How long will the good times last!

September 08, 2020

Okay, that may not be the best subject lines for the current time but if you are a mortgage lender or a mortgage broker you got it as good as you ever did. Consider these:

  • MBA just published their Quarterly Performance Report and their survey of 348 mortgage lenders and bank mortgage divisions showed second quarter 2020 pretax profit per loan of 167 basis points.

  • Sales of new homes in July surpassed a 13-year high for the second month in a row, growing by a whopping 36.3% over July 2019 period.

  • Existing home sales blew out estimates growing 24.7% in July marking two consecutive months of significant sales gains.

  • Refinance numbers were breaking records before Covid hit and that trend continues.

It is not a bubble either. There are fundamental changes that are driving the growth:

  • US mortgage rates have hit historical lows, with average 30-year rate below 3%. The Fed is expected to keep the benchmark rate low for some time, given the Covid-19 situation and the need to spur the economy. And the spread between US treasury rate and mortgage rate is still above historical average, meaning there is still room for the mortgage rate to go lower.

  • There is a shift from crowded urban centers to relatively open suburbs. This is a trend that has been there for some time, but Covid gave it a big boost.

  • Customers are looking for bigger homes - to continue working from home for extended periods of time and still maintain some sanity. Yeah, you can keep an eye on your kid if he is attending his virtual class sitting next to you - but if your kids are anything like mine, you soon want them out of your sight. So an extra bedroom is welcome.

  • You still need that 20% down payment and a good FICO score to get that low rate. Lenders are not doling out those sub-prime loans that they did back in 2007-08. So credit quality is good.

But not every mortgage lender and broker is benefiting equally from the boom:

  • Growth is not equally distributed: While the new home sales grew 36.35 in July, Northeast posted a loss of 23.1% in sales whereas Midwest experienced the largest increase in sales at 58.8%. So where you are operating makes a big difference.

  • Lenders that invested in technology and automation are gaining disproportionately, because of their low turnaround times and their ability to close remotely.

  • OCR/AI for automated document processing, eNotary and eClosing for remote closings have become extremely important.

It being the Labor Day weekend, here is a Labor Day fashion trivia: There used to be a fashion rule saying you couldn't wear white after Labor Day. Do you know why?

And some extended reading:

Midwest experienced the largest increase in sales at 58.8%

The pandemic is spurring home sales as prosperous city residents seek more space. One listing had 97 showings and received 24 offers.

blew out estimates

Sanjiv Das, CEO of mortgage company Caliber Home Loans, joins "Squawk Box" to discuss the state of the real estate market across the country as the coronavirus pandemic pushes residents out of the cities and into the suburbs.

Happy grilling!