A far from normal downturn: Originations versus delinquencies

COVID-19 is a historically unique event for the mortgage industry. Typically, during a crisis or catastrophic event that impacts the housing industry, you’d see a significant downtick in mortgage originations and an uptick in delinquencies, ultimately leading to foreclosures. However, the COVID-19 pandemic has been a unique crisis to not only live in and learn to work through, but also to follow as it relates to the mortgage business. Many factors have contributed to the type of downturn we’re seeing – one that’s far from normal. 

Pandemic expectations

In trying to wrap our arms around the COVID-19 pandemic, we expected to experience a decline in mortgage originations. Mortgage industry participants ran scenarios reflecting a decline in originations, a decline in overall revenue and generally-speaking, an overall decline in housing activity, along with an increase in loans in forbearance and ultimately in delinquencies. That’s generally how a crisis impacting the housing industry works. As jobs are lost and incomes diminish, people stop buying homes and the rate of requests for forbearance or some type of homeowner assistance goes up. The mortgage industry flips the switch from helping people get into homes to preparing to work closely with homeowners to help them remain in their homes. 

Ultimately, the effect of the pandemic on housing could end up playing out exactly how we expected. We’re keeping a close watch on how the pandemic is impacting customers, employees and the overall business of doing business.  Interestingly, though, what we are seeing so far is not in line with those expectations.

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