The year 2018 is shaping up as a year of volatility for the residential mortgage industry, with originations plunging as interest rates rise in response to $1 trillion reductions in asset purchases by central banks, according to Analyst Les Parker, by way of a LoanLogics press release.
Parker, CMB, who is also senior vice president of industry relations and consulting at LoanLogics, elaborated on what he sees coming up for the market.
“2018 just may look like 1994 to mortgage bankers,” Parker said, referring to the year following the first great mortgage refinance boom, when originations dropped sharply after interest rates rose, prompting many lenders to close or consolidate with stronger partners. “With the anticipated drop in originations and the scramble to keep market share, the resulting margin collapse and liquidity problems will lead to more industry consolidation and insolvencies,”
Parker also forecasts non-depository mortgages for bankers lacking liquidity. Parker says “when interest rates move outside of expected ranges, volatility expands and cash demands rise.”
“Mortgage servicing rights, already under distress, will discover a lower nadir due to too many sellers and too few buyers,” Parker added. “However, that will eventually provide a buying opportunity for some savvy investors. Some of the new MSR investors will step up and buy at very good levels.”
But higher interest rates won’t be the only problem mortgage companies will face this year.
Parker indicates that when volatility expands, the regulatory burdens of Dodd Frank, Basel III and other local, state, federal and international laws and rules will bring about unintended consequences of dislocation and illiquidity.