As the mortgage industry gears up for 2024, it is vital to pay attention to the emerging trends of this year. As inflationary pressures ease, nearly a third of the American population expects mortgage rates to fall in 2024. This could lead to a rise in origination volumes, in stark contrast to this year. Digital mortgage platforms can help lenders maximize this opportunity. At the same time, loss mitigation measures are necessary so that businesses can keep pace with a dynamic economy.
Here are the trends, technology movements, and potential threats for mortgage lenders to address in the next 12 months:
Trend 1. Mortgage lenders plan to increase headcount
Despite significant macroeconomic headwinds, mortgage companies plan to increase their headcount in 2024, optimistic about housing demand and origination volumes. In a recent survey, 47% of mortgage executives said that their employers are planning to hire in the next few months. Increased staff can also help manage growing complexities in compliance and servicing, especially as inflation drives many borrowers toward delinquency.
Strategy for 2024: Mortgage lenders can complement their hiring efforts with investments in automation technology. Digital mortgage platforms and AI-powered tools can help streamline several of the time-consuming processes involved in origination. Connected workflows can also help build a digitally equipped servicing function.
Trend 2: Artificial intelligence will become more common
AI in mortgage is already a reality, and advancements like generative artificial intelligence are opening up new opportunities. Research shows that 60% of mortgage companies will have AI tools in place this year. Indeed artificial intelligence can supercharge digital mortgage platforms by introducing capabilities like optical character recognition (OCR). It can aid in loss mitigation by providing more accurate risk models. However, this also means that 32% of executives are afraid that tech and AI will replace their jobs.
Strategy for 2024: Lenders need to invest in reskilling and upskilling, especially focusing on digital literacy and soft skills. At a time when origination volumes still remain volatile, skilled mortgage executives can help retain existing customers and lower acquisition costs. With training, servicing executives will also find it easier to navigate the regulatory landscape while keeping borrowers engaged.
Trend 3: Young homeowners will shape the market
As Gen Z comes of age, they are expected to be an important driving force for the housing industry. For example, this digital-native generation is more likely to complete their end-to-end home purchasing journey online, which means that lenders need to build, strengthen, and fortify their digital mortgage platforms. Young homeowners are also more likely to be price-sensitive as a result of high inflation and increasing property prices.
Strategy for 2024: Lenders need to enable product differentiation through smarter loss mitigation strategies that employ innovative underwriting models. These can offer a new generation of homebuyers from non-traditional backgrounds (e.g., crypto investors) competitive rates and terms. Technology interventions in the mortgage process flow such as automated document management, chatbots, and mobile platforms can also play a role in attracting young adults, 90% of whom still see owning a home as central to the American Dream.
Trend 4: Commercial real estate (CRE) demand will be unpredictable
The CRE segment has seen significant flux in the last few years, with the office market being the worst hit. 90% of respondents in Mortgage Bankers Association’s (MBA) 2024 survey said that the CRE market remains somewhat to very unsettled. In 2024, borrowing and lending volumes are expected to increase, with easing inflation, a rise in valuations, and changes in base interest rates showing their impact. Mortgage lenders need to be prepared for this inflection while paying heed to loss mitigation needs.
Strategy for 2024: As CRE uncertainty lessens, mortgage companies must adapt their digital lending platforms and underwriting strategies for small to mid-sized businesses. They also need to aim for greater efficiency to tap into new CRE demand for emerging companies and unicorns. This means removing bottlenecks like approval delays, data silos, and paper documentation.
Trend 5: Home insurance will be a notable pain point
Volatile home insurance negatively influenced the mortgage industry in 2023, and this will be an important trend for this year. In 2023, 79% of lenders reported an uptick in issues related to home insurance. 68% said that the lack of insurance options and high premiums caused problems related to borrowers’ debt-to-income (DTI) ratio. In 58% of the cases it delayed loan closing. Some of these trends may persist in the upcoming months, which lenders may find difficult to navigate.
Strategies for 2024: Lenders will have to partner with insurance marketplace aggregators and other third-party firms to be able to recommend the most suitable offerings to their borrowers. With the help of digital lending platforms, it may be possible to put together bundled offerings. Lenders must also take special note of climate change and its effects on insurance premiums so they can enforce loss mitigation standards without losing out on business opportunities.
How Nexval can help
While market conditions are relatively more bullish in 2024, the mortgage industry still has a few complex months ahead. Interest rates are likely to remain high as the base rate will fall below the 6% range only towards the end of this year. As we look forward to a gradual decline, robust technology capabilities can help lenders come out on the winning side – by removing costly inefficiencies, unlocking new opportunities, and preventing compliance violations.
At Nexval, we help companies bolster their digital lending platforms with secure and functional innovations. Our solutions are backed by decades of experience in the mortgage industry and extensive research into the latest trends and policy changes.
To know how Nexval can help you navigate 2024’s mortgage industry trends, speak with our tech experts.