About 74% of outstanding mortgages had rates below 5% at 2Q24, according to the Federal Housing Finance Agency. However, the remaining higher-rate loans represent a significant refinancing opportunity as rates decline.
While rates rose in the fourth quarter of 2024 due to higher Treasury yields, total originations are forecast to increase by 9% year-over-year in 2024, reaching $1.6 trillion. Fitch projected another 18% growth in 2025, pushing total originations to $1.9 trillion.
The nonbank mortgage industry has seen its capacity shrink by 35% since April 2021, according to the Bureau of Labor Statistics, as lenders downsized in response to rising rates and reduced refinancing demand. This consolidation has created a more streamlined market, with larger, well-capitalized lenders positioned to capture market share.
“Lenders with scalable technology platforms, servicing cash flow diversification, low corporate leverage, and access to liquidity are better equipped to withstand market cycles and take advantage of increased volumes,” Fitch explained.
Companies with significant exposure to mortgage servicing rights (MSRs) may face higher amortization expenses and write-downs as prepayment activity accelerates. Fitch emphasized the importance of refinance recapture success for these issuers to maintain profitability.