Freddie Mac is forecasting a 45% drop in refinance business in 2021. From 2.2 trillion dollars of originated refi business in 2020, they have estimated it will drop to 1.2 trillion dollars in 2021. This decrease is enough for anyone to sit up and pay attention, but that is not the only factor affecting lenders. As one example, the demand for housing has far outpaced supply. According to Freddie Mac, we would have to build 1.6 million new homes in the next 10 years to just catch up with current demand.
Lenders should anticipate a surge in purchase volume thanks to low-interest rates, and a big cohort of buyers will soon be on the scene. Freddie Mac’s data shows 50 million millennials could create new households, and these millennials are mortgage ready. Are lenders ready? Those millennials and some Gen Z that are first time home buyers are just waiting for their opportunity to purchase. With this in mind, Freddie Mac is estimating that the 1.2 trillion dollars in purchase volume we saw in 2020 will rise by 16% to 1.4 trillion dollars in purchase volume in 2021.
With the shift from refinances, high demand and low inventory, lenders need a purchase-centric strategy to remain profitable. They will need the right products to remain competitive.
Enter the renovation loan. These loans address many of the affordability and lack of “just right” inventory issues borrowers face, all while being profitable to lenders. It’s a win-win.
In a panel webinar with Freddie Mac, MGIC, and our own expert here at Land Gorilla, we asked them to weigh-in on their best purchase-centric strategies lenders can implement in 2021. Below are 4 important points they agreed are a huge boon to lenders seeking more purchase volume:
4 Important Points for Lenders Seeking More Purchase Volume
- There is a high demand for purchase products and specifically a big opportunity for renovation loans.
- Communicate with real estate agents regarding what you are hearing about purchase-centric products. There are many products out there that support the purchase market.
- Do some research into best practices for purchase-centric products, such as the need for mortgage bankers to gain a good partner in a warehouse bank that understands construction and renovation lending.
- Create strong relationships with referral partners with who you will get the most return for your time and investment. Do it now.
Additionally, in the webinar you will find they answer the following discussion questions:
- How are lenders responding to the anticipated drop off in refi volume?
- What are the main problems when all focus is on the refi business?
- What’s the best loan mix of refi and purchase volume?
- What impact has the pandemic had on forbearance?
- What is the importance of contingency reserve in renovation loans?
- What are a few suggestions about how lenders can think about Mortgage Insurance and saleability?
To see the answers to these questions and view the webinar in its entirety, click here.