As 2020 comes to a close, we will undoubtedly look back on the past twelve months as a time in which disruption was the hallmark. Amid the unprecedented socioeconomic upheaval brought about by Covid-19, organizations have had to pivot and strategize, adapt and change in new ways – in a far more agile manner than at any time in history. 2021 will be the year when the mortgage industry must double down on continuing to deliver digitally-driven experiences and achieving operational excellence – not just to rapidly advance, but in some cases to survive. The measurement of each company’s success will be dependent on how well they harness new technologies to inject differentiation and greater efficiencies into the home buying and refinancing process.
Today, we are announcing our first of three predictions of the trends and transformations that we believe will take place within the mortgage origination industry in 2021. Our first prediction is discussed below, and the second and third predictions will post in the coming weeks.
Real Estate Market Correction and New Market Creation
As a result of Covid-related factors and behaviors, single-family housing will be in short supply and prices will continue to rise in the near term. Over the longer term, however, several market forces will come together and put pressure on that housing bubble, ultimately flooding the market with properties that most people cannot afford. To summarize, with millions of Americans unemployed or with lower incomes, a significant number of homeowners will have difficulty paying their mortgages. Renters may be hit even harder due to a lack of income, in addition to eviction moratoriums that are coming to an end. The potential inability to pay their rent will then impact landlords and homeowners who count on that rental income to pay their mortgages, and they may rethink the value of owning these secondary and investment properties. Ultimately they may sell, or worse, be foreclosed on if they can’t make ends meet. All of this adds up to an influx of properties on the market, which will put huge pressure on the housing bubble. As a result, housing prices will begin to decline, and banks will look for ways to renegotiate existing loans with new options such as forbearance agreements, deferral of payments, loan modifications, or even principal reductions — similar to what happened in 2008.
RealKey will continue to play a key role in streamlining paperwork processing in the current low-rate environment and demand for new home purchases. Over the longer term, RealKey will be perfectly positioned for the new wave of refinances and/or other negotiated options that will be offered when the bubble ultimately pops.
Additionally, as the housing market undergoes this major shift and foreclosures begin occurring, we will see more home purchases being made by the investor community rather than individual homeowners. MLOs will need to think about the kind of service they provide to these customers as the definition of a ‘good’ loan will change. A ‘good’ loan will need to provide for a better experience collecting and reviewing documentation for investment-oriented purchasers vs. individual borrowers financing their primary residence. Again, this underscores the need for RealKey, which streamlines complex documentation scenarios.