Will Processing Time Increase or Decrease in 2021?
Many thought processing times for loans in 2020 were slow. Lenders were caught unprepared for the tidal wave of refinance applications driven by a plunge in interest rates. Many lenders couldn’t find enough people to process and underwrite loans. A significant number of individuals changed jobs and entered the mortgage world for the first time. The hot market lured new employees with higher pay and by dangled bonuses. Now, the volume looks to tail off and even fall in 2021. But not yet. The new question becomes will processing time increase or decrease in 2021?
As 2021 progresses, lenders have fewer refinance clients. On the buy/sell side, applications see limited inventory depressing the volumes in the purchase market. Confusion about appraisal flexibility between the CFPB and FHFA guidance coupled with a lack of a sufficient number of appraisers are a wild card.
Over the last two quarters, earnings margins for mortgage lenders have fallen due to higher costs and an overall slowdown in volume. One lender noted that 2020 reflected capacity to complete $4 trillion of loans last year. This year, volume forecasts target around $3 trillion. That’s $1 trillion of excess capacity at present. Since lenders are slow to add capacity and slow to shed capacity, the current market looks like quick turn times.
It may be a bad omen for the thousands of people who entered the industry last year. If lenders focus back on earnings margins, jobs security diminishes as does perhaps, pay. Many experienced underwriters changed jobs or stayed put and commanded huge salaries and bonuses. Lenders employed 32% more originators and 58% more processors than this time last year. Incentive compensation reached an average of three to four individuals per loan. As a result, mortgages cost more to process and borrowers paid more.
How fast the volumes change in 2021 and how fast the workforce changes are keys in 2021. If the workforce shrinks faster than volume, turn times look to increase. If volume shrinks faster than workforce, turn times may be more rapid than normal. So will processing time increase or decrease? Our outlook and opinion can be found in our forecast of an advantageous mortgage/buyer window.