Following record lender profits in 2021, 2022 has mortgage lenders packing their bags and heading for the exits.
The Mortgage Bankers Association (MBA) believes the U.S. will enter a recession in the first half of 2023. The MBA expects national home prices will flatten in 2023-2024, with some regional markets to decline (by most accounts a fairly optimistic forecast).
The MBA forecasts mortgage origination volume to decline from the expected $2.26 trillion in 2022 to $2.05 trillion in 2023. This includes a reduction of:
- 3% in purchase originations; and
- 24% in refinances.
This anticipated drop is on top of the huge cut to mortgage originations which occurred in 2022 relative to 2021. Total one-to-four unit single family residence (SFR) mortgage originations topped $4.44 trillion in 2021, on track to fall to $2.26 trillion in 2022, according to the MBA.
Despite a cornucopia of consistent data pointing to an ongoing reduction in mortgage originations, 2022’s “quick cut” has apparently caught mortgage industry leaders by surprise, leaving them to hastily prepare for the rollback in originations.
Fewer mortgage fees to go around is leading to reduced mortgage industry employment, with the MBA expecting a 25%-30% decline in mortgage lending jobs over the next two years. Already, lenders are increasingly cutting staff and even exiting the industry altogether, according to the MBA.
The MBA’s slightly more realistic outlook for the mortgage industry is an about-face from just a year earlier, when the MBA forecasted mortgage origination volume to continue rising for years to come. Thus, for this buoyant trade organization to admit they expect a further decline means things are far worse than they seem.
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Surviving the 2023 recession
Real estate professionals who want to survive the housing market downturn need to adjust their strategy — fast.
Heading into 2023, an economic recession is not yet on the books. But its effects are already causing waves in real estate, including:
- damaging cuts to buyer purchasing power;
- declining home sales volume;
- reduced residential construction; and
- plummeting home prices.
Unlike during 2020, government interference will be limited this time around, as the Federal Reserve (the Fed) continues to fight high consumer price inflation.
Further, while home prices rose like a rocket in 2020-2021, firsttuesday forecasts prices will fall like dead weight, not finding a bottom until around 2025. Here in California, depending on region and price tier, home prices are already down 4%-10% from their May 2022 peak as of August 2022.
What’s a mortgage lender to do?
When income begins to slip, the only thing you can do — other than find a new job — is to overproduce in adjacent, still-running segments of the market.
During a recessionary market, this includes:
- arranging the sale of carryback notes;
- assisting with short sale negotiations;
- taking the lead on real estate owned (REO) property; and
- working with equity purchase (EP) investors purchasing homes in foreclosure. [See RPI e-book Buying Homes in Foreclosure Chapter 16: Assumptions: formal and subject-to]
Want to learn more about sustaining a mortgage business during a recession? Watch for our new series on creating alternative income streams for mortgage lenders. Don’t miss a beat — subscribe to firsttuesday’s newsletter, Quilix.
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Thank you for this article-luckily mortgage brokers can do: reverse mortgages, forward mortgages, private money loans, second loans, Alt-A loans, commercial loans, and in California if you are under the Department of Real Estate we can sell, list, and get referral fees on real estate transactions.