Securing a competitive advantage in a challenging housing market
This has been a challenging year for mortgage lenders. As rates rise, mortgage originations continue to fall, making competitive differentiation more important than ever to win market share. Lenders are under increasing pressure to diversify products, educate customers about alternative financial solutions, and focus on providing digital-first borrower experiences.
This has been a challenging year for mortgage lenders. As rates rise, mortgage originations continue to fall, making competitive differentiation more important than ever to win market share. Lenders are under increasing pressure to diversify products, educate customers about alternative financial solutions, and focus on providing digital-first borrower experiences. Despite the market headwinds and shrinking origination volumes, lenders can emerge stronger if they act quickly on industry trends and elevate customer experience.
One of the most important trends in home equity is the soaring rate of HELOC originations, which almost doubled between the beginning of 2021 and the end of last year. At a time when homeowners are reluctant to refinance due to higher interest rates, they’re deploying tappable home equity to pay off debt and cover expenses. After years of extremely high refi volumes, borrowers need new solutions that will help them adapt to a different economic environment, which is why HELOCs will remain popular in 2023.
Market conditions call for a different lending approach
Although the Fed decided to pause interest rate hikes at its June meeting, this was after fifteen straight months of rate increases. Meanwhile, refi originations plummeted from over 1.5 million at the beginning of 2021 to just 39,000 in the third quarter of 2022.
This level of refinance volume is likely to remain low for the foreseeable future. According to Redfin data, the large majority of Americans have mortgages below today’s rates – at the end of 2022, 62 percent of mortgage holders had a rate below 4 percent, and 82 percent had a rate below 5 percent. A whopping 92 percent had a rate below 6 percent. America holding mortgages below 3 percent, it means they may feel held hostage by the low rate even if they dislike the home. As homeowners turn to scratch the home improvement itch, borrowers will need to look at tapping into home equity as a potential funding source versus the cash-out refinance option of the past.
