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Typically, mortgage originators leverage marketing efforts in Q1 to reach their target purchase consumers before buying peak season, but 2020 is shaping up to be the next big wave in refinance activity. Loan originators who are not promoting refinance loan programs are missing out on the chance to grow their pipelines and increase their closed loan volume in the first half of 2020.
2020 Continues The Refinance Mortgage Loan Surge
Last week, the Refinance Index climbed to its highest level since June 2013, according to the Mortgage Bankers Association (MBA).
Although refinance volume activity hit record highs in 2019, year-over-year index comparisons show a 183% increase in the Refinance Index in 2020. Low interest rates this month continue enticing homeowners to capitalize on refinance opportunities. As a result, refinance mortgage volume represented more than 60% of all closed loan volume at the start of February, and last week refinance loan volume soared to represent 65.5% of all closed mortgage loans in the U.S.
Will Rates Stay Low Enough To Keep Refinancing Attractive To Borrowers?
In December 2019, HousingWire predicted the average mortgage rate would fall to 3.6% in 2020. Joe Tyrrell, Ellie Mae’s Chief Operating Officer, said, “The refinance boom potentially ending is a major topic of discussion in the industry at the moment, but the reality is that if we take a step back and look at the last year, overall the market is still favorable for homeowners looking to refinance.” The low rate environment that is expected to remain for the next few months of 2020 presents loan originators with opportunities to capitalize on market conditions, encouraging many current homeowners to refinance their mortgages.
Three Misconceptions Keeping Refinance Pipelines Frozen
The growth of refinance pipelines is determined by a mortgage originator’s ability to capture new prospects. This time of year usually calls for increased focus on purchase business, but with current market conditions, capturing additional refinance prospects is key to increasing closed loan volume. Here are three beliefs that could be detrimental to refinance growth strategies in 2020:
1. The Belief That Spring Is Only Purchase Season
Favorable weather and low rates usually create strong purchase market conditions, however, a lack of affordable inventory remains a challenge for many prospective home buyers. “It is challenging – especially for those potential buyers – where we have a good economy, low interest rates and a soaring stock market, yet are finding very few homes available for sale,” said Lawrence Yun, NAR Chief Economist. According to the National Association of Realtors Pending Home Sales Index Report, at the close of 2019 contract activity experienced month-over-month declines in all four major U.S. regions. In the December report, Yun predicted, “Due to the shortage of affordable homes, home sales growth will only rise by around 3%.” Originators focusing marketing efforts exclusively on purchase loans are setting themselves up to miss out on new business from the immense opportunity the refinance market has created.
2. Believing Real Estate Partners Refer All The Business Originators Need
Years ago, real estate agents and brokers were at the center of the transaction. Loan officers, attorneys and title companies received direct referrals from their real estate business colleagues, and an originator’s pipeline correlated to the number of positive industry relationships they had.
For many years, Marketing Service Agreements (MSA) were popular marketing strategies that brought together corporate lenders, banks and real estate brokerages. Since the issuance of a compliance bulletin in 2015 by the Consumer Financial Protection Bureau (CFPB) citing the potential risks presented within these agreements, MSAs have become increasingly absent from modern mortgage marketing strategies. The shift away from MSAs has added increased priority on a lender’s ability to establish a high-performing prospecting strategy.
Refinance marketing strategies should empower originators to connect directly with current homebuyers who are interested in the benefits of refinance loans. To take advantage of refinance market conditions, it’s important to flood pipelines with new refinance prospects.
3. Homeowners Are Proactive When Ready To Refinance
Not all borrowers return to their original lenders for future transactions. The reality is consumers seek a combination of efficiency, transparency and quality service. Marketing refinance loan opportunities only to former clients represents a belief that homeowners want to exclusively work with their previous loan originators, and misses presenting an opportunity to be 2020’s better solution.
While Rates Remain At Five Year Lows, Market To Refi Prospects
With mortgage rates holding near record lows, approximately 2.6 million borrowers could experience monthly savings via refinance loans. Financial brands should avoid the calendar trap, which often locks marketers into a strategy because of seasonality and habit. Mortgage marketing strategies will be most impactful when devised based on consumer profiles and market conditions, and now it's the time to push the refi.