5 Mortgage Origination Industry Trends to Follow

Generally, mortgage market predictions opine on the direction of interest rates and inventory availability. However, these are not those types of industry predictions. In fact, this is not really a set of predictions for the market, but rather observations of mortgage industry trends, which will likely progress whether rates go up or down, or the economy grows or stagnates.

Before we dive into the top five trends, let’s back up to take a look at what’s happening in the mortgage industry today.

How has the mortgage industry changed?

There are a lot of changes happening in the mortgage industry today including huge growth. The MBA has predicted $2.2 trillion in mortgage originations for 2022, while Fannie Mae predicts it will be even higher at $2.47 trillion.

Below are five mortgage origination industry trends with observations on why they will continue, perhaps on an accelerated path.

1. More depository lenders will enter the non-QM market, either through expanded offerings or acquisition.

The first mortgage industry trend we’re observing is that more depository lenders will enter the non-qualified mortgage market. Non-QM loans are no longer the risk they once were. In fact, the average credit score of non-QM homebuyers in 2022 was 771 compared to 776 for homebuyers with QMs and 714 for government loans. There has been a similar pattern with banks and fintechs where many depository lenders either partnered with or acquired on-line lenders to get a toehold in a growing market.

2. Greater diversity in alternative mortgage programs.

The second trend we’re seeing for the mortgage market is a greater diversity in alternative, or non-traditional, mortgage programs. No one is suggesting a return to no documentation or negative amortization loans, but the growing number of programs available to a heterogenous customer base looks to grow. From creative ways to document employment and assets, to accounting for gig economy income, lenders will be looking for programs that go beyond standard income documented, 20% down payment mortgages.

3. Greater reliance on AI, Machine learning & RPA technologies

This mortgage industry trend will accelerate mortgage processes while improving underwriting standards. This one is a given. I can’t think of a case where technology has regressed. From pre-qualification to servicing, mortgage is an industry with a disproportionate amount of unstructured content and manual reviews. Which is to say there is a lot of paperwork, and proportionally a lot of data entry required. Machine Learning and RPA are ideal technologies to accelerate document-driven processes.

4.Growing use of alternative data for mortgage credit decisioning in the mortgage market.

The fourth trend is the growing use of alternative data. More and more borrowers are finding receptive lenders in the online lending solutions space. Fintechs are already used to finding creative ways of identifying and verifying income. This will port over to the mortgage industry, where lenders will need to get creative with how they underwrite borrowers and document their income and propensity for making payments.

5. Triple digit growth in non-QM lending.

Finally, this mortgage origination trend is one focused on the growth in non-qualified mortgage lending. The expiration of the CFPB “Debt to Income patch” will lead more borrowers to consider non-QM solutions to meet their funding needs, particularly as overall mortgage rates are staying near historic lows. The opportunity for a non-QM lending solution is a perfect storm of two forces:

1. A growing customer base that is comfortable with supporting technology
2. The end of the DTI exception with GSEs

We know that with mortgage originations, nothing is predictable. However, there are certain mortgage market trends we’re seeing that will likely progress based don’t the current market. However, lenders who keep up to speed with the changes and find ways to accelerate their mortgage processes and increase efficiency will stay ahead in the market. 

See how Ocrolus can play a part in accelerating your mortgage decisions and processes with mortgage automation solutions. You can also download our free eBook: Building a Trusted and Efficient Automated Mortgage Workflow to see how automation can accelerate your document-driven loan processes while creating an environment of trust and transparency.