A favorable outlook is emerging as the economy continues to recover following the COVID-19 pandemic. The question is whether financial institutions will feel the positive impact of the current indicators or if uncertainty and volatility in the mortgage market will prevail.

While the U.S. economic growth rate is predicted to settle upwards of 2.5 percent through 2024—a number above the long-term growth rate of 2 percent–what should be of interest to lenders during this time is the direction of interest rates.

Following a ten-year high of just above 4.5 percent in 2019, the 30-year mortgage rate began a persistent decline until late 2020 when actions by the Fed following the start of the COVID-19 pandemic, dropped rates to .5 percent. Since the initial decline, however, rates have been climbing again, encouraged by a rapid boost of home buying and refinance activity.

As we look into 2022, expert opinions on the direction of interest rates are mixed. Les Parker, Managing Director for Transformational Mortgage Solutions for example, predicts that interest rates could fall temporarily below 1 percent in 2022 as continued COVID outbreaks spark economic uncertainty. On the other hand, actions taken by the Federal Reserve, such as their promise to unwind the bond market and raise short-term interest rates at least 3 times over the course of the year, could have the opposite impact.

What it means for community banks is clear. “For anyone responsible for managing risk or for those responsible for managing the balance sheet, you definitely want to pay attention and make sure you have a solid strategy for managing the interest rate volatility,” said David Lykken, President and Founder of Transformational Mortgage Solutions.

Another question is whether the high activity in loan originations, originally witnessed in 2020, will continue over time. Numbers from the second and third quarters of 2021 would indicate that a decline to more historically normal levels of activity is underway.

Throughout the near future, similar market volatility and uncertainty is likely to plague mortgage lenders, calling on community bank leaders to develop new strategies to aging challenges.

Developing leaders in mortgage lending

Download Finastra’s white paper  Developing leaders in mortgage lending – Navigating an uncertain market with strong leadership strategies. You’ll learn about:

  • The 2022 mortgage market outlook

  • How to turn insight into action

  • When to focus on technology adoption

Download white paper »