How Does the Future of the Mortgage Industry Look Like in 2021?

COVID-19 threw the world a giant curveball in 2020. For the mortgage industry, the pandemic meant adapting to an all-digital environment while handling the deluge of record-breaking volume charged by plunging interest rates.

Lending technology accelerated by years over the eight months since social distance and quarantine measures begin. Looking ahead, industry advancements for 2021 could be less about novel innovation and more about building on the progress of the last year, with hybrid digital closings taking up a larger share of mortgage transactions.

Brian Madocks, CEO of eOriginal said in an interview, "Last year there were about 129,000 loans executed digitally. We have recently been running at as much as 50,000 per week."

He added, "It's been an immense leap forward in terms of total loan volume and a greater number of participants with more and more coming on. We expect 2021 to be the continuation of that because it's still in the early stages of digital conversation for the mortgage industry."

Let's look at the 2021 mortgage lending predictions:

30-year FMR will stay between 2.8% and 2.9% through 2022

Fannie Mae estimates average rates for the 30-year fixed loan will remain at 2.8% through 2021 and only rise to 2.9% by 2022.

The GSE's November forecast calls for USD 4.12 trillion in mortgage originations this year, up from USD 4.08 trillion in the October outlook. For 2021, the latest projections call for USD 2.72 trillion in volume, up from the USD 2.62 trillion that Fannie Mae Chief Economist Doug Duncan last predicted.

Total home sales will increase from 5.7% this year to 21.5%. While total home sales are expected to go up by 0.8% next year, new-home sales will be up by 6.2%, and existing-home sales will remain flat as per Fannie Mae's forecast.

A Surge in Early Payment Defaults

As per Trevor Gauthier, CEO of Aces Quality Management, the Federal Housing Administration's temporary waiver of its required monthly early payment default control reviews could lead to some trouble in 2021.

Through July, Aces software tracked a 75% uptick in early payment defaults, from the average monthly rate of these reviews for 2019, the company noted in a September report. That rate continued to grow through the third quarter.

Investors May Return to the Secondary Market

Wherein the onset of the pandemic caused most investors to abandon the secondary market temporarily, a few remarkable developments over the past several months have made industry watches hopeful about a revival.

Given how hard the private-label mortgage-backed securities market was hit at the onset of the pandemic, there is little expectation that the market will grow larger by next year.

Hybrid Mortgage Closings could Increase by 30%

Social distancing measures require a change in how closing is conducted. Much of the mortgage industry has gotten up to speed with the technology that facilitates those deals. And experts predict those hybrid closings to continue growing in 2021.

Aaron King, CEO of Snapdocs, says that he expects at least 30% of all U.S closings in 2021 to be hybrid in nature, driving massive efficiency across the board and creating a much-improved borrower experience. On the other side, the lack of standardisation means RON will continue on its 20-year voyage of still not making into the mainstream.

Mortgage Servicing Rights Values Might Suffer

If low rates continue in 2021, the value of mortgage servicing rights could remain depressed due to prepayments that minimise their value. Persistent economic distress could lead to other servicing market challenges. For instance, it's unclear how many loans currently in forbearance will ultimately enter the foreclosure process.

Because government-related secondary market agencies dominate the current market, they may play a key role in setting policy standards in servicing as the pandemic continues.