The last two years have seen unprecedented flux in the mortgage industry. From COVID regulations and a cooling market to fears of an upcoming recession, all amid a recovering (though volatile) economy – mortgage providers have had a lot to contend with. At the same time, technology has progressed in leaps and bounds. Lenders that could adopt mortgage automation services, big data intelligence, and AI could leapfrog ahead of the rest.
So, what does the mortgage industry have in store for 2023? What are those market signals, technology disruptions, emerging opportunities, and future challenges that you should watch for? Here are our top eight mortgage industry megatrends for 2023.
1. Dipping originations due to a recessionary climate
It is now widely accepted that the housing market downswing will continue in 2023, at least in the first half. According to Mortgage Bankers Association (MBA) forecasts, unemployment will be around 5.5% and inflation 2%, which will have an impact on mortgage origination volumes. As federal rates are increased, housing activity will decline overall. However, certain regions could actually witness competitive property rates that could help demand. Mortgage providers should be prepared for these regional variances, and be ready to scale up or down.
2. Mortgage interest rates to peak in mid-2023
According to Federal Reserve’s median projection from December, the federal interest rate is expected to reach an all-time-high of 5 to 5.25 percent in 2023. Since the 30-year mortgage rate closely tracks the fed rate, we can expect a similar trend in the mortgage industry until the middle of next year. After that, the rates will begin to decline, causing the construction of new units which will enter the supplier market. Consequently, you can expect demand to pick up in the last two quarters, which is our second mortgage industry mega trend for 2023.
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3. Reliance on third-party suppliers and technologies to increase
In a bid to offset costs and take advantage of emerging technologies and operational tactics, several lenders are turning to third-party providers. This ranges from greater third-party assistance in audits, verification, and property preservation, to mortgage automation services. Most lenders still have processes that can be easily automated, leading to several thousands of dollars of origination costs per loan. In 2023, bank and non-bank lenders will either install third-party intelligent automation platforms or work with a mortgage automation service provider to customize the solution.
4. Home buyers likely to be frustrated, eager for a good customer experience (CX)
2023 is unlikely to bring good tidings for prospective home buyers, which makes them eager for a better customer experience. With federal rates dipping only in mid-2023, new units are expected to become available only later in the year. Also, job security and rising costs of living due to inflation are other challenges for home buyers. In this context, lenders that can support customers towards the beginning of the purchase journey – providing research guidance, product customization, etc. – will stand out because of the memorable customer experience (CX) they provide.
5. Growing role of non-bank lenders and fin-techs
The last few years have seen a fintech boom, culminating in a very high demand for digital payments and financial services during the pandemic. While the tech sector is going through its own downswing, fintech will remain central to the mortgage industry in 2023. This has several impacts. Customers may rely on unconventional credit offerings to make mortgage payments. Lenders may be able to gather underwriting information through unconventional sources. As a result, we will see the mortgage business landscape opening up in a big way.
6. Digital onboarding to become the norm
At a time when customers are used to online shopping, remote working, remote learning, and online bill payments, digital is the new normal. This mega-trend will apply to the mortgage industry as well, particularly in the case of onboarding. The origination process is already protracted, taking several weeks or even months to go from application to approval to disbursal of the loan. Digital onboarding could at least alleviate this to an extent through PDF document sharing, chat-based communication, and fewer in-person meetings.
7. API security to protect against the risks of third-party reliance
Greater third-party reliance could expose the mortgage industry to new cybersecurity risks. In 2022, top lenders like KeyBank, HomeTrust, and others fell prey to cyberattacks, which resulted in the leak of millions of customer data records. Data is often hijacked in transit while it is moving from one system to another through application programming interfaces (APIs). API security must be a top priority in 2023. Further, lenders must undertake cyber security assessments (if they haven’t done so already) to know their costliest attack vectors.
8. Big data analysis to bolster margins in a tough market
Finally, mortgage providers will rely heavily on data science to navigate complex market conditions. As rates rise and fall, demand picks up, delinquency declines, and, hopefully, inflationary pressures ease, big data analysis can help you stay a step ahead of the curve. These tools can process millions of structured and unstructured data points from a variety of sources to predict the future with surprising accuracy. This will propel lenders to move from legacy tools like Excel to Power BI and its equivalents in 2023.
While offshore outsourcing was always an important part of mortgage operations, it will take on a new role in the upcoming months. Outsourcing vendors will act as close partners to the mortgage industry, furnishing mission-critical effort, tools, and data. They will also utilize the cloud to remotely design and monitor mortgage automation services so that lenders can achieve more with less.
At Nexval, we are going into the new year with mixed feelings, prepared for upcoming challenges, and well-poised to take advantage of new opportunities. Speak with our Tech Gurus to know how you can come out on the winning side in 2023.