MBA Forecasts One Trillion Dollar Loss In Loan Originations

The Mortgage Banker Association’s Mortgage Finance Forecast is pointing towards an expected loss of one trillion dollars in originations from 2021 to 2022.

The housing market boom in 2020 can be explained by the government’s massive stimulus checks and the Federal Reserve cutting short-term rates to near 0, allowing more capital to become available, and mortgage rates to fall to historic lows. The combination of affordable housing and people wanting to migrate out of urban areas has driven increased demand for housing. However, there continues to be a shortage of housing, due to disruptions in the economy, causing heated competition and bidding wars to ensue.

The booming mortgage market created greater workforce demand. In 2020, new mortgage loan originators (MLO) enrolled in 85,878 tests compared to 44,826 tests in 2019. The pandemic caused testing to temporarily shut down, creating a backlog of new MLO’s, according to the 2020 MLO Report by the Conference of State Bank Supervisors.

Additionally, NMLS was updated in late 2019 with functionality for Temporary Authority (TA). During 2020, 38% of all MLO license applications were eligible for Temporary Authority and were able to conduct business, on average, in under 3 days.

Nonetheless, MLO employment grew significantly in 2020 and the share of MLOs by companies of various sizes remained similar. Overall, there was an 11% net increase in MLO count from 2019 to 2020, according to the report.

As of now, more people are attempting to grab a slice of the shrinking pie. This means lenders will likely spend more money just to come close to maintaining 2021 volume. More signing bonuses and thinner pricing margins will help them compete on rate. This could also implicate tech stack upgrades to try and lower the cost of originations and keep MLOs happy to prevent attrition. Furthermore, we’re likely to see a major bump in M&A activity.

Despite this, purchase originations are forecasted to increase in 2021, 2022 and even 2023. Non-QM is expected to receive a lot more attention as originators scramble to replace lost refinance activity.‍

Click here to read the full 2021 MBA Mortgage Finance Forecast.