The boom-bust cycle of refinancing and a host of other mortgage trends and strategies tend to come and go and come again depending on varying factors. “It is a cyclical business,” said David Kittle, president of The Mortgage Collaborative. It’s been a while since the cycle has turned, but it’s finally expected to this year due to the new administration and Congress and the recent rise in rates. Some mortgage-related ideas and market conditions from the past are likely to be back as a result. Not all of the following retro industry market trends or proposals may become realities in the next 12 months, but at a minimum there will be more attention and buzz around them.
A Preference for Selling Servicing-Released – The long run of historically low rates since the Great Recession has made servicing retention more attractive to lenders than selling loans on a servicing-released basis. When borrowers refinance to take advantage of low rates, the value of mortgage servicing rights drops. But with mortgage rates trending upward and discouraging refinancing, mortgage servicing rights could become more valuable, so selling them along with the loans would be more lucrative.
More Mortgage Debt for the Average Consumer – The average consumer’s mortgage debt dropped from just about $190,000 in late 2009 to just about $184,000 in early 2013, returning to levels above $190,000 only more recently. Next year, that figure is forecast to move more definitively beyond its seven-year high and approach $200,000. Home price increases have been driving average mortgage debt levels higher even as consumers pay down outstanding loan principal each month. While high rates could slow these increases, the greater prevalence of low down-payment mortgages also has boosted the average consumer’s mortgage debt.
Optimism about Private-Label Securitization – Until recently the market was resigned to government domination of the mortgage-backed securities markets, which haven’t had a significant private-label market share since the housing bubble in the mid-2000s. But with Treasury Secretary-designate Steve Mnuchin planning government-sponsored enterprise privatization that could reduce the GSEs’ market share, and rising rates making higher yields likelier, there is optimism about private-label securitization’s growth potential for the first time in years.
Less Love for the 30-Year Fixed-Rate Mortgage – Another implication of possible GSE privatization, combined with an upward trend in interest rates, is a return to the days when the 30-year fixed-rate mortgage wasn’t as popular with lenders. While the product won’t go away, “I’m not sure private capital would be the biggest proponent of 30-year mortgages,” said Rick Sharga, chief marketing officer at Ten-X, an online real estate platform. Thirty-year fixed-rate mortgages aren’t so attractive to a lender when rates rise because the returns on the money they lend get locked in at a low, increasingly below-market rate.