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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 36 February 2025 F E A T U R E S T O R Y TAKE ADVANTAGE OF A SLOW MARKET TO SHORE UP PROCESSES With rates starting to drop, savvy lenders are moving to get ahead of the game before a rebound. . B y F R A N C O T E R A N G O T he mortgage industry has experienced significant contraction over the past two years, adjusting operations to align with the reduced demand for refinance and purchase financing. This decline, primarily driven by mortgage interest rates, which have more than doubled during this period, may soon be reversed. There are promising signs that the market could rebound in 2025 if interest rates moderate significantly, bringing new opportunities and growth potential. According to the latest data, the U.S. inflation rate peaked at 7% in 2021, and recently declined to 2.7%. While the real estate and mortgage industries have expe- rienced challenges thus far, a reduction in interest rates could inject new energy into the market for Q4 and into 2025. A Glimmer of Hope in Interest Rates I n an August 2024 address from Jackson Hole, Federal Reserve Chairman Jerome Powell made a hopeful statement, saying, "The time has come for policy to adjust. Further, we will do everything we can to support a strong labor market as we progress toward price stability." He indicated that Federal Open Market Committee (FOMC) participants were targeting the federal funds rate to be at 5.1% by the end of 2024, 4.1% by the end of 2025, and 3.1% by the end of 2026. These rate projections, if realized, could lead to a significant reduction in mortgage interest rates, potentially stimulating the housing market. Powell also noted that the Federal Reserve would act more swiftly on rate cuts if strong recessionary trends emerge, further indicating the potential impact of the Fed's actions on the mortgage market. If rate cuts occur faster than an- ticipated, the pent-up demand across multiple fronts could bring a welcome surge in mortgage market activity. This surge could be particularly pronounced in the refinance sector, where the gradu- al increase in adjustable-rate mortgages (ARMs) is expected to boost refinance orders in the coming years. Additionally, there remains inherent demand for re- financing for reasons such as debt con- solidation, college education financing, and home renovation—which needs to be stalled due to borrowers' reluctance to swap their 3-4.5% interest rates for the current 6.5% rates. Rising Housing Inventory and a Potential Flood of Buyers W ith housing inventory rising 30% over the past six months and new and existing homes currently topping 4.7 months of inventory, lower interest rates could entice a wave of new home- buyers who have been waiting on the sidelines for the past two years. The Lender's Challenge: Strategically Preparing for a Market Recovery A s the market recovers, lenders must craft strategies to ensure they rise. This includes upgrading technology to serve tech-savvy young buyers better, hiring additional staff, and developing a robust training program to prepare new employees for the increased volume of customers. Filling in the Gaps W hen volumes are low, the slower pace often obscures system flaws. Now is the time to dive deeply into what works and what doesn't. Use this slower period to survey your staff, host F R A N C O T E R A N G O is the CEO of Certainty Home Lending, a national mortgage lending and fintech business. He has been a leader in the financial services industry for more than 30 years, and his career has transversed four lines of business, including consumer banking, investments, small business banking, and 25 years in mortgage lending. You can reach him at franco@certaintyhomelending.com.