The Fed’s decision to keep rates steady and possibly lower rates next year was welcomed by all in our industry, but what impact will this decision have on the bottom line of mortgage professionals really?
“People are not writing down rate hikes” in their latest economic projections, Fed Chair Jerome Powell said in a press conference following the end of the central bank’s final policy meeting of the year. “That’s us thinking we’ve done enough,” he said, adding that rate increases were “not the base case anymore.”
“With this announcement of a continuation of the pause on interest rate increases by The Fed, it is hopeful that we are one step closer to an eventual reduction in interest rates,” said Michele Raneri, Vice President of U.S. Research and Consulting at TransUnion. “A reduction in interest rates could not only help in stimulating the mortgage origination market but could also provide an opportunity for millions of consumers who have recently taken on high interest mortgages to refinance and see significant impacts to their monthly budgets.”
The news of The Fed’s decision sent the Dow through the roof, soaring to new heights. However, lenders and technology vendors alike have been burned by The Fed’s prior rate hikes and take a more measured view. “We project that we are at the end of the period when The Fed will raise interest rates,” noted Max Slyusarchuk, CEO of A&D Mortgage. “In other words, this is the beginning of mortgage rates beginning to slowly decline through 2024. However, we don’t expect rates to fall that much in this period and it may not offset rising home prices in hot housing markets. So, homebuyers who wait on the sidelines for better rates next year may find the waiting game didn’t pay the dividends they expected.”
“Hopefully this means the worst is behind us, but without a crystal ball we can’t be sure,” added Jim Paolino, Co-Founder and CEO of LodeStar, a national provider of closing fee-related compliance tools. “If the last few years have taught us anything it’s to expect the unexpected. For us this means continuing to hold the course and invest in our processes to improve our current employee’s productivity before bringing on new staff.”
TransUnion expects those homeowners who are currently making payments on high interest mortgage loans to be among the first to take advantage of a reduction in rates as refinancing could immediately put real money into their pockets. In fact, since January 2021, there have been three million new mortgages originated with interest rates of 6% of higher, the total balance of which being over $1 Trillion. The monthly payments of each of these high interest mortgages averages $2,201.
But what does all of this really mean for mortgage lending in 2024? “If interest rates dropped to even 5.5%, it could result in significant savings for these homeowners, as refinancing at that rate could result in an average monthly payment of $1,917 for them, a reduction of $284 every month,” answered TransUnion’s Raneri. “This would represent nearly three hundred dollars a month that these homeowners would be able to use elsewhere in this continued high cost-of-living environment in which every dollar counts.”
As I reflect on The Fed’s decision, I think it’s best to take a glass-half-full approach. This decision will benefit our space next year. The bottom line is that falling rates are better than rising rates, period, full stop.
Tony Garritano is the founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 20 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting PROGRESS in Lending Association was the next step for someone like Tony, who has dedicated his entire career to providing mortgage executives with the information that they need to make informed technology decisions to help their businesses succeed.