Benchmark International

The Global Market

The onset of the COVID-19 pandemic rattled the worldwide mortgage market. New lending volumes plummeted to record lows amid declining consumer sentiment, job losses, and nationwide lockdowns in many countries. However, new mortgage lending has remained on an upward trajectory since the second half of 2020. The total number of closed-end mortgage originations jumped from 8.3 million in 2019 to 13.6 million in 2020. That’s an increase of 65.2%. Regulators have kept interest rates at an all-time low. Even though interest rates could begin to tick up at some point, globally, the mortgage brokerage services market is expected to continue to see tremendous growth through the year 2027. The U.S. Market

There has been a boom in U.S. home sales during the COVID-19 pandemic as a result of low interest rates that have made refinancing more agreeable. It started in March 2020 when rates dropped to historic lows. An impending rise in rates would moderate this activity, but strong demand from the purchase market is expected to continue. According to the Mortgage Bankers Association, the sector is forecast to generate more than $2.5 trillion for each of the next three years. That is at least 40% higher than average annual originations between 2010 and 2019.

In 2020, the share of originations by nonbank lenders leaped to nearly 70%. This increase has been driven by a few outperforming nonbanks armed with strong digital strategies and a differentiating value proposition that make the process easier.

Adoption of New Technology

Technology is a key factor in the future of the mortgage industry during a time when borrowers expect faster, more digital experiences. Research by McKinsey shows that: 

• 60% of borrowers are open to completing the entire mortgage application online.
• And, if a lender takes more than ten days to approve an application, customer satisfaction drops by roughly 15%. 

Lenders have been turning to third-party technology and data providers to make the process of getting a mortgage more efficient and easier to navigate for consumers, which in turn drives revenue. This is especially important as tech-focused Millennials are at the home-buying age and Gen Z begins to come of age. Huge stacks of paperwork are unappealing and practically unfamiliar. A global survey by Infosys showed that, during the pandemic, those lenders tied to physical paperwork lost new business, and those that spent on digital infrastructure capitalized on their investments. 

Some of the software solutions that are being adopted are designed to speed up the application process, lower costs for the lender, and enhance the omnichannel experience. Focus has been on: 

• Front-end platform modernization
• Income and employment verification
• Workflow management
• Document extraction
• Title verification
• Appraisal management
• Automated compliance
• E-closings
• Fraud and risk mitigation 

There is still plenty of room for digitalization and disruption in the mortgage industry, as many processes remain slow and laborious and are not cost-effective. Artificial intelligence, chatbots, blockchain in origination and servicing, and machine learning represent massive opportunities for advancement in the sector. Considering all of these opportunities, this is a favorable time for mergers and acquisitions, as many brokers lack the ability to scale quickly enough and implement the right tech, and many investors are looking to fuel growth. 

Digitally focused originators are expected to maintain and possibly grow market share because of the convenience they offer customers and costs below the industry average. The online mortgage brokers industry market size in the U.S. has grown 7.1% per year on average between 2017 and 2022. This market size grew faster than the advisory and financial services sector overall. As of this year, the value of the online mortgage brokers market in the U.S. is $628 million. 

Bundling of Home-Buying Services

The bundling of home-buying services has become an emerging trend in the sector. It offers homebuyers one place for everything from mortgages, warranty and inspection, title and escrow services, and even movers and homeowner’s insurance. 

The National Association of Realtors indicates that around 95% of homebuyers would consider a one-stop-shop model for their home-buying process. And 79% of home buyers believe that bundled services make the process more efficient and manageable. As a result, the creation of new bundling services or the acquisition of existing providers is expected to increase in the future.

Trends in Subservicing 

The mortgage-subservicing market is expected to keep seeing double-digit annual growth over the next few years, with digital-first subservicers leading the way. A couple of things is driving this growth:

• First, newer lenders and owners of mortgage-servicing rights do not have the needed internal servicing capabilities and consider outsourcing to retain servicing rights.
• Second, the market is seeing a larger shift from in-house servicing to outsourcing because of higher regulatory scrutiny and the challenge and expense of default servicing. The servicing business is also capital-intensive in nature, which deters traditional servicers and smaller players from investing in modernization.

The Reemergence of Nonqualified Mortgage Lenders 

After the pandemic onset, lenders ceased accepting non-QM applications because credit guidelines tightened and capital availability dwindled. But now that economic recovery is getting back on track, liquidity has streamed back into the non-QM market. 

Overall Takeaways 

M&A activity and partnerships are expected to tick up in the mortgage brokerage industry as lenders move to offer better customer experiences and more digital innovations. Investors and firms flooded with capital will be keeping an eye on these trends to find ways to contribute to the improvement of the mortgage experience. Also, amid increased demand, some players in the mortgage industry are expanding operations and partnering with third-party vendors to meet the call. There is also a need to focus on operational costs, in which consolidation of business operations can help lower costs both regionally and globally in a complex industry.