Few other industries must deal with the level of complexity of home finance. From mortgage origination to servicing, companies are constantly grappling with high volume and stringent regulatory oversight while managing a large cohort of vendor partners. We hope you enjoyed last week’s edition where we talked about CFPB Wants Lenders To Disclose Reason For Denial Of Credit. This week we’re bringing you:
Consumers’ concerns about housing affordability are squeezing would-be homebuyers out of the market, according to Fannie Mae‘s Home Purchasing Sentiment Index, which tracks the housing market and consumer confidence to sell or buy a home. The index score dropped by 0.3 points to 68.2 in May, inching toward its 10-year and pandemic-low of 63, recorded in April 2020.
All six of the index’s components — which ask consumers to weigh in on whether it’s a good time to buy, sell, and in what direction mortgage rates will move — dropped 11.8 points from the same time last year. A survey-high of 79% of consumers believe it’s a bad time to buy a home. About 70% of survey respondents expect mortgage rates will continue climbing during the next 12 months.
“Respondents’ pessimism regarding home-buying conditions carried forward into May, with the percentage of respondents reporting ‘it’s a bad time to buy a home,’ hitting a new survey high,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “The share reporting that it’s ‘easy to get a mortgage’ also decreased across almost all segments.”
Purchase mortgage rates, after hitting a 13-year high of 5.27% in May, fell for three consecutive weeks. Rates last week averaged 5.09%, essentially flat from the prior week, but significantly higher than the 2.99% rate during the same period last year, according to Freddie Mac PMMS.
The Federal Reserve raised the interest rate by a half percentage point on May 4 and repeatedly has signaled it will continue to raise rates this year and into 2023. The Fed’s interest rate does not directly affect mortgage rates, but higher interest rates steer market activity to create higher mortgage rates and reduce demand.
Mortgage rates are primarily determined by mortgage-specific bonds (MBS, or mortgage-backed securities to be exact). MBS share similarities with the broader bond market where US Treasuries serve as the risk-free benchmark. That means that mortgage rates often move in the same direction as certain Treasury yields.
The 10yr Treasury yield is the most popular benchmark for longer term rates like mortgages. It also provides an easy way to keep track of relative movement from day to day as long as you understand that there are times where the relationship can completely fall apart. Thankfully, now is not one of those times. Reason being, 10yr yields managed to move back below 3.0% today after breaking above that level for the first time in nearly a month yesterday.
Few other industries must deal with the level of complexity of home finance. From mortgage origination to servicing, companies are constantly grappling with high volume and stringent regulatory oversight while managing a large cohort of vendor partners. Add to those challenges increased competition in a rising interest rate environment that is choking off refinance business, driving overall mortgage volume down significantly.
When the squeeze is on, lenders must offer higher levels of customer satisfaction, lower costs or both to remain competitive. That requires elevated efficiency to counter the growing complexities, which likely include a more aggressive Consumer Financial Protection Bureau (CFPB). Technology will be the most popular solution, but choosing to implement multi-million-dollar platforms to streamline operations introduces even more complexity before savings are realized.
Two data degrees of separation
All too often though, it’s not the lender’s operation that is the problem. For both mortgage originators and servicers, the aforementioned large cohort of vendors must rely on third-party partners that introduce friction and uncertainty into their process. And automation is only as good as the information flowing through, much of it coming from two data degrees of separation.
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