3 Questions for Mortgage Lenders to Begin 2021
Written By: Joel Palmer, Op-Ed Writer
For all the negative events of 2020, mortgage underwriters and processors had a fairly busy year.
Now it’s time to look ahead to 2021. Here are just a few of the many issues the industry will deal with this year.
How busy will mortgage processors and underwriters be this year?
Most experts agree that mortgage lenders will see less refinance volume in 2021. In fact, a forecast from Freddie Mac last fall predicted that refinance value would fall in half between 2020 and 2021.
Of course, the same experts predicted refinancing would decline in 2020, which didn’t happen. Those forecasts were predicated on rising mortgage rates. Instead, rates continued to drop to all-time lows.
Still, it’s more likely that the 2021 forecasts will be accurate, even with mortgage rates remaining fairly low. A large percentage of homeowners who can benefit from refinancing have already taken that step. Other homeowners, on the other hand, have too much existing debt, have tenuous job situations, or don’t feel the monthly savings from refinancing is worth the arduous process.
Purchase mortgages could increase a little next year. Wells Fargo projects new home sales to jump 16 percent in 2021 and existing single-family home sales to rise 4 percent. Wells Fargo said it expects slightly more inventory available next year.
The market could get off to a slow start in 2021. Fannie Mae’s Home Purchase Sentiment Index fell for the second straight month in December.
According to the survey, the percentage of respondents who say it is a good time to buy a home decreased from 57 percent to 52 percent, while the percentage who say it is a bad time to buy increased from 35 percent to 39 percent. The percentage of respondents who say it is a good time to sell a home decreased from 59 percent to 50 percent, while the percentage who say it’s a bad time to sell increased from 33 percent to 42 percent.
What will happen with GSE conservatorship?
There’s little to no chance of the conservatorship of Fannie Mae and Freddie Mac ending this year.
Current Treasury Secretary Steve Mnuchin, whose tenure ends on January 20 when President-Elect Joe Biden takes office, said last month that conservatorship would end before that date.
Fannie and Freddie still need to build up their capital to safely release them from conservatorship. Furthermore, the incoming Biden Administration is much less enthusiastic about ending conservatorship than the Trump Administration was at the beginning of their term.
There were several initiatives announced at the end of 2020 to prepare the GSEs to be released from government ownership.
In November, FHFA released a final rule establishing a regulatory capital framework for the GSEs. The capital rule requires the GSEs to must maintain tier 1 capital in excess of 4 percent to avoid restrictions on capital distributions and discretionary bonuses. A month later, FHFA released a proposed liquidity rule for Fannie and Freddie. Also in December, FHFA announced another proposed rule to require the GSEs to develop credible resolution plans, also known as living wills, to “facilitate a rapid and orderly resolution should FHFA have to be appointed their receiver under the Housing and Economic Recovery Act of 2008.”
What impact will the incoming Biden administration have on housing in 2021?
Speaking of President-Elect Joe Biden, the housing initiatives he campaigned on centered on greater accessibility of home ownership.
In The Biden Plan for Investing in Our Communities Through Housing that the president-elect posted online during the campaign, Biden pledged to allocate $640 billion over 10 years “so every American has access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient, and located near good schools and with a reasonable commute to their jobs.”
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
