Mortgage originations have fallen irrefutably in the residential refinance and resale market. The result is fewer and smaller fees for the services of mortgage loan originators (MLOs).
Conditions driving the decline are principally the highest FRM rates in over a decade as set by the bond market, and pathetic real estate sales volume due to seller refusal to adjust prices to match the decline in the Buyer Purchasing Power Index (BPPI) at current FRM rates.
But the commercial market can be more resilient, due to its long lease terms and — for certain types of income producing real estate like warehousing and apartments — low vacancy rates.
Is the commercial lending landscape faring any better, offering a haven for MLOs who have lost income in the residential consumer mortgage market?
No. Commercial and multi-family mortgage lending is projected to continue its current slide of 20% from 2022 throughout 2023, with $162 billion less being borrowed/lent. The bulk of the decline is due to fewer commercial loans being originated in 2023, though multi-family lending is also expected to end the year down 14% from 2022, all according to the Mortgage Bankers Association (MBA).
To forecast the drop in commercial and multi-family originations, the MBA points to:
- rising mortgage interest rates, which have pushed buyer purchasing power into the red, reducing access to mortgage funds for borrowers of all types;
- decreasing property values for reason of higher FRM rates; and
- uncertainty about property cash flow, as the 2023 recession causes businesses to fail which leads to a rise of vacancies in all types of property.
Despite these recession-related factors, the MBA expects mortgage originations to pick up in 2024, returning to 2022 levels in 2025.
That will be an unpleasant surprise for buyers; great for sellers. But the MBA’s opinion is likely far too optimistic to become fact. Already, they have adjusted their prior 2023 opinion of a 5% decline for 2023 detailed at the beginning of the year to a mid-year opinion of a 20% retreat by end of 2023.
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Please pivot to capture cyclical profits
The irretrievable, record level of mortgage origination fees in 2020-2021 was very juicy, thanks to the surge in refinancing induced by record-low interest rates.
All that action was fully depleted with 2022’s post-pandemic resumption of prior rising interest rates, which began in 2013. In the aftermath, MLOs with California Department of Real Estate (DRE) licenses will need to get creative to hunt out fees and make a living before their savings from the excess income in the good times are eaten up.
Already, DFPI mortgage originators have drastically cut staff or exited the business altogether.
MLO employment is likely to experience a 70% to 75% decline from the heights of 2021 by 2024, roughly four times the share forecasted by industry leaders.
The short term aside, lower bank earnings are expected for the next two-three decades.
MLOs who supplement their income during the downturn will shift their focus from recovery and boom time income sources to alternative income streams derived from real estate services rendered during recessionary periods.
During today’s recessionary market, which will continue for at least another 20 to 30 months, this includes fees for services rendered, such as:
- arranging home sales with carryback financing and assumption of low-rate FRMs;
- assisting with short sale mortgage discount negotiations as a facilitator for negative equity homeowners;
- taking listings on REO inventory held by servicers/lenders;
- arranging private money mortgage originations for funding business and investment purposes, not consumer mortgages;
- negotiating the exchange of equities between property owners;
- forming syndicated groups to acquire income property at double-digit cap rates; and
- working for equity purchase (EP) investors speculating in the purchase of property from sellers-in-foreclosure.
DRE licensees without an MLO endorsement also need to take note of these fee-generating strategies. Brokers still have time to pivot and cater to the recession-era demands of homebuyers and income property investors. Those brokers and agents who reset their approach to services will capture a chunk of this soon-to-be, fast-developing market.
As we head deeper into the 2023 recession, the property market pricing adjustments are just getting started. Stay up to date on the latest market updates by subscribing to firsttuesday’s weekly newsletter, Quilix.
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