Guide to MLO Recession Side Hustle Part 1: Initiator Fees Are Reduced

This series of articles looks at how mortgage providers will survive the ongoing downturn in mortgage lending. This first part explains how the recession will affect mortgage originators (MLOs) and when the mortgage industry will recover from the 2023 recession.

The mortgage industry staggers into the 2023 recession – and avoids zombie status

A recent first tuesday poll asked readers about the biggest real estate market hurdle of 2022. An overwhelming majority of 71% of respondents blamed interest rate.

Although blame is more likely attributed to pandemic-period conditions that precipitated adverse conditions – such as interest rates – the scarcity of mortgage origination fees is not disputed.

The fast pace of 2022 interest rate the increases – which have yet to be absorbed by an offsetting decline in house prices – have left mortgage-dependent homebuyers floundering with no current way to commit. As proof, based on mortgage rate hikes alone and not mathematically skewed house prices, a typical current California home buyer is limited by the amount of its income to borrow 31% less purchase assistance mortgage money than a year ago, when all interest rates were still skewed to near historic lows.

This buyer’s purchasing power plummeting crashed directly on the mortgage industry. For mortgage originators (MLOs), a multiplier effect accelerating the fee implosion was the rapid decline in the volume of home sales and the almost instantaneous evaporation of any financial logic to justify refinancing homeowners.

The record and irremediable level of mortgage origination commissions in 2020-2021 was very juicy, thanks to the surge in refinancing. Now, all of that is fully exhausted with the resumption of rate hikes in 2022 in the current half of the historical rate cycle. What’s next for the mortgage industry?

mass exodus

2022 should end the year with a refinancing volume of A quarter of the known amount in 2021, according to the Mortgage Bankers Association (MBA). Due to the sharp reduction in mortgage issuance and therefore MLO fees, the MBA forecasts a 25% to 30% decline in the mortgage sector. use in 2023-2024. For a business organization that is typically driven by enthusiasts optimism in the mortgage marketit means something.

Related article:

Mortgage lenders expect housing market to deteriorate in 2023

Already, mortgage originators are downsizing or exiting the business altogether as MLO use will more likely experience a 50% decline by 2024, roughly double the share predicted by industry leaders.

Apart from the short term, decline in bank revenues are expected for the next two to three decades. However, bankers will certainly try to keep rising consumer mortgage interest rates attractive for emotional and status-oriented homebuyers in an effort to maintain a profit margin for the activity of granting real estate loans.

The low incomes of bankers and managers will be further complicated by an increase mortgage arrears.

During the pandemic, the moratorium on foreclosures and forbearance programs kept millions of homeowners in their homes without making mortgage payments. With forbearance programs, mortgage officers agreed to temporarily halt the foreclosure process while homeowners attempted to find jobs and update their mortgages.

But no pardons will be granted during the 2023 recession, as politicians will seek to avoid excessive stimuli and hyper inflation. When property values ​​drop – to match the purchase assistance mortgage amounts a typical homeowner is entitled to pay – and buyers who have purchased in the past three to four years go under , mortgage arrears will certainly increase, with the fallout from short sales, foreclosure sales and real estate (REO) inventory for sale.

But the reality is not all grim and catastrophic. There is a lot of Opportunities for California Real Estate Department (DRE) licensees with MLO endorsements – you just need to know where to pivot.

The 2023 recession got a head start in real estate

Mortgage originators who want to avoid becoming a negative statistic need to adjust their survival strategy — fast.

As 2023 approaches, a economic recession is not yet in the books. But its effects are already causing waves that hurt real estate transactions, including:

Moreover, as house prices surged thanks to the abundant geyser of record high interest rates in 2020-21 – known as the “Fed Put” – first tuesday forecasts prices fall like dead weightfinding no bottom until around 2025.

Here in California, depending on region and price point, home prices have already fallen 4-10% in August 2022 from their peak in May 2022.

To survive the tumultuous years ahead, mortgage originators with a DRE license with an MLO endorsement must first accept that the extra income generated from refinances is gone. In the future, to offset the downward spiral of fees associated with purchase assistance mortgages, DRE-licensed MLOs will be required to operate certain creativity.

Related article:

Economic recession or not, the housing market recession is here

Concurrent Services Rendered to Maintain Income

When income starts to drop, the only thing you box to do – other than find a new job – is to get income-producing results from still-running segments and services related to the coming recession in the real estate and mortgage market.

By preparing now for reduced MLO revenue, you will be able to ensure that your mortgage business survives for years to come before home sales and future financing pick up. As costs of mortgage arrangements continue to collapse, the loss of income must be covered either by a larger share of the volume of mortgage originations – extremely difficult in a recessionary environment – or by continuing alternative income.

This series on The scrambles on the MLO side aims to shift your focus from traditional forms of income during recovery and boom times to those alternative income streams for real estate services occurring during recessions and during a downturn in mortgage origination fees.

In the current market downturn, this includes fees for:

  • organize door-to-door sales with deferral funding;
  • help flash sale mortgage discount negotiations as a facilitator for owners with negative net worth;
  • take lists on REO inventory held by repairers/lenders;
  • arrange private money mortgage arrangements to finance business and investments, not consumer mortgages; and
  • work for equity investors (EP) buying homes from foreclosure sellers. [See RPI e-book Buying Homes in Foreclosure Chapter 16: Assumptions: formal and subject-to]

After peaking in March 2022, watch for mortgage volume to continue to slow over the 2023-2024 period, with a decline in house prices bottoming out in 2025. sustainable recovery for the housing market will occur once end users sense that prices have bottomed out, triggering the next spike in mortgage origination volume and prices that will take off around 2026-2027.

To learn how to use your MLO experience and mortgage contacts to focus on the kind of services homeowners, buyers, and sellers need, watch Part 2 of this series next week. Quilix newsletter.

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Agents and brokers: your recession-proof life

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