Executive insights: Preparing for a busy spring in mortgage lending

Last week, the Federal Reserve cut interest rates by half a percentage point in its first rate cut since March 2020, and according to experts, more rate cuts could be on the way in the coming months. This is expected to result in a busier spring for mortgage lenders as the housing market normalizes from a prolonged period of high interest rates.

Just days after the announcement, long-term fixed-rate mortgage rates had already dropped to their lowest point in over a year. With the potential for more cuts, a significant increase in mortgage originations and refinancing could be on the horizon.

As the lending industry reacts to the rate cut, Ocrolus COO Vik Dua and CEO Sam Bobley offered their thoughts on how this cut will affect mortgage lenders and how they can prepare to thrive in a busier market.

Vik: Softening home prices means more volume for lenders

While the Federal Reserve’s rate cuts aren’t likely to create a massive impact overnight, we already see movement in the 10-year Treasury yield and in mortgage rates for homebuyers – all of which are positive signs of what’s to come for lenders.

The lower cost of borrowing is expected to move the mortgage industry closer to historical norms in terms of origination. When you combine that with pent-up demand from an unfavorable housing market, we will likely see an increase in overall loan volume in the coming year.

Some who bought homes or refinanced during COVID-era interest rates may want to move but are unwilling to lose their current interest rate. While we’re not likely to see 3% rates anytime soon, these homeowners waiting on the sidelines may be more likely to re-enter the market as rates come down, adding housing inventory and normalizing home prices.

Spring is typically the prime lending season, and with all of these factors, I expect that will be especially true in 2025. Mortgage lenders must prepare to scale their underwriting operations in the coming year.

Sam: Refinancing opportunities may be on the horizon

Falling interest rates will affect the mortgage market in more ways than one. Beyond a rise in originations, it also opens the door to a return of refinancing volume.

We estimate that more than 20 million homeowners have outstanding mortgage and/or HELOC accounts with interest rates above 5%. Indeed, many of these homeowners will monitor rates closely over the coming quarters.

While the mortgage industry’s cyclical nature is nothing new,  how lenders prepare for ups and downs is changing. Where lenders used to scale by increasing or reducing their workforce, AI-driven automation creates new opportunities to build scalability into the underwriting process itself. With a potentially busy spring ahead, lenders need to implement these technologies and train their teams to use them now so they’re ready to compete when volume rises.

How Ocrolus can help lenders prepare for higher volume

Before the Federal Reserve’s rate cuts, many mortgage lenders were already capitalizing on the slow market by improving their tech stack and training employees for an upturn. For those who haven’t, there’s still time to catch up by introducing automation to their workflows while the effects of falling interest rates materialize.

AI-driven document automation allows lenders to scale alongside market fluctuations with improved efficiency and accuracy. With Ocrolus technology, underwriters can automate much of the manual document review process, minimizing the errors that often come with labor-intensive stare-and-compare tasks and freeing time for underwriters to focus on qualifying more borrowers and driving more revenue.

Don’t be left behind when the housing market speeds up. Book a demo with Ocrolus today to learn how AI-driven document automation and analysis can help you compete and thrive in a busier market.

Key takeaways:

• A combination of lower interest rates and pent-up housing demand will likely lead to higher origination and refinancing volumes for mortgage lenders in the coming year.
• AI-powered document automation allows lenders to build scalability into the underwriting process rather than hiring and firing to meet changing demand.
• Lenders should consider adding automation to their workflows and training their teams to use them now so they’re ready to compete when volume rises.