Lenders point to cost-cutting as their top business priority amid the mortgage industry facing a number of challenges – including high home prices, tight inventory of homes available for sale and interest rate hikes.
About 35% of the 253 mortgage executives that responded to Fannie Mae’s mortgage lender sentiment survey (MLSS) said cost cutting was overall the most important factor in their business operations – ranking first for the second year in a row.
There’s still overcapacity in the market and as part of lenders cutting costs, Fannie Mae expects more layoffs in the industry.
“It’s expensive to let people go and then rehire. So there is usually that six month or so lag before you see the layoffs as they’re calibrating, will the market come back or not,” Doug Duncan, chief economist and senior vice president at Fannie Mae said in an interview with HousingWire.
“Our view is there’s not going to be a sufficiently large turn in the market to justify the current amount of labor that’s been held,” Duncan noted.
‘Business process streamlining’ ranked second (32%) as lenders seek to reduce costs through streamlining, minimizing manual tasks, and improving accuracy. Both ‘consumer-facing technology’ and ‘talent management & leadership’ ranked in the top three (24%) to help improve customer experience and drive sales.
“[We are] looking at technology that will help streamline and reduce appraisal costs for the borrower. Additionally, [we’re] reviewing technology to improve accuracy in determining income of self-employed borrowers,” an executive at a large lender, said.
Fannie Mae conducted an online survey consisting of 10 questions among senior executives — such as CEOs and CFOs of Fannie Mae’s lending institution partners.
Among a random selection of 3,000 senior executives, 253 senior executives completed the survey between May 2 and May 15 representing 232 lending institutions — including mortgage banks, depository institutions and credit unions.
Surveyed lending executives had a pessimistic outlook toward the economy.
About 73% of the respondents believe the U.S. economy is on the wrong track.
About 93% of lenders believe the U.S. economy is “very likely” (57%) or “somewhat likely” (37%) to enter a recession in the next two years. Among them, 68% of lenders expect the recession to start in Q3 (24%) or Q4 of this year (44%).
Fannie Mae’s Economic & Strategic Research (ESR) group in its July commentary projected that if a recession were to occur it would be a modest one, which is likely to begin in Q4 2023 or Q1 2024.
The economy — coupled with resilience in the labor market and active new home construction — experienced a stronger pace of economic growth than Fannie Mae previously expected.
“The reason, if a recession occurred was going to be mild, was because of housing. We also said that while our base case was a mild recession, the alternative case was a soft lancing and it would be housing that would be the cause,” Duncan said.
Lenders should cut costs and be very mindful of persistent inflation and the impact that has on their loan portfolios. The yield curve inverted sixteen months ago in March of 2022. During the last six recessions, a recession started six to 36 months after the curve inverted. Currently, this has been the most widely predicted recession in recent memory but has yet to materialize, but the yield curve is only getting more inverted, inflation has fallen from its peak but remains high, mortages are more than twice as expensive as two years ago, unemployemnt is near a low, and there are 20 more months until we are out of the woods from a historical perspective of inversions predicting recessions. Best to be prepared.