Tag: refinance

The Fed finally made their long-awaited rate cut. Hooray! The industry is saved! Brush off the dust everyone, it’s time to start originating mortgages like it’s 2006 again! Not so fast. While it's true that there are opportunities to take advantage of now that rates have declined, there remain open questions: How much further will rates decline? So far, only this single drop has been signaled. How many customers will realize benefit from a rate & term refinance offer given the rate drop(s)? What does this rate drop mean for the purchase market given that home prices remain at all-time highs? To put it simply, there are lending opportunities for home lenders (mortgage and home equity), but only for those with the ability to effectively leverage data and analytical strategies to identify and execute on the pockets of opportunity. By “pockets of opportunity,” we mean the following categories of consumers will benefit from specific mortgage or home equity offers. Rate & term refi: According to Experian research, over 83% of mortgages have an interest rate below 6.5%. This means that only the loans originated in the past couple of years (including one held by your author) will be eligible for a rate & term refi. The dollar amount on these loans will be high along with the interest rates, so even a minor savings on the interest rate will translate to potentially hundreds of thousands of dollars in lifetime interest savings for the borrowers. Being able to accurately identify which borrowers have an interest rate that is higher than the rate you can offer them is key to efficiently targeting and originating rate & term refinances. Cashout refi: Equity levels exploded over the past several years for homeowners. Home prices show no sign of slowing down and home equity continues to be a significant, and in many cases untapped, financial resource for borrowers. A cashout refi is an excellent option for those consumers with high amounts of available equity in their homes. Some borrowers may choose to originate a cashout refinance loan even if the interest rate is similar to their existing rate, such is the value of partially liquidating their equity position. Having the consumer-level data to identify what equity positions are and the current interest rate is crucial to crafting personalized, effective marketing offers. The ability to target qualified customers with a personalized offer is critical given that in August 2024, over 2.9 million cashout direct mail offers were mailed to consumers.1 Streamlined refi: The VA and FHA have streamlined refinance programs that minimize the consumer lift to refinance their loan. Additionally, there are also non-VA and FHA loans that could benefit from what is called an “Express Title,” which removes the need for a full title workup and expedites the originations process. Borrowers that meet the criteria for these streamlined refinance offers can be identified using credit data. Since these refinances are easier for consumers, they will be more likely to respond and book a refinance offer, which means more ROI for your marketing spend. Home equity lines/loans: Similar to cashout refi, home equity products are an option for consumers to access the equity they have in their price-appreciated homes. Although this is no mystery to most lenders, many lenders do not leverage adequate data or analytics to identify the needle in the haystack of customers that still remain to be targeted. Experian data shows over $25B in monthly HELOC originations as of August 2024. Understanding which consumers have a second lien position available, how much equity they have by leveraging trade-level mortgage data and Automated Valuation Model (AVM) data, and other methods can help your home equity products stand out from the sea of offers in the mail and online. At Experian, we help our clients target and originate all four categories of borrowers: rate & term refinancers, cashout refinancers, streamlined refinancers, and home equity borrowers. Crafting a marketing strategy with the accurate data to precisely identify which consumers qualify for which product is crucial to making the most of your marketing spend. Without the guidance of such data and the personalized offers they enable, your marketing message is liable to be lost among all of the other direct mail and email blasts. Market with confidence Crafting an effective holistic marketing strategy across these segments is crucial to campaign success. Consider these borrower situations and prepare to respond with confidence: Does the consumer have a high interest rate? Would the consumer benefit from a quick rate & term refi? If yes, ship the offer out. Does the consumer have a significant equity position and outstanding revolving debt balances, but not qualify for a rate & term due to a relatively low rate? If yes, ship them a cashout refi offer with language about using their equity to pay off revolving debt. Does the consumer meet the criteria for a streamlined refi, and would they benefit financially from such an offer? If yes, ship them a VA IRRRL (Interest Rate Reduction Refinance Loan), FHA streamline, or an offer to cover their refi title expenses if they qualify for an express title. Does the consumer have an open second lien on their primary residence, but not qualify for either kind of refi? If yes, ship them a home equity offer. By creating this kind of specialized marketing waterfall, lenders can ensure they have valuable offers for all borrowers, not just for a specialized market. Such strategies allow you to target your existing portfolio or a prospect population to facilitate portfolio growth and prevent portfolio attrition. Be sure to join our upcoming webinar, "Return of the Refi: Top Lending Strategies for Becoming a Refi Master." Register now and learn more about how Experian can help you win more mortgage and home equity customers in this declining rate environment. Register now Learn more 1 Mintel data

As last year’s high-volume mortgage environment wanes, lenders are shifting focus to address another set of challenges. Continued economic uncertainty lingers as consumers navigate towards recovery. As such, mortgage lenders have less clarity than normal to assess risk and measure performance in their servicing portfolios. On top of that, more lenders are struggling with customer retention than ever before, due to a historically low rate environment in 2020. These combined factors create a new set of challenges servicers will face in the coming months. We explore a few of these challenges below. An incomplete picture of risk The CARES Act accommodation reporting structure has made it challenging for servicing teams to fully understand the impact of forbearance in their portfolios. If looking only at a CARES Act accommodated borrower’s credit profile, there is no indication whether that consumer would otherwise be delinquent or headed towards default. In turn, lenders cannot model out risk based on this information alone. Borrowers’ financial situations can still change rapidly, and some are still struggling to regain their financial footing. Property data also plays a part in a holistic view of risk. Partly due to lack of housing inventory, home equity continues to rise in many areas of the country, yet there is still uncertainty around whether prices are overinflated, whether the market will correct itself and by how much, and the impact the foreclosure moratorium may have on one’s portfolio. And property dynamics continue to change due to consumer migration stemming from the onset of virtual or hybrid work environments, where homeowners are less bound geographically to a place of work. Being able to have insight into a holistic view of risk is critical to navigating the upcoming months in mortgage servicing. Low borrower retention 2020’s prevailing low-rate environment continues to persist well into 2021 creating a big challenge for mortgage servicers in terms of borrower retention. Borrowers continue to be incentivized to refinance, and in some instances multiple times, to capture the savings throughout the life of their mortgage. Every time a borrower refinances, the lender who’s servicing the loan risks losing the borrower to another lender. This portfolio runoff can create losses for the lender; high portfolio run off rates have shown to negatively impact portfolio performance and investor credibility while increasing marketing cost for new customer acquisition. In our Mortgage in 2021 webinar, we point to the sheer magnitude of this – at the end of 2020, a whopping 33% of first mortgages were less than a year old. Additionally, with the uptick in the number of fintech mortgage lenders and aggregation websites, it has become increasingly easy for consumers to shop for alternative options. Being able to predict the consumers likely to refinance can help servicers retain existing customers and reduce losses. Lack of operational efficiency Lenders and servicers had to increase the capacity of their systems, oftentimes at the turn of a dime, due to last year’s record-breaking origination volumes. This led to massive growing pains while simultaneously stress-testing a company’s systems and processes. As a result, the overall cost to produce a mortgage has risen. Borrower data hygiene poses a challenge for many servicers as well. There was a lot of movement in 2020 in terms of mergers and acquisitions which may also affect servicers’ operational efficiency. Marrying several disparate data points during such events can lead to borrower data inconsistencies and duplicates across loan origination systems. And as consumers come out of forbearance or deferral status, servicers are managing more calls to their inbound call centers, increasing the scope of the problem.  Having tools to ensure data accuracy and correct consumer contact information can help reduce operating cost. Conclusion There certainly is a lot of pressure on servicers to optimize and be in a position to efficiently help homeowners in need as forbearance and foreclosure moratoriums end. But with the right data, insights and partners, mortgage servicers can navigate these challenges all while managing risk and enabling the business to grow safely. In our next blog, we highlight what forward-thinking lenders and servicers are focusing on now to navigate the upcoming months in mortgage servicing. Learn more

According to the latest Experian-Oliver Wyman Market Intelligence Report, mortgage originations for Q2 2015 increased 56% over Q2 2014 — $547 billion versus $350 billion.