Are you concerned about higher interest rates? If so, you are not alone. It seems the mortgage industry in general shares your concern.
Hiring by lenders took a step back in October after months of expansion, as the industry is beginning to anticipate that higher interest rates will lead to a slowdown in home loan activity. Consumers interested in buying a home or refinancing in the near future should take note – this reversal in the hiring trend is an example of the type of fallout that could result from higher interest rates.
Hiring Takes a Step Back as Mortgage Industry Anticipates Slowdown
According to figures from the Bureau of Labor Statistics, employment among non-bank home loan providers rose for eight straight months through September, to reach a two-year high of 299,700. However, that expansionary trend reversed in October, as total employment in the sector slipped back to 298,800.
That number is still higher than employment in the sector just two months previously, so there is no reason yet to expect a squeeze in the capacity of lenders to process applications. However, the reversal of the trend and the possible reasons behind it are worth noting, because they could ultimately lead to just that sort of capacity constraint.
The Mortgage Bankers Association anticipates a 13 percent drop in mortgage originations in 2016. One reason loan activity could slow is that the Federal Reserve is widely expected to raise interest rates in the near future. While the Fed won’t be raising mortgage rates directly, its actions are reflective of the economic conditions affecting interest rates generally, and home loans should not be expected to be immune.
Another possible reason to expect slowing home loan activity next year is a certain degree of borrower burn-out. After years of near-record low interest rates, most people who are in a position to benefit from refinancing have already acted. To a lesser extent, any pent-up demand among potential buyers has also been tapped due to low interest rates.
The problem for consumers who have not yet gotten around to refinancing or buying is that job cuts by lenders can become something of a self-fulfilling prophecy: as lenders cut capacity in anticipation of slowing volume, their reduced ability to process new applications can become another constraint on activity.
Expect Both Good and Bad Mortgage Changes in 2016
With interest rates expected to move higher and a possible capacity squeeze in the works, is there any reason for borrowers to be optimistic about 2016? Well, as long as default rates remain low – as they have been for about a year and a half now – some lenders should begin to loosen their underwriting standards, meaning that loans would become more widely available.
The irony then is that more borrowers may have the chance to qualify for home loans, but this would be happening just as those loans become more expensive and processing capacity becomes squeezed. What borrowers should keep in mind, though, is that not all lenders will be taking the same actions. Some will view loosening lending standards as an opportunity to expand their businesses, and those lenders that are looking to grow should be the best fit for new borrowers in 2016.