Federal National Mortgage Association: Lenders cite cost reduction as top business priority in 2022

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According to Fannie Mae’s Mortgage Lender Sentiment Survey® (MLSS), the business priorities of mortgage lenders changed significantly in the last quarter compared to previous years, with cost reduction now the most frequently cited business priority. Talent management has overtaken streamlining business processes to become the second most important priority, while investments in consumer technology have dropped out of the top three.

We recently surveyed more than 200 senior mortgage industry executives via MLSS, as we have done since 2017, to better understand lenders’ business priorities and strategies in 2022, and how these differ from previous years.1taking into account the evolution of the market.

In 2021, the mortgage industry saw significant growth, with the number of loans reaching an all-time high.2So far, 2022 has presented a number of new challenges for lenders, including continued and significant house price appreciation, rapidly rising interest rates, persistent inflation and slowing economic growth. world. Consensus opinion among mortgage executives indicates that purchase and origination refinance activity has declined significantly this year.3

As noted above, cost reduction has become the top priority for lenders for the first time since 2017. The importance of talent management has gradually increased since the pandemic, and this year it has become the second highest priority. more important. Additionally, the importance of consumer-facing technology has declined over the past three years, having peaked in 2019, and this year it has completely dropped out of the top three priorities. Additionally, investing in business process streamlining has been among the top three priorities since 2017, which we believe can be attributed to its relationship to cost containment.

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In preparing for the transition to a market more focused on buying mortgages, lenders most often cited improving the origination process and customer experience as their top strategies, similar to last year.

For the third year in a row, a majority of respondents cited “online direct-to-consumer lenders” as their biggest expected competitor over the next five years, and many highlighted what they believe to be the benefits of these businesses, including reduced costs, streamlined mortgage processes, and advanced analytics and marketing capabilities. Also, compared to last year, in 2022 lenders were more likely to see traditional banks as their main competitor. Many lenders pointed out that traditional banks have advantages in accessing capital, offering lower rates and cultivating customer relationships.

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Overall, mortgage lenders appear to be adjusting their business priorities to meet what they believe to be a new set of challenges. In an environment characterized by weakened mortgage demand and rising rates, lenders told us that operational efficiency, strong customer relationships and the ability to offer lower rates have become essential. Earlier in the year, some companies in the mortgage industry announced layoffs and mortgage business closures as sales of existing homes and new homes fell. In addition, the profitability of loan origination has fallen sharply this year, with the average production cost per loan hitting a new high.2.4With costs rising and origination volumes shrinking, lenders’ continued investment in streamlining business processes will likely be key to improving productivity in today’s challenging, low-margin environment.

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Doug Duncan
Chief Economist and Senior Vice President
Economic and strategic research

July 27, 2022

The opinions, analyses, estimates, forecasts and other views of Fannie Mae’s Economics and Strategy Research (ESR) Group or survey respondents included herein should not be construed as indicating business prospects or results. expected from Fannie Mae, are based on a number of assumptions, and are subject to change without notice. How this information will affect Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other points of view on information which it considers reliable, it does not guarantee that the information provided in these documents is accurate, up-to-date or suitable for a particular purpose. . Changes in the assumptions or information underlying these views could produce materially different results. Any analyses, opinions, estimates, forecasts and other views posted by ESR Group or survey respondents represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its direction.

1 Results of the 2021 MLSS Lender Business Priorities Survey: https://www.fanniemae.com/research-and-insights/perspectives/mortgage-lenders-cite-business-process-streamlining-and-talent-management-top-business-priorities
Results of the 2020 MLSS Lender Business Priorities Survey: https://www.fanniemae.com/research-and-insights/perspectives/lenders-describe-covid-19-related-challenges-and-business-priorities
Results of the 2019 MLSS Lender Business Priorities Survey: https://www.fanniemae.com/research-and-insights/perspectives/technological-investment-necessary-evolving-mortgage-landscape-lenders-say

2 The mortgage industry in 2021 had $4.4 trillion in mortgages, surpassing the previous 2020 record of $4.3 trillion, with purchase loans ending the year at $1.7 trillion, the highest level on record, according to BlackKnight’s January 2022 Mortgage Monitor, https://www.blackknightinc.com/black-knights-january-2022-mortgage-monitor/

Fannie Mae provided about $1.36 trillion in liquidity to the single-family mortgage market in 2021, with $451 billion for purchase loans, which topped $411 billion in 2020 and $313 billion in 2019.
Fannie Mae 2021 10K: https://www.fanniemae.com/media/document/pdf/q42021.pdf
Fannie Mae 2020 10K: https://www.fanniemae.com/media/document/pdf/q42020.pdf
Fannie Mae 2019 10K: https://www.fanniemae.com/media/document/pdf/q42019pdf

3 Please see the Economic and Policy Research (ESR) Group webpage for updated economic and housing forecasts, https://www.fanniemae.com/research-and-insights/forecast.

For example, the National Association of REALTORS® Pending Home Sales Index, which tracks existing home contract signings and typically precedes closings by one to two months, fell 3.9% to 99.3 in April, the sixth consecutive monthly decline.

Sales of new single-family homes fell 16.6% to a SAAR of 591,000 in April, the third consecutive monthly decline and the lowest level since April 2020, according to the Census Bureau. This follows a roughly 7% downward revision to March data.

4 According to the Mortgage Bankers Association March 2022 report Mortgage Bankers Quarterly Performance Report, Independent Mortgage Banks (IMBs) and Chartered Bank Mortgage Subsidiaries reported a net gain of $223 on each loan they originated in the first quarter of 2022, down from a reported gain of $1,099 per loan in the fourth quarter of 2021. -fiscal production profit was 5 basis points (bps) in the first quarter of 2022, down from an average net production profit of 38 bps in the fourth quarter of 2021, and down from 124 basis points on an annual basis. Total loan production expenses – commissions, compensation, occupancy, equipment and other production expenses and corporate allowances – increased to a new high of $10,637 per loan in the first quarter of 2022 – up more than $1,000 per loan in the fourth quarter of 2021 Loan production expenses averaged $6,829 per loan from the third quarter of 2008 through the fourth quarter of 2021.
https://www.mba.org/news-and-research/newsroom/news/2022/05/24/imb-production-profits-decrease-in-the-first-quarter-of-2022

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