In the months ahead, with the presidential election approaching and the Federal Reserve eyeing interest rate cuts, originators will scrutinize how shifting fiscal policy could influence the mortgage industry and the economy at large. A new administration could have ramifications for markets and the overall economy, with potential policy changes and market fluctuations that affect U.S. citizens and their buying power. Already, markets are pricing in an anticipated rate cut at the next Federal Open Market Committee meeting. But how will these changes actually impact mortgage originators and the borrowers they serve?
As originators confront changing dynamics in the economy and housing market this fall, many will be asking important questions about how to approach their practice, identify client opportunities, and prepare for what may come.
What happens if an interest rate cut falls flat?
The housing market generally welcomes interest rate cuts, as lower rates can stimulate homebuying activity. However, the current economic environment presents unique challenges that complicate this dynamic. Two pressing issues threaten to perpetuate reduced loan activity for originators.
First is the severe shortage of housing supply, paired with soaring prices that push homes beyond the affordability of prospective buyers. Even with lower interest rates, the demand for homes far exceeds the available supply, leading to an overheated market where many buyers are priced out. And second, although a rate cut would typically be a boon for homeowners, many remain locked into historically low interest rates from the COVID-19 era.
How will changes in the White House affect homeowners?
Election cycles can unsettle the broader economy, yet the housing market has historically remained relatively stable when a new president-elect takes office. Would-be homebuyers and sellers deterred by the uncertainty of this year’s political race will likely enter the market the following spring during the true homebuying season when incumbent policies will have the most influence. One thing to watch out for amid this political climate: depending on who wins the election, we may see changes to first-time homebuyer programs and tax policies for homeowners.
How can originators respond to the fall 2024 housing forecast?
In a market where loan volumes are down and competition is fierce, mortgage originators cannot rely on a boost in activity from a possible rate cut. When the borrower pool is small and the market competitive, originators must be proactive in finding ways to differentiate from their competitors and serve clients in unique ways.
Non-QM loans continue to grow in popularity because they offer an alternative solution for potential borrowers who cannot meet strict conventional lending standards. This market comprises over 16 million self-employed borrowers, opening a notable pool of business for originators well versed in non-QM loans.
With home equity at record highs of more than $11.5 billion, HELOCs also provide a way for homeowners to access a significant amount of untapped capital. Originators often can employ HELOCs effectively to attract borrowers who hesitate to refinance their primary mortgage but are seeking other ways to leverage their home’s value.
Keep calm and prepare for change
No matter what may come in the months ahead, the best thing originators can do is keep a level head. By remaining agile and aware of shifting economic conditions and the changing needs of borrowers, they can better arm themselves to face unexpected outcomes. By focusing on client service and embracing innovative mortgage products, originators can bolster their business while maintaining a sense of stability even in a strained market.
Tom Hutchens is the President of Angel Oak Mortgage Solutions.
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