(Photo courtesy of Willie & Kim Photography)
As mortgage rates move closer to 6%, optimism is spreading across the sector. Lenders are beginning to prepare for what is expected to be a ‘mini-refi boom’.
But this wave will be significantly different from the previous one. Mortgage industry leaders warn this won’t provide a life-saving boost to mortgage lenders, but it does provide strategic opportunities.
“It will be a mini refi boom. It’s not going to save the lives of producers,” said Candice McNaught, senior vice president of national sales at the Dallas-based company High lendingduring the day HousingWire‘s IMB Summit in Dallas on Tuesday.
At Supreme Lending – which produced approximately $3.7 billion in production volume over the past 12 months, according to the mortgage technology platform Modex — Executives are focused on improving the skills of their sales teams. Many loan officers have shifted their focus from refinancing in recent years, so a refresher course is needed.
“We have taught loan officers how to redo loan refinances. There are so many people who have forgotten how to structure a streamline, and we let them know it’s okay. We’re going to get them back to basics,” said McNaught.
Still, McNaught emphasizes that companies should not limit their focus to refinancing and purchasing loans. Exploring the possibilities with other products will strengthen company loyalty among sales leaders and provide long-term value following this refi wave.
The Association of Mortgage Bankers (MBA) estimates that refinancing production is expected to reach $591 billion in 2025, nearly tripling 2023 volume. While this rebound is encouraging, it pales in comparison to the $2.6 trillion in refinancings in 2021.
“It will never be like 2021 again unless there is another pandemic or something else,” said Kevin Peranio, Chief Lending Officer at Paramount residential mortgage group (PMRG). “But there is about $3 trillion of loans in the money for refinancing as rates continue to fall – that’s all the purchasing that has been done in recent years against the backdrop of higher interest rates. So there is meaningful refinancing activity.”
Lower rates do lead to better housing affordability. MBA data shows that purchase loan production is expected to increase 30.8% to $2.38 trillion by 2025.
Peranio’s message to loan officers? “Don’t give up on the real estate agents who need you now more than ever.”
The retention battle
A potential challenge in this coming refi wave will come from service providers positioning themselves aggressively. In recent years, troubled lenders have sold mortgage servicing rights (MSRs) to shore up their cash positions during periods of higher interest rates and shrinking credit production.
With interest rates falling, servicers are poised to use their growing MSR portfolios to offer refinances directly to borrowers, creating direct competition for other lenders.
“The biggest threat is the thought that the refi sector will be easy this time,” Peranio said. “The game of the servicers is very strong. “The competition between servicer and originator will be a bit ugly this time.”
Connecticut-based Planet Financial Groupled by CEO and President Michael Dubeck, has expanded its services portfolio in recent years. Within mortgage financing shows that the value of its own maintenance book reached $96 billion in the second quarter of 2024, making it the 22nd largest in the country.
The company has also improved its ability to retain borrowers. According to Dubeck, it has invested in data, marketing and sales skills to capitalize on this portfolio. Data from Fitch Ratings shows that Planet has a retention rate of 28%, compared to the industry average of 8%.
“Last week we had our best lock-in day in the company’s history. But it’s not easy,” Dubeck said.
He went on to say that the company typically acquires smaller MSR bulk deals of “half a billion, a billion and a half,” very often from single-channel originators. But occasionally it bids on larger volumes. He sees consolidation in the MSR market as it becomes more efficient. And he also pointed out the capital requirements of Ginny Mae that could motivate some MSR sales.
“The bigger names will likely become more competitive, and it will be harder for mid-sized smaller companies to keep up,” Dubeck said.
Low balance loans
Regulators are also expected to play a crucial role in shaping the next refi wave. They believe that many borrowers with low-balance loans were overlooked during the 2020-2021 refinancing frenzy due to high origination costs.
At the Consumer Financial Protection Bureau (CFPB), director Rohit Chopra has indicated plans to incentivize lenders to cater to these underserved borrowers.
“There are thoughts and ideas about creating greater incentives for IMBs to participate in these lower lending cost structures,” said Taylor Stork, head of business operations Developer Mortgage Co. and chairman of the Community Home Lenders of America.
“If you look at what FHFA is pushing through the companies, through the scorecard system, to create additional incentives for low loan amounts, they may create some profit opportunities, but it is a definite challenge. But at the same time, it’s also a clear opportunity because there are a large number of people who haven’t gotten the 3% refinance and who could potentially refinance it at 5% and 6%.”
