2024 Lender Strategies: What (Another) Unprecedented Year in Mortgage Taught Us

Read the Full Webinar Transcript

Mike Sachdev:

Today's highly requested webinar is called What Another Unprecedented Year in Mortgage Taught Us—reflecting on 2023 and strategizing for the year ahead. Today, I am joined by an all-star cast.  We'll do a quick round of introductions. I'm Michael Sachdev, CEO of Snapdocs, and I'm honored to welcome three fantastic executives from the MBA, Supreme Lending, and Priority Title & Escrow. Candice, do you mind introducing yourself and telling us about your role?

Candice McNaught:

Thank you, Mike. I'm the Senior Vice President of National Sales here at Supreme Lending. I also lead the teams of marketing, recruiting, and branch finance.

Mike Sachdev:

Thank you, Mike F, do you want to go next?

Michael Fratantoni:

Sure. Good afternoon everybody. Mike Fratantoni. I'm Chief Economist at the Mortgage Bankers Association and I head up our Research and Industry Technology Group. We're the group that puts together the origination forecast as well as collecting all kinds of data that we're going to talk through today.

Mike Sachdev:

Thanks, Mike for being here. Joe, do you want to go ahead?

Joe Lemontagne:

Sure. Joe Lemontagne Priority Title & Escrow.  I am the person who sets the direction for the company and ultimately gets all of our teams aligned and then gets out of the way so that they can do what they do.

Reflections on 2023 Performance

Mike Sachdev:

I can appreciate that! Well, in today's discussion, we're going to look back at 2023 industry trends and performance. We're going to dive into the MBA’s 2024 market predictions. We're going to talk about how and when to expect changes this year. Candice and Joe will tell us about their strategic priorities for the year and we'll try to leave some time at the end to answer questions. And with that, I will pass the mic to Mike F. to take us through what we all want to see.

Michael Fratantoni:

Great, thank you. Let me kick off with our estimate of origination volumes through 2023. And well, people are very familiar with our dollar volume estimates. What I'm showing here is our loan count estimates and it captures the moment a bit better. It was an extraordinarily tough year in 2023 -  we'll talk more about where we're headed from here. But if you look back in 2021 we did about 14 million loans that dropped by more than half in 2022 and then dropped by another third in 2023, to 4.3 million. And if you look to the left on the page, you don't see a number like that on the page going back to the early two thousands. You have to go back to 1997 at least, perhaps earlier than that, to see something lower than 4.3 million units.  A very, very tough year that we're walking away from now. Luckily, it's in the rearview.

Mike Sachdev:

Looking back at last year's data, did the year play out as we had expected?

Michael Fratantoni:

Qualitatively, yes, certainly we expected another decline in volume. And certainly, we expected that refis were going to continue to be quite low given where rates were and where we expected they were going to be. But the purchase market continued to be challenged all year long, not just by rates, but by the lack of inventory.

Mike Sachdev:

Thanks. And Joe, given that you're on the title side. How did Priority Title respond to last year's market? Were there any surprises or lessons?

Joe Lemontagne:

In terms of lessons, I think it's not really a lesson, but I think it was just a reminder of how important leadership is in the organization because it was a tough year. And if you go back to 2022, the end of 2022 is when all that started. It was really important to us to make sound decisions and make them quickly. And even if some of the decisions are wrong, at least make a decision and move forward because, the worst thing you can do is be indecisive. I think that the most important thing for us was to just get in front of things. And we took all of 2022 and started downsizing our company. We started looking at our capacity models. We started reengineering how our company looked in terms of the size, and how our teams fit together and it really set us up to be successful in 2023. It was more just trying to broaden our customer base, and becoming ready for when interest rates will go back down because they will go back down. And, I think if you look at the MBA forecast, sure, it's not like 2021, but it's better than 2023.

And, correct me if I'm wrong, but I think there's a 50% increase in refis in terms of low volume, not dollar amounts, and an almost 20% increase in purchases forecast. Although it's not back to where we were, it's much better than where we were, and I'll take it.

Mike Sachdev:

I can definitely empathize with you. And I suspect most of the attendees on the call can too. Candice, how did last year play out for you at Supreme?

Candice McNaught:

That's a great question. And, very similar to Joe, we started to right-size the company in 2022. When you start forecasting, you can pretty much predict what's to come. We chose to be in front of it and then we also chose to not only work on that internally at corporate, but you also have to push that out to a lot of your branch managers and regionals, right? And they need education on some of the staffing changes that they need to make and how we all are going to come together as a company to support them in their efforts and ensure that we can still close loans. Supreme’s strategy last year was incredibly strong. We added a lot of great team players to our executive team. We rounded that out also by adding some great regional managers to the company that have some great recruiting initiatives. We saw a big shift that came from the state side over to the federal, there was a great opportunity there. And we also invested a lot in operational technologies. Our SVP of Operations did a great job on operational execution and that just teed us up to streamline our efficiencies.

Mike Sachdev:

Thanks for sharing that. I think we had a similar journey to both of you and started making adjustments in 2022 to get ahead of what we thought was going to be a tough 2023 and, like both of you, definitely feel more excited about the coming year.

I'm going to transition to the next slide here. I think that we're going to now go a little deeper into originations last year, looking at some of the refined purchase volumes.

Michael Fratantoni:

Yeah, that's right.  This is data from our weekly application survey. The red line shows the volume of refinance applications. The blue is the level of the 30-year rate. And you see when rates spiked up, as Candice and Joe were talking about, during the second half of 2022, refinance volume just plummeted. And, we've stayed at quite a low level since then. You obviously get some week-to-week noise and the percentage changes tell you one thing, but the level of activity tells you another. The driver here is, that we had for a number of years, at-or-close-to all-time record lows in terms of mortgage rates. Below 3% in many cases. And now we're in the mid-sixes. If you look at outstanding mortgages, about 90% of all loans are below 6%. About 60% are below 4%. Not a lot of rate or term refinance opportunities in this market. And that's what this application activity tells you.

Mike Sachdev:

Do you think rates need to get below 4% for us to see heavy refi activity again, or are there other dynamics in place?

Michael Fratantoni:

The short answer is, yes. To get a true refi wave like we've had in the past we certainly need to get below 4. But that's going to change over time, right? The more production we have at current rate levels, that's sort of seed corn for the future, right? Those are our potential refi opportunities down the road, the more loans we do at 6, 6.5, and 7%.

This is the same data set as our weekly application survey, but what I'm showing is not a seasonal adjustment.  It shows the seasonality of the business too.  I'm going to talk about that and then each line shows the successive year of production and the bottom one is 2023. For most of the year we're running, 15-20% behind 2022 purchase application levels.

This is units towards the end of the year, we were getting within about 10%, and certainly, the level of rates impacts demand for loans. But as we'll talk about later, it really was impacting the supply as well, that lock-in effect of existing owners who are unwilling to give up their current low-rate mortgage was really constraining transaction activity. And I mentioned that this is for just the raw data. In a world where most of the volume is purchased like we're in right now, seasonality plays a huge role, right?  So much of purchase volume happens in the second quarter and the third quarter. 1st, and 4th tend to be much, much quieter times and you don't, in this market, have the refi volume to smooth out that level of activity. I know, Candice and Joe, you guys feel that all of a sudden the winter gets to be a whole lot tougher.

Mike Sachdev:

All right. Let's move to some of the mortgage spread discussions.

Michael Fratantoni:

This has been, again, such a strange environment throughout the course of 2023.  What I'm showing here in orange is the 30-year mortgage rate, in blue the 10-year treasury, the net gray line, and the gray dash line is the spread between the two. And we've seen times in the past where the spread has been really wide, but they tend to be rather fleeting, right?  If you look at September of ‘08 and March of 2020 you get a huge increase in the spread. Well, two things in common there, right? The world was falling apart, whether it was the financial crisis or the pandemic. And then look from the middle of 2022 on, we're at or above the crisis level of the spread and it's just persisted. It's been, I think, really frustrating for people that, if you talk to an investor, this spread that the 99th percentile where other indicators of financial market activity just aren't there. There's nothing else indicating this level of stress. So what's going on? 

Well, one is just simple math that rates have been so volatile because the Fed had to move so quickly to try to snuff out the inflation we've been experiencing, which gets directly translated into this M.B.S. spread and a wider mortgage treasury spread. 

Second, concerns about what the Fed is going to do with its balance sheet because it’s the largest holder of mortgage-backed securities (MBS) in the world right now, and they've been allowing those to roll off. And then we had bank failures last year which again resulted in some not-quite-fire sales but certainly hurried sales of M.B.S into the market really challenging this.  This is one reason why mortgage rates have gone up even more than other rates that you might be tracking.

Mike Sachdev:

Is there a silver lining here? You see the spread starting to shrink with the Fed starting to signal summary reductions in the future.

Michael Fratantoni:

Yes.  With the December meeting of the Federal Open Market Committee, they didn't send it all clear, but about as close as the Fed is going to get. And they said, even Chairman Powell said, we're likely at the peak for the cycle, the next move is likely to be a cut. They're beginning to send out signals too that they're going to slow the rate at which they're shrinking their balance sheet and hopefully, we don't have any more bank failures on the horizon. So, all of that is getting better and we've seen this spread go from 300 basis points to the most recent point I saw was about 260. We think it'll keep narrowing over the course of the year.  Definitely good news for the mortgage market.

Mike Sachdev:

Where do you think rates land at the end of this year?

Michael Fratantoni:

Closer to six.  If we're six and three-quarters today, we have the combination of probably three Fed cuts, if not more, longer-term treasury is coming in and this spread coming in. They call it three-quarters of a point lower in mortgage rates than we are today.

Mike Sachdev:

A welcome change. All right. This is a topic I'm really interested in, and Mike, you and I have talked about this one-on-one before, do you mind taking us through some of the demographics?

Michael Fratantoni:

Yes, as challenging as 2023 was, even as challenging as this year might be, I agree with Joe, I think it's going to be better. This is the best news we have for our industry -  that fundamentally the demographics are going to be strongly supportive of the purchase market for the medium term, call it the next 5, 6, 7 years, and it just comes from the age distribution of the US population.

The chart on the left shows that distribution. We currently have 50 million people in this country between the ages of 30 and 40. We're generating about a million and a half households per year. Just by comparison from 2000 to 2015, that was closer to a million per year. So we're generating 50% more households annually. They need to live somewhere, right? Whether they're going to rent, or buy, our industry is either going to finance them directly or finance their landlord, right?  It's a tremendous amount of housing demand. 

When it comes to homeownership the chart on the right shows that we didn't, highlight the 30 to 40 haphazardly. This is an interesting age range because if you look at those under 35, the homeownership rate is about 38%. Whereas if you look at those from 35 to 44, it's at 63%. So for many people, if they're going to buy a home, this is the age at which they decide to do it. The pandemic put a wrench in lots of plans. The millennial generation has been late hitting other benchmarks, like getting married, having kids, buying cars, and all kinds of things, but they're coming, it's happening now. And, we think this is going to be a strongly supportive force for the housing market again in the medium term. 

Mike Sachdev:

Candice your team is really close to the borrower, what are you noticing with home buyer demographics changing?

Candice McNaught:

Yeah.  I really want to mirror exactly what Mike just said. We've seen that age increase in 2022. 1st time home buyers averaged out at 36. I think that number is now going to increase to 38. I think you've got housing affordability that's compressing this age demographic as well. I think that continues to go up so you move further up the ladder in the age range. I also think that during COVID, so many people could work remotely and could just pick up and move and live wherever they wanted to and, they just weren't ready to commit to a specific city or state. I also think that some companies are bringing back and enforcing in-office work and that's going to get people to plant their feet on the ground

It's exciting because I do think that we've got some great opportunities for first-time home buyers this year, especially in the second half of this year. I think just the slightest dip in rates is going to get these guys to commit and move off the sidelines, because they're not going to want to miss out on those opportunities, especially on the investment side, right? It's still an investment to own a home.

Another demographic that we focused heavily on last year was the Spanish and Hispanic market.  FreddieMac said by 2030, 56% of Hispanic homeowners will make up our market. We started to pour into translations of our marketing assets, what our digital strategy approaches were, and making sure that we don't miss that demographic because it can be a big key player for us going forward in the future.

Mike Sachdev:

All right, Mike. Do you want to take us through new home construction?

Michael Fratantoni:
Yeah.  So, the demand is there. But I think that's really not the question, regardless, of where we are with rates. It's been a question of supply. What this chart shows in blue is existing home inventory, and in orange is new home inventory. The lock-in effect of current owners being less willing to list their property because they don't want to give up that low mortgage rate. It's real. It's having an impact. You look at months of supply. We are down to about 3.5. That's about as low as it gets, just over a million homes for sale nationwide where typically you'd expect closer to 2.5 to 3 million. So a very, very tight existing home market. 

Builders have jumped into the breach, and have picked up the pace of construction. What this gray line here is showing is what we typically expect on a national basis, maybe 10% of homes for sale, new construction. The remainder is the existing supply. We're in a world where about a third of the homes on the market are new construction. So very, very different. We talked about the demand side, a lot of that demand coming from millennials/first-time buyers. On the supply side, it's coming from new homes as opposed to existing homes. And then with new homes, a lot of it comes from some of the large builders because some of the smaller builders have a little more challenge getting access to financing.

Mike Sachdev:

That makes sense. And what an interesting shift here to go from 5% just 10 years ago to 30%. And then we touched on this a few minutes ago, but let's go a little deeper on it. One thing I'm concerned about is while there may be a lot of millennials, can they buy anything, with six-plus percent rates and, historical and affordability on the on the top line price?

Michael Fratantoni:

Definitely a key question. And what I'm showing here on the left is our purchase application payment index.  Looking at the ratio of a median principal and interest payment to typical weekly earnings. You can see as we get into the second half of 2022, home prices are still going up, and mortgage rates have more than doubled. Remember we started 2022 at a 3% rate, and we ended at close to a 7% rate. So that ratio of payment to earnings goes up, making it much less affordable. What we're showing on the right is the ratio of that median P&I payment to asking rent.  So, we often get the question: is it better to buy and rent at different times in different markets? For much of the pandemic period, rents were going up extraordinarily fast too.  So, this huge demand for housing was meeting a structurally under-supplied market.  So, both rents and home prices going up. 

This last thing I'll throw in there before I get Candice and Joe's thoughts on this.  I just talked about P&I, right, but obviously, property taxes are going up, homeowners insurance is going up, and flood insurance is going up.  It's not just the interest rate and the home price effect, it's also those other costs of owning a home that are impacting borrowers.

Mike Sachdev:

Candice and Joe, do you have any thoughts on that?

Candice McNaught:

Yeah, I think that that's going to potentially lead to some refinance opportunities down the road or it's going to force some people to move. While it's unfortunate, it's just where we are in today's environment. Fortunately, we've got equity and I think that that's going to be a leading driver.

Joe Lemontagne:

I agree and, from a personal perspective, all of those things went up for me. So I can only imagine, what's going on around the country.

Mike Sachdev:

Let's move on here. Mike, do you want to take us through the cost to originate?

Michael Fratantoni:

Sure. So this is our last look back at what was happening in 2023. And I think unfortunately for lenders, it was just really a continuation of some of the challenges they've had in their business going back more than a decade. This is data from our quarterly Mortgage Banker’s Performance Report which leverages the data many of you supply through the Mortgage Bankers Financial Reporting Form. And thanks to all of you who complete that check box allowing us access to that data. But what this information shows is that a fully loaded cost to originate. Sales, fulfillment, support, and corporate costs are expressed on a dollar-per-loan basis. That was $4000 back in 2008. We saw a high of $13,000 at the beginning of 2023. Now, some of this is denominator-related, right?

If you're dividing by fewer loans, just because volume is the lowest it's been since 1997, that cost is going to go up despite the best efforts of companies to try to trim costs. And then that gray line shows company-level costs.  This is a sample of about 350 independent mortgage bankers, you reduce their gross expenses by 50% right? I mean, your typical IMB has reduced headcount by 41%. There's been a lot of effort to try to manage these costs, but this volume was dropping even faster than some of these cuts we're able to get a handle on. 

If you look in the IMB space, more than 50% of this cost is sales related and the remainder is, call it back office of various kinds. Most of the increase we've seen in the post-great financial crisis period in the last 15 years and you can point to various regulatory implementation episodes where you could see a jump up in that cost. Hopefully, we're past that point in terms of further layers of regulation. But I think it just speaks to how challenging it is to be profitable in this environment with low volume when the compliance requirements are so rigorous.

Mike Sachdev:

We received a couple of questions on this topic that I'd love to speak to. Some of these were pre-submitted, and one of them was a quote, “We are still focused on cost savings but don't want to overcorrect and regret it later, suggestions?” And then there was another one that we got, today, during the presentation so far, which I see as the same question. How do you avoid yo-yo staffing models? I'd love to speak to these. 

I talked to a lot of companies who are experiencing the same issue right now. The industry has gone through 18 months of cost reduction and downsizing on staff, only to now hear the Fed say they want to reduce rates and we're thinking there's going to be a refi wave hopefully soon, but certainly in the next 12 months, and you’re trying to figure out, how do we staff this?

When it comes to cost savings, we see lenders fall into two categories. Some are investing in tech to drive down costs. That's the reason for the tech investment. Some invest in tech, by the way, more on borrower experience. And some see it as both. And then there are some who aren't interested in tech, they're focused on cost-cutting, but it's totally a people exercise. And I would just say that I think that tech is the better way. And, I say this because we work with a number of data providers and we measure the back office operations, loan production, and closing. And what we've been able to measure is that companies using tech are able to manage their costs and drive better outcomes than those who aren't using tech to manage costs. And I think a lot of that comes down to automation and really the more you can reduce that fixed cost base, the more resilient you are to volume fluctuations, and that yo-yo effect that was described earlier. And so we're seeing as leading indicators, a reduction in closing and funding time, which if you've got the same number of folks doing more loans, then by definition they are more efficient, and the per loan cost is coming down.  That's our view on it, but I'd love to get, Candice and Joe, your views on this as well.

Joe Lemontagne:

So when I think about, efficiency, I tend to think about Amazon for instance, and I'm sure everyone on here has bought something from Amazon before, it's so easy to go and find the thing you want and hit one button and it shows up at your door the next day or two days later, right? And I think when we're thinking about the loan process, I think we have to keep that in the back of our mind.

Is the thing that we're doing, the software that we're creating, the efficiencies that we're trying to put in, does it move the needle in that direction? If the answer is yes, then I think we're headed in the right direction. I think our goal is to make this process as seamless and as easy as possible.

And for us, we've spent a lot of time and effort over the last year, retooling our processes, becoming more efficient, investing in technology, and all those things to move in that direction.

Mike Sachdev:

Joe, is it a goal for you, as the market comes back and volumes grow, to try to hold head count because you implemented tech, is that how you're thinking about it?

Joe Lemontagne:

I don't think it's a goal to hold head count. Ok, so this is my philosophy. If there's somebody that's really good at what they do and they're available out in the market, then you get them. There's no question. Back in 2022, we had to let a lot of those people go because we had to make some decisions that, we just had to make and it was unfortunate. But, as business starts to come back, some of those people are still available, we're going to bring them back, and we have in a lot of different cases over the last five months. When there's a need, and that person's available, I think you take it. You figure out a way to make it work, because good people, I mean, that's what makes your business run. Just because you have some slick tech that's going to make the process easier, that doesn't mean that you can discount the folks who are working for you. 

Mike Sachdev:

I 100% agree with you.

Candice McNaught:

Do you want me to jump in here? It's funny that Joe mentioned Amazon because in April of last year, we actually took a group of our senior leaders and we went and toured the Amazon Fulfillment Center because we needed to learn. How do other companies do it? And it was very enlightening and insightful because, at that time, we were bringing in technologies as far as underwriting engines and automated, automated disclosures, and AI to help streamline our business. But it was just to go in and mirror that, and see it used in another company and how they do it (and they do it so well) it makes you less fearful of bringing it in internally because we've always been, such a customer-centric business that you just feel like you need every single layer and component of staffing. Unfortunately, we've seen the LOA dissolve and go away. That middle-layer person is no longer needed due to efficiencies. So, you start to put a little more pressure on your underwriting staff by incorporating efficiencies and technologies. We have successfully done that. 

But I think it's very important too, on the yo-yo model, if somebody could figure that out and please share, I think we would all appreciate it. I think we've all been through it no matter how good you are, we've all felt it. But maintaining and just being that solid employer and letting them know that as soon as the business has an uptick that people will have a place within the organization, and leaving everything on good terms is so solid and, very important as you go through these times. But it has been a big challenge for a lot of people.

Mike Sachdev:

Yeah, two things I can add here. One is what we have seen is the best tech doesn't replace people and, in mortgage, in particular, given how critical this asset is both to the buyers of it, home buyers, but as, as well the secondary market and, what they think they're getting, there's a bit of discomfort with taking humans entirely out of the group. And so I don't think the solution to the yo-yo, is to automate fully. We don't see that candidly, what we really see is great technology makes people more productive and takes a lot of the simpler tasks away so they can focus on higher-value tasks. And then what I'll offer up is we deployed our own technology internally to deal with our own staffing challenges this year. And what we observed was, that making operating teams capable of doing tons more is the solution to yo-yo. Because when one person can do 10x, the work is supercharged by technology, then a 10 or 20% volume swing actually doesn't impact head count. You would need a much bigger swing to impact the headcount in both directions. And that is how our operations are starting to shake out as we deploy our own technology internally.

Michael Fratantoni:

If it's helpful, just to add to that, there's a single stat that I watch on the productivity side which is loans-closed-per-total-production-employees. You go back a decade or so and that average is about 1.9. In the middle of the pandemic, we're at 3.1, everybody working 24 hours a day because we're all stuck at home. The low point in 2023 was 0.9. We're at 1.3 in the most current rate. But to your point, there is a lot more you can get out of the current level of headcount.

Mike Sachdev:

That's exactly right. Yeah, it's troubling that it hasn't moved over so many years, given how much great technology is available. But I think that's the opportunity. Yeah, we are just past the halfway mark. I think we should probably speed up a little bit because I assume people really want to get into this topic, which is what's going to happen. So, Mike turning it back to you.

Deep Dive into 2024 Market Projections

Michael Fratantoni:

Yeah, so, as I hinted at before, let's say folks saw our forecast back in October. We're holding to it. We're looking for an increase in ‘24 and then further increases in ‘25 and ‘26 talking about about why we get into in a minute. But, going from that 25-year low in, units to, north of 5 million in the next couple of years growth in both purchase and refi. Now if you want to go ahead to the next slide and talk about the reason for this. As we talked about in that rate spread conversation, we're looking for rates to drift down through the course of the year. The blue line here is the Fed Funds rate, per the announcement in December. We're looking for three cuts this year. And then further cuts in ‘25 and ‘26, the 10-year Treasury was at 5% not that long ago. Now, it's at 4, I expect that'll drop to about 3.5 and the 30-year mortgage rate as I talked about, which was 8% now is at 6.75. We think we'll get down to the lower sixes by the end of this year and if it drops below six in, 2025 maybe just a couple more slides.

Mike Sachdev:

Mike, if you go to the next one, do you mind if I just pause you for a second? Because I'm going to just back it up for a second here. You're forecasting about 700,000 more mortgages this year than last year, and I'm curious, is that primarily refis?

Michael Fratantoni:

So, this is one where percentages are, are misleading, right? Because yes, as you mentioned, you have a  50% increase in refis from almost nothing to a little bit more than that, right? But we do think that with lower rates, there's going to be a lot of demand for cash-out refinance even though there's not going to be much need for rate or term refinance. The fact that you have, more than a trillion outstanding in credit card balances that your typical auto loan now is $40,000 on a new car. Student debt has restarted again. You have a lot of households that are under some stress and if they can tap into their home equity they've got a lot of it to try to manage some of that stress. I think you're going to see opportunities for debt consolidation, and cash-out refinance these next couple of years.

Mike Sachdev:

It sounds like you think this isn't just refis from folks who bought homes in the last year at 7% rates that people actually give up 3% or 4% rates to solve some of.

Michael Fratantoni:

That's right because, and it's not a foolish decision on their part, right? If, they're looking at their portfolio in totality, not just the more grants, but again these other liabilities, it can be a very sensible decision for them.

Mike Sachdev:

That makes sense. And to your point earlier, it will also reduce that base of people with 4% and lower mortgage rates, which means we'll start to normalize our refi activity with more opportunities over time. 

All right. And you wanted to move up here now, right?

Michael Fratantoni:

Yeah, because the constraint on the refi market is all about rates. The constraint on the purchase market, as I mentioned, is a lack of inventory and we see that getting better in 24’, 25’, and 26’, partially as a result of builders continuing to pick up the pace of activity. More starts more new home sales, but also the lock-in effect. While it's not going away, it'll get better over time.

And I think, everybody on this call probably knows somebody who got married, had a kid, has a new job, or some other life event that really caused a move, and where they might be upset that they left the 3% mortgage rate behind. But life is more important than mortgage rates and sometimes that's going to happen. So I think with some additional inventory hitting the market over the next couple of years, that'll support growth in existing home sales. So, in terms of the numbers, I mean, we're looking for a 10% growth in new home sales and a 5% growth in existing home sales. So the lock-in effect still has an important constraint on the market, but it's going to be getting better in the next couple of years.

Mike Sachdev:

We still have 20 minutes here. But I think that might be the takeaway of the day, which is that life is more important than mortgage. Yeah, I've been using that a lot. Very good.

Let’s move on here to dollar volume.

Michael Fratantoni:

Yeah. So the final one is just again that this is probably what's more familiar to people. So, ‘23. Again, the low point is at 1.6 trillion. We see that nudging above two trillion this year and will be in the, mid-twos the next couple of years. You look at that blue line that shows the growth in purchases coming from more new home sales, and more existing home sales.

There was a question in the Q&A about what's going to happen to home prices. We think we're going to see home price growth, in the next couple of years, much slower, call it, 3-4% home price growth per year, but that's going to be enough to help keep those purchase volumes growing. And as we talked about the red line refi volume growing as well, but look at that, I mean that this is going to be a purchase-dominated market in our view, all the way out to the end of the forecast

horizon. And, even if we were to get a, a much deeper recession than anybody's expecting, it's going to be tough to really get a huge refi wave like we had in ‘21 and ‘20. But certainly, there are going to be refi opportunities, as we talked about.

Lender & Settlement Priorities for Success

Mike Sachdev:

Thanks for sharing. That makes sense. All right. So, I'd love to turn it over to Candice and Joe for discussion here on what your strategic priorities are in ‘24. Given it's going to be a pretty similar year last year.

Candice McNaught:

Yeah, for us, it's investing a lot of our time in our existing producers. We can all go out and we can recruit, we can expand. I think there's some great talent that's out there, but obviously, what we've been able to retain and hold on to, we really want to continue to push education and marketing strategies out to those guys, really educating them to be the trusted advisor, and it can be just as simple as teaching them some strategies on how to pick up the phone and approach customers, and educate them about what's going on in the market. Some don't feel comfortable talking about economics, but it's ok if we push them the data, and give them the tools and the resources, so they'll get that confidence back. These guys have gone through a lot of abuse per se, in the last year and a half. And you've got some seasoned veterans in the market and they've all felt like that they're all fighting for the same business and they've lost their confidence and the ability to sell. So that's a big key component for me this year is to continue that also expansion on digital strategies, it's putting people in front of a camera and letting them know that it's ok to be out there on social media because again, we've all relied on the customer relationships and other relationships just pouring into you as far as leads. 

But I think the model's going to shift, you're going to have to go out and find your own business. And if we're going to go into a refinance market, we're really focusing on drip campaigns through our CRMs. And through digital strategies that team them up and reach out to your existing customers. They're yours for life, don't let go of them, and don't let them become an opportunity for someone else in the competitive space. Also make sure that you don't become a victim of EPOs either because that could really hurt our industry also. So we've got a lot of great initiatives and then we'll always continue to expand on the borrower experience side of things. But really just continuing to invest in this staff that we have.

Mike Sachdev:

Thank you, Joe. Do you want to answer that same question?

Joe Lemontagne:

Yes. So for us, the two approaches are one operationally and then another on the sales side. So, for us, on the operation side, tightening up everything that we do in terms of our workflows, when, when a loan comes in, everything from start to finish to it closes and, and, policies are issued.

We really, because we're in this environment where we had to scale back. Our team really needed to scale back our processes to make those as efficient as we possibly could, and invest in technology. So I'll give you a stat and this is maybe this is, is an eye-opening for, for you guys. But it was for me when, when I learned at the beginning of 2022 we had zero developers on our staff, ok?

At the end of 2023, we have over 20. So we've invested in technology in terms of building out integrations with our customers, in terms of building out software platforms that we use internally to make our employees’ lives better. My view on that is if you're going to do something and it's going to make, the employee experience better, it's going to help your customer because they're going to have to get a better experience as a result. And so everything we do has got all of that built into it. 

And then on the sales side, we started at the end of ‘22 building out our product offerings in terms of all the card services, whether it's like just doing recordings, notary-only closings, title insurance only, just breaking all that apart because we have customers that come to us that just want one thing and now is the time to put those offerings out there because you have the time to build it out. You can build the workflow out. You can have a smooth process to get those deals in and out the door without disrupting your core business. 

And, at the end of the day, you want to broaden out your customer base, and 2023 was the year of broadening it. We knew that we weren't going to grow significantly in 2023. So we spent all of our time trying to just broaden our customer base and in retaining those customers that we have so that, when rates come back down, we're here to service all of that. And, I think, even in an environment where we're not looking at 2021 again, as a company, we could potentially be looking at 2021 again because of all the work that we did in 2023, to get to that point. So those are the three things that we focused on.

Mike Sachdev:

Thanks for sharing that. One thing I've I've noticed here is that, on both sides, you, both are highlighting a return to growth, which, I find personally really inspiring and I suspect our audience does too. As you think about returning to growth, is there anything you would do differently this time? And maybe in the, ‘19 to ‘21 growth period? 

Joe Lemontagne:

Yeah, I could go first. I think we are doing it. I think leaning into technology more. In 2019 through 2021 we started growing as a company at a really fast clip and we didn't have time to double back and make sure our processes were tight and make sure we had all the technology in place, to process all those deals. But now we do and we've been through that and we're going to go through it again at some point. So we want to be ready for when that happens. And so leaning into technology as I  illustrated before, that's how we're going to get there.

Candice McNaught:

Yeah, I would, I would mimic that as well. You invest so much in tech and I think that 2023 was a reset year for us to realize, ok, now that we have it all out there and we have more things that are growing and coming to us, what is it that we want to keep? What is it that is important to carry it forward? Because the cost to produce continues to just squeeze you in the market.

You've also got to start to focus on these areas also. So it's the perfect balance, it's the perfect storm. What systems can you build out internally for the company? And what are some that are just worth investing in? I think that there are a lot of staff models that are out there on the market where it's plug and play, they constantly do the updates for you rather than you needing the bandwidth of this entire team and staff on site to make those changes and enhancements. So I think that there are a lot of different caveats, but I'm grateful to see where our industry has headed in the tech space. I came into the industry with the rubber stamp, we talked about this the other day. And then look to where we are today. It's fundamentally pretty amazing. So, I look forward to seeing what's going to come in the future.

Mike Sachdev:

So I appreciate your positivity, Mike. I'd like to ask you a version of the question. I just asked Candice and Joe. I think you have a bird's eye view of the industry. And so what would you like to see the industry do to embrace the new normal?

Michael Fratantoni:

And so as you said, I get to talk to lots of leaders with lots of different business models. One of the things that I just always enjoyed throughout my career is this industry is big enough and the world is complicated enough that lots of different kinds of business models can thrive. And I guess, the only suggestion I provide from all my conversations is, each company has to know what their business model is, know what their strengths are, and understand, how those strengths and, their challenges line up against the current environment. And it's not a flavor of the month industry. You can't play like that because otherwise, you're always chasing your tail. And it just seems like the companies that I've seen who are most successful have a strategy, everyone in the organization knows it, right?

And are driving towards that and, they choose their tools, they choose their partners very, very consciously knowing what it is they're trying to do. And it's just been interesting to watch how that approach to business seems to be most successful.

Q&A

Mike Sachdev:

Super helpful. We've got about 10 minutes left so I'd love to turn to the Q&A portion. We have many questions that were submitted during the presentation here. So, I'm going to start reading them out and maybe even calling on folks. So, this first one is in markets where income is above US averages and housing inventory lower than US averages. As an example, DC Baltimore was, was an example, of possibly higher home price appreciation this year.

Michael Fratantoni:

Yeah, I'll take that one. So, yeah, I mentioned that our forecast is for national home price growth of 3 to 4%. That's going to be faster in markets that have more demand and that's population inflow and more job growth and tighter supplies for less inventory. And, yeah, well, we would agree that the, greater DC area is one of those places where wouldn't be surprised that it's grown.

Mike Sachdev:

And then, you mentioned this before, but I want to make sure we get it here. Is there an estimate of home price appreciation for 2024 for lenders who might read this?

Michael Fratantoni:

Yeah, I mean, so for on a go-forward basis that 3 to 4% growth over the next couple of years. But that refi candidate, if they own through the pandemic, we had almost 20% home price growth in 2021. So tremendous build-up in equity. Aggregate, home equity in the US right now is $32 trillion. So there's plenty of equity to tap if they need, or if they have any difficulties with some of their other debts.

Mike Sachdev:

This one's for Joe, what do you believe? The biggest challenges will be in 2024 for independent title agencies.

Joe Lemontagne:

So in 2024 I think, I think efficiency really, will be the biggest challenge. I think I lean back toward efficiency because I'm always thinking about how to become more efficient. So it's a daily thought in my mind and I think it should always be something that you're striving for, looking at a particular process and just breaking it apart and figuring out how to do it, but do it in a better way.

So as an add-on to that, finding the best technologies to integrate into your workload, like Snapdocs for instance, it's so easy to order a notary, that the whole process has been done for you. So if you can find a technology like that, that does another part of the process for you, I think that would be something I would be heavily focused on.

Mike Sachdev:

That segues into another question that I think fits in this discussion. We've been talking about change in technology for years. Yet the process seems relatively constant. What big changes do you see coming that impact customer experience? I'd love to offer up a little bit of the answer here and then maybe turn it over to the group.

My view is that there is a lot of great technology out there for the efficiency you were talking about, Joe. And if the rate of change in the industry seems slow, my perspective is just that the technology has either not worked broadly across the portfolio of loans that the industry originates or or simply has not been adopted. And so, you can look at every stage of the loan origination process through closing and there is tech to touch everything. But when we get to the point where it's been fully adopted and utilized correctly, that's when we'll see the impact. That's my view. But curious to get your views, Candice and Joe.

Candice McNaught:

Yeah, so as I said earlier, I lead recruiting as well. And so it's great because when I see these companies and some of the branches that come in and I put my tech stack up against theirs. There's some similarities, but I will tell you there are also some broad gaps as well. That's one of our biggest drivers is that we're a tech-centric company. We're not afraid of technology by any means. That's been a very well-known thing about us and our brand. But again, it's also that we're just, we want to provide options. We also don't force some of our teams to utilize technology. It's an optional thing. We also make sure that we give you two different platforms for every driver. If it's a CRM, you get two. If it's a point of sale, you get two options. And I think it's just giving people variety. But to your point, I do see single-handedly companies that are not adopting it and they're not utilizing it, but when they come on board with us and they start using it and they start seeing the borrower experience side of it, of using a point of sale, whatever that might be for you guys.

It's game-changing, scanning documents from your cell phone, and flooding them directly into your LOS. That's game-changing for people because you've realized that your borrower typically is not tech-savvy either. So they're relying on you to provide them the tools to make their process of purchasing a home a lot more streamlined and easy.

Joe Lemontagne:

Yeah. The reason why, as I mentioned, we've hired a lot of developers over the last year and a half. The reason why is because they, like you said, like there are a lot of different pieces of technology that touch every part of the process, but there isn't one that does it all right, like you, you get one that, that, that does one piece, but it doesn't do another if you get one that, does the title search portion of it, but it doesn't do the, the binder portion. I'm talking, from the settlement perspective. And, that was, one of the most frustrating things for me was, was finding a piece that I thought was cool. But then it didn't do X and I was like, well, if I'm going to pay this money, for this piece of software, it needs to do more than what they're offering. And we've just taken it upon ourselves to, start doing it ourselves and we've come up with some really neat tools for our team. And for us, it's the way to go moving forward.

Mike Sachdev:

Got it. Related to this technology topic, there was a pre-submitted question I think is for me. Will there be an increase in hybrid closings this year? I would say resoundingly yes. Just looking at our portfolio of customers, we increased existing customer adoption by roughly 20% in the last year. But then also, obviously we're signing many customers. We've had customers come to us and say they think hybrid is now the default. If you can't do a hybrid closing, you're not in the game. We have lenders telling us that they're recruiting LOs based on their back office quality and the closing process. And, absolutely, I would expect to see that. I'm curious if, if any of our panelists think otherwise, I agree with you.

Joe Lemontagne:

I think we're going to see, a huge increase. And, annually, I think it's just going to keep moving up.

Michael Fratantoni:

Yeah, when I look at, the eNote percentages, right, we were 1 or 2% for a long time over the pandemic. We jumped to 7 to 8%. I think we're likely due for another jump given the continued focus on cost as we talk through it.

Mike Sachdev:

And I think you're referring, to eNotes. That's right. Yeah. Yeah, that is also growing at a rapid clip. Candice, anything you'd add to this one before the next question?

Candice McNaught:

No, I mean, I think you guys all definitely nailed it. I couldn't agree with you more.

Mike Sachdev:

I think we have time for one more question.  Mike, this is probably for you. If the defense stops QT, which I guess is quantitative tightening, mortgage spreads tighten. Do you expect them to announce that this year?

Michael Fratantoni:

Yeah, the easy one. I do expect they're going to stop QT. The Fed governor actually talks to that this morning, in the speech he was giving. It should help bring spreads in but it all depends on exactly how they do it. But I think, at the least, it's going to bring rates down. But it could also bring spreads in. So, positive.

Mike Sachdev:

That's all I can say. Well, we're coming to the top of the hour here. We'll follow up with anyone directly on questions that were asked today and that we didn't get to. Thank you so much for joining us, and good luck in 2024 everybody.