Educating referral partners is key, which is why Cohen started a newsletter in March so partners can speak at a high level of what’s going on in the market. He sends them weekly updates on Fridays detailing the trends in interest rates and home prices.
“The wonderful thing about my business is everybody is a referral source, whether it’s a past client [or] a neighbor,” said Cohen.
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