Independent Banker - June 2021 - 52

he mortgage industry is coming
off a record year of origination
activity. It may be tough for
some community banks to beat
what was an unexpectedly good
year for mortgage lending, but
many still anticipate robust
demand for home loan products
through 2021.
" 2020 was a banner year for home
loan growth, " says Scott Auen, senior
vice president of retail lending at
$1.3 billion-asset Cornerstone Bank in
Spencer, Mass. The community bank
saw a 200% increase in its home loan
business in 2020, originating more
than 1,000 loans with a total volume
of about $270 million. Refinancing
skyrocketed following a rapid drop of
the 30-year fixed loan rate last spring.
" Rates have ticked up enough that
we're starting to see a slowdown in
refinance volume, " Auen adds.
The purchase market is expected
to be strong, but lack of housing
inventory will likely affect loan
originations in 2021, Auen says.
Cornerstone Bank is forecasting that
its refinancing volume will be half of
what it completed last year. " We do
expect originations to be significantly
lower than in 2020, but the volume
will still be strong compared with
historical numbers, " he adds.
According to Fannie Mae,
residential mortgage originations
surged more than $2 trillion to
$4.5 trillion in 2020, and loan
refinance deals saw a record
high $2.89 trillion. Fannie Mae
is forecasting strong, but lower,
origination volume for 2021. It
anticipates $3.93 trillion combined
from new home purchases and
refinancing of existing loans, followed
by a further drop to $2.94 trillion
in 2022.
Despite the decline, that volume
would represent a big year by
historical standards. Prior to 2020,
annual single-family mortgage
originations had been less than
$2 trillion since 2012, according to
Fannie Mae. So, while volumes are
coming off extremely high levels, the
market will remain very active for the
next two years.
" There is a huge pent-up demand for
housing, and builders are building like
crazy, " says Ron Haynie, ICBA's senior
vice president of mortgage finance
policy. Yet, community bankers are
keeping a close eye on mortgage rates
and housing market trends. Mortgage
activity will depend on how rates move
in 2021, while housing market trends
will influence demand for different
types of loan products, he adds.
Higher rates will weigh on refi
Given the high level of refinancing in
2020, it's no surprise that the wave
of refinancing is expected to ebb
in 2021. Fannie Mae is predicting
that refinancing activity will drop
by about 27% year over year to
$2.11 billion, while mortgages tied to
new home purchases will rise 13% to
$1.82 billion.
Mortgage rates have risen in 2021
along with a brighter economic
outlook, including the $1.9 trillion
in stimulus available through the
American Rescue Plan that President
Joe Biden signed into law in March.
" It looks like rates in the 2% range
are over, but rates will continue
to be favorable at or near rates
of 3.5% on average, " says Nadia
Evangelou, senior economist and
director of forecasting at the National
Association of Realtors (NAR). The
Fed has said that it's committed to
keeping the federal funds rate at 0%
to 0.25% through 2023. The fact that
core inflation remains relatively low-
less than 2%-also is favorable to low
mortgage rates, Evangelou adds.
Despite the high volume of
refinancing activity that occurred in
2020, there will still be a fair amount
of demand in 2021 and 2022. People
52 Q ICBA Independent Banker Q June 2021
Independent Banker - June 2021

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