Future of mortgage lending hangs on a balance between innovation and safety
Mortgage finance has been going through major evolution, with even more in sight. Non-bank companies are playing a greater part than ever in origination and services while having fewer regulatory burdens than do the fintechs. As the home lending business grows to multi-trillion-dollar levels the question of the future status of Fannie and Freddie becomes more urgent. The role of government at all levels in the housing business has come under scrutiny, as well, even as concerns about housing supply grow in Washington — which has little influence at the local level.
Mortgage credit has become one of the most scrutinized asset classes in the financial, regulatory and political arenas, and for good reason: Americans now hold over $20 trillion in outstanding mortgage debt, with mortgage debt increasing over 50% from 2013 to 2023, per Federal Reserve statistics.
Despite record-low interest rates in recent years, which spurred a surge in mortgage activity, rising costs have created new challenges for the industry. As home prices soar and demand outpaces supply, policymakers and industry leaders are grappling with a critical question:
How can we balance stability, affordability and innovation in the housing market?
Lack of supply-side solutions exacerbates rising credit costs
As Americans rushed to lock in sub-2% mortgage rates, the cost of originating those mortgages rose significantly as lenders, burdened with legacy systems, struggled to meet demand. Many mortgage lenders still rely on 1980s-era paper-based processes, particularly in back-office underwriting and loan administration functions. This adds time, increases costs, and leads to more errors. Average origination costs have increased by 35% over the past three years, according to Freddie Mac. Moreover, in 2022 alone, closing costs for single-family homes rose by 13.4%, with the national average reaching $6,905, according to the most recent figures from CoreLogic.
continue reading »