A Fast But Uncertain Start to 2021

A Fast but Uncertain Start to 2021

When the dust clears and 2020 comes into focus, one thing we will most certainly see is that it was a great year for real estate. Fannie Mae’s current estimates suggest that it will be a record-breaking year for mortgage lenders as well. Further, the secondary market giant expects to see more of the same in 2021, with 6.7 million homes changing hands in 2021. This could be very good for both mortgage lenders and home loan borrowers.

Mortgage lenders have seen little if any slowdown in their businesses, aside from a dip right around the December holidays. They don’t expect things to slow down either, not as long as home mortgage interest rates stay this low. How low? The year started with rates hitting a new record low, averaging 2.65% in Freddie Mac’s Primary Mortgage Market Survey.

How lenders can keep up.

Technology is the answer, and we’ve been seeing lenders adopting new, AI-powered Mortgage Automation Platforms to deal with the loan volume. This may seem unusual, as many lenders slow down on new technology implementations when they are this busy. That’s not really an option here, especially if the pundits are right and volume remains high throughout the coming year.

There will always be those who think the markets are burning down when they’re just smoking hot. One indicator that is telling us that the fundamentals are still good is the fact that bankruptcy filings in 2020 hit a 35-year low. Given the negative impacts visited upon us in 2020 due to the pandemic, one might have assumed that we’d seen more people file for bankruptcy protection.

It certainly helped that many received government stimulus checks and mortgage forbearance took that weight off of consumers for much of 2020. What will happen when all that ends? The government isn’t quite ready to find out yet.

Even now, the government is working on distributing the next set of stimulus checks, some on debit cards, and extending other aid to businesses. Last month on the mortgage front, the Federal Housing Finance Authority (FHFA) extended the forbearance window until the end of January, but borrowers can still extend forbearance for up to another year.

This means that borrowers who find themselves living in too much home and without a job to pay the mortgage can sell it and downsize. Fannie Mae recently made new loan originations easier by extending its COVID-19 flexibilities.

But eventually, these government efforts will end and the mortgage industry will deal with the fallout. The most harmful impacts will likely be limited to those borrowers who are still in forbearance later this year. Fortunately, as we started this year, this group did not show any growth.

Where mortgage loan borrowers will see success. 

One key to success will surely be found in transitioning mortgage loan borrowers in forbearance back into regular mortgage payments. This is going to be a key differentiator separating financial institutions with the best mortgage servicing from the rest. 

This is also another area in which many expect to see good automation deployed to help mortgage borrowers get back on track. For instance, an online helpdesk powered by artificial intelligence empowers mortgage servicers to respond appropriately to borrower questions about forbearance and avoid default.

That’s a word we haven’t been applying to these borrowers and for good reason. Forbearance is not delinquency. But when their forbearance period ends, many borrowers may be shocked to find that their mortgage servicing company expects them to make arrangements to make up those missed payments, sooner or later. I expect this work to be virtually indistinguishable from default servicing, but time will tell.

One thing is clear to me now, those firms with the best technology will perform better when this time comes. Thus it has always been.

What this all means for mortgage lenders is that 2021 is yours for the taking. Borrowers are very unlikely to get into trouble, which means more will qualify. Investors are working to make it easy to originate loans, even with pandemic protocols in place. And demand will remain high because interest rates will be low all year.

How to take advantage of this opportunity.

Already, the nation’s mortgage loan origination companies are competing viciously for top talent, trying to expand their teams enough to get to all of this business. There won’t be enough great people to go around. Even if there were, no lender wants to have to “right-size” in a year or two when the cycle turns and loan volumes fall. The answer, again, is technology.

It’s not just management and front line loan officers that are in high demand today. Loan underwriters and processors have become hot commodities and are commanding top dollar. There is no question that a good underwriter is worth his/her weight in gold, but there are plenty of tasks that human underwriters and processors should not be wasting their time on.

Keying in data seems like something that should have gone out of fashion decades ago and yet we still see too many humans in the loan processing shop pulling data off documents and keying it into the loan origination system. There are better ways to do this.

One is Intelligent Document Processing (IDP) is used to allow AI with machine learning capabilities to read the files better than a human can, extracting key information directly into knowledge bases or loan processing systems.

To find out about other ways these exciting technologies are empowering the mortgage lender of the future, check out this article on The Future of AI in Mortgage.

And, of course, compliance will remain a top priority this year. Record high volumes will be no defense later if a forensic underwriter finds a problem with the loan file that the lender missed.

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