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Residential mortgage lenders and servicers are living their best life right now, as business activity surges to all-time highs. For various reasons, traditional banks have pulled away from such activities in 2020, paving the way for a group of non-bank lenders to swoop in and capture the lion’s share of this opportunity.

Related Stocks: Mr. Cooper (COOP), PennyMac Financial (PFSI), Ocwen Financial (OCN), Rocket Companies (RKT)

Residential mortgage loan origination is booming in America right now, thanks to record low interest rates and strong demand for housing. Property refinances, purchases and home equity lines of credit combined accounted for nearly 2.72 million originations in Q2 – the highest volume since 2009, according to Attom Data Solutions. Fannie Mae, the world’s largest mortgage financier, expects mortgage lending to reach an all-time high of $3.9 trillion for full year 2020, boosted by $2.4 trillion in refinancings. That dollar-volume for refinance transactions is more than double the level seen in 2019, and the highest since 2003.

The Trend is Likely to Continue

How long this bonanza can continue depends on two major factors: (1) whether the economy is strong enough to keep boosting home sales, and (2) how many homeowners can benefit from rolling over their loans.

A look at the hard data, which refers to actual numbers about the economy such as unemployment and retail sales, reflects a resilient economy. US Retails sales rose firmly in September, marking the fifth straight month of growth. Because consumer spending makes up two-thirds of all U.S. economic activity, that number is closely watched to gauge the country’s economic health. The unemployment rate, while still above pre-pandemic levels of 3.5%, continues to drift lower. It is currently 7.9%, down from 14.7% in April. The robust housing market is another bright spot. Housing’s share of GDP climbed to a 13-year high in Q2.

The outlook for refinancing activity also seems bright. Back in March, an article published on National Mortgage News remarked that “just about every loan in the $11 trillion market for home mortgages is in the money for refinancing” due to the precipitous decline in interest rates. If $3.9 trillion worth of loans are refinanced in 2020, as Fannie Mae projects, that leaves another $7 trillion in potential business for 2021 and beyond…

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