Trending Issues

Originators: 2017’s big worry – higher rates.

You’re feeling it already – the refi-less market is coming.

Lenders are beginning to report volume and earnings pressure, and stories about shifts in production business strategy are appearing in the press.  And that’s before a significant move in rates by the Fed.

We likely still have some residual refinance volume to enjoy, but it will increasingly be housing value-based – trailing cohorts of consumers who are finally back in the money.  Be ready for them with competitive refi and home equity products…but don’t count on them to save the bank.  Those consumers may opt to move rather than refi or leverage their equity.

As we look at the rest of the year, and wonder how fast any remaining refi volume will evaporate, two Fed policy issues stand out:

  • We’ve been talking about a Fed rate increase for a while, and it seems more certain every month.  But that’s old news…
  • Last year the NY Fed bought $376 Billion of agency MBS1 – just to keep their $1.75 trillion portfolio stable.  This “accomodative2” program has been sopping up 20% of MBS issuance throughout 2016!  Recent press coverage interprets comments by Ms. Yellen to imply that the Fed is considering a 2017 start for a draw-down of its MBS holdings.  $8+ billion of additional Agency MBS supply per WEEK will almost certainly widen spreads significantly.

Our conclusion:  anyone not focused on a robust purchase market strategy will likely suffer considerably.  All originators can be expected to work hard to replace any residual refinance volume, so the competition for purchase deals will become fierce.  Our recommendations:

  • Hang on to your best loan officers – tight.
  • Shed under-performing or refinance-heavy sales people and branches, quickly.
  • Assume direct-to-consumer lenders will up their ad spend, so consider joining their game or have a very strong realtor outreach program.  You can beat them on service, but only if you get a chance, so don’t let their advertising budget cost you too many deals.
  • Look for cost effective technologies that improve the customer experience and shorten app-to-decision time.
  • Eliminate post-closing operational inefficiencies to accelerate funding by investors.
  • If you don’t have a solid consumer portal, get one.

If you’re not sure your plans are up to the challenge, or if you just want to see if there’s something you’ve missed that might make a difference, contact us today.

Source: Federal Reserve Bank of New York (

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