The mortgage and mortgage applications market is constantly evolving after rising based on economic conditions, demographics, government policy, and technological advances. Understanding the key trends in mortgage applications allows industry players to adapt and succeed. In this post, we will explore some notable trends that are shaping mortgage lending.

Surging Refinancing Activity

With interest rates declining to historic lows during the pandemic, mortgage refinancing activity has surged dramatically. Many homeowners are capitalizing on lower rates to refinance, consolidate debt, and reduce mortgage payments. According to the Mortgage Bankers Association, refinancing originations grew to $2.3 trillion in 2020, the highest since 2013. This massive wave is set to continue through 2021 as rates remain low. Lenders need to staff up and digitize to handle the spike in refinancing.

First-Time Homebuyer Growth

The low-interest rate environment combined with millennial demographics is also swelling the first-time homebuyer ranks. First-time buyers made up 32% of home sales in 2020 versus 30% historically. Many millennials delayed home buying due to debt or the impact of the 2008 crisis. With savings and remote work options now, millennials are entering the market.

Shifting Location Preferences

The pandemic triggered a shift in homebuyer location preferences with many fleeing dense urban areas for suburbs and small towns. Mortgage demand in outer suburbs and exurban areas is booming while cooling in central business districts. Lenders should reallocate marketing resources to capture expanding suburban, small-town opportunities while maintaining urban presence.

Spiking Demand for Second Homes, Vacation Properties

Seeking safe havens and remote workspaces during COVID-19, demand has surged for second homes and vacation properties. Mortgage applications for second homes grew 19% in 2020. High net-worth investors also boosted vacation property lending. Marketing should highlight financing options for second homes and investment properties. Lenders can tap home equity lines of credit also to enable additional property purchases.

Rise of Alternative Documentation Types

To serve self-employed and gig workers with variable incomes, lenders are expanding beyond traditional pay stubs and tax returns used to document income. Bank statements, revenue accounting software, and earnings history are now supplemented with alternative credit information. This allows a more accurate assessment of borrower repayment ability. Offering alternative documentation options opens new demographics.

The uptick in Heloc and Cash-Out Refinancing

With home values rising, homeowners are tapping home equity via lines of credit (HELOCs) and cash-out refinancing to fund home improvements, education costs, debt consolidation, etc. Total home equity neared $6 trillion in 2020. Lenders are easing HELOC terms and offering LTVs up to 85% to provide liquidity options against home equity wealth. Cash-out volume also set new records in 2020.

Digital and Self-Service Acceleration

From application to underwriting and closings, technology is making mortgage lending seamless via digital tools. Borrowers now expect omnichannel, mobile-friendly experiences. AI-powered online eligibility tools, eClosing adoption, and automated verification also ease lender workload. The right fintech integrations ensure an optimized borrower experience balanced against risk controls.

Shrinking Housing Inventory

Lean resale inventory amid high buyer demand is making the housing market extremely competitive. Buyers are bidding up prices rapidly. In turn, appraisal values are not keeping pace, resulting in more loans getting repriced or falling through. Lenders need to help pre-approved buyers move quickly on purchases and use appraisal waivers cautiously to enable loan approval despite value gaps.

Growth of Nonbanks and Alternative Lenders

Fintechs, private lenders, credit unions, and nonbanks are capturing mortgage share, spurring more choices. They are innovating through speed, technology, and product flexibility. Incumbents need to enhance agility, improve operational efficiency, and strengthen origination capabilities to thrive amid competition. Tactical acquisitions of specialized lenders can help scale.

In summary, understanding emerging trends across borrower needs, property demand, demographics, technology, and competition is crucial for mortgage lenders. The pandemic has only accelerated existing shifts. Lenders must adapt products, services, channels, and technology to cater to new needs amid transforming borrower expectations.