Fannie Mae - Federal National Mortgage Association

07/09/2024 | Press release | Distributed by Public on 07/09/2024 08:17

Mortgage Lenders Cite Talent Management and Cost Cutting as Top Priorities

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Mortgage lenders cited "talent management and leadership" and "cost-cutting" as their two most important business priorities of 2024, according to our latest Mortgage Lender Sentiment Survey® (MLSS). Cost-cutting had been cited by lenders as their top priority last year, and, in the latest MLSS, nearly two-thirds of respondents reported downsizing their workforce in 2023 - though only a slim minority expect that trend to continue through 2024. Looking further ahead, lenders' views about future interest rate movements were mixed: Nearly three-in-five foresee a refinance boom in 2025, while one-third do not anticipate a spike in refinance activity in the foreseeable future.

We recently surveyed over 200 senior mortgage executives via the MLSS, as we have since 2017, to better understand lenders' top business priorities for the year and how they may differ from prior years, given changes in the market.

As noted above, for 2024, lenders cited talent management and cost-cutting as their top priorities. Cost-cutting has remained among the top three priorities since 2022, but the importance of talent management took the top spot after placing second the previous two years. "Consumer-facing technology" dropped out of the top three for the first time since 2017, while "business process streamlining" once again placed among the top three priorities, as it has since 2017.

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Lenders' views about the U.S. economy significantly improved relative to last year. In our latest survey, significantly fewer - but still a majority of - lenders expect the U.S. economy to enter a recession over the next two years (66% in 2024 vs. 93% in 2023). Like last year, lenders continue to consider low housing supply and higher mortgage rates as the biggest risks to industry growth.

Further, lenders' expectations regarding the likelihood of a near-term refinance boom were mixed. Nearly 60% said they expect a refinance boom in 2025, but 33% said they don't expect any such boom in the foreseeable future. Depository institutions were significantly less likely than mortgage banks to expect a refinance boom in the near future.

On workforce management, nearly two-thirds of surveyed lenders reported downsizing in 2023. For 2024, lenders painted a slightly more optimistic picture, with 54% reporting the expectation of no changes; 18% expecting to cut back; and 28% expecting to add staff. Notably, mortgage banks were more likely than depository institutions to report the expectation of a labor force increase in 2024.

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Regarding talent management and leadership, some lenders commented on a retiring workforce, as well as the difficulties of recruiting and retaining well-qualified personnel. Many pointed out the importance of strong leadership to help navigate market downturns.

As interest rates moved higher over the last couple years, mortgage origination volumes declined significantly, particularly compared to their historically high levels during the pandemic. This contributed to compressed profit margins for lenders and layoffs across the mortgage industry. In fact, employment levels for the mortgage industry are currently at the lowest level since 2014.1Including the first quarter of 2024, on average, mortgage lenders have now experienced eight consecutive quarters of net production losses. The average origination cost per loan has steadily increased since Q2 2020, and personnel accounts for the majority of lender expense.2

After job cuts in 2023, and with lenders generally less pessimistic about the economy and the direction of the mortgage market, staff sizes appear to be normalizing. Some shared plans to increase their workforce this year, and many remain focused on talent management. Mortgage activity likely hit a post-pandemic floor following that era's historically high mortgage purchase and refinance volumes. As a result, we believe some mortgage lenders are now preparing their workforces to meet potential growth in mortgage originations should the slow recovery of the housing market continue through the rest of this year and into 2025.

To learn more, read the full research deck.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group or survey respondents included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group or survey respondents as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

1 Bureau of Labor Statistics, Fannie Mae analysis.

2 Mortgage Bankers Association, Mortgage Bankers Performance Reports - Quarterly and Annual.
The average origination cost per loan reached a study-high of $13,171 per loan in Q1 2023. The per-loan cost was $12,593 per loan in the first quarter of 2024.

https://www.mba.org/news-and-research/newsroom/news/2024/05/23/imbs-report-net-production-losses-in-the-first-quarter-of-2024#:~:text=Key%20findings%20of%20MBA's%20First,the%20fourth%20quarter%20of%202023.

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