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What's the Tea? A High-Level Overview of the Mortgage Industry

Updated: Jun 2, 2022

Margin compression continues to be a major challenge for lenders. Let’s look at the key factors recently affecting the financial markets of the mortgage industry.


As of February 2022, the inflation rate is significantly higher than the Fed’s target 2% rate at 7.9%. After a period of deflation in 2020, eased COVID pandemic restrictions increased consumer spending, abruptly turning around the economy. Continuing supply shortages and increased demand caused prices to skyrocket. Energy costs, which are already high, are also expected to surge due to the war in Ukraine.

Inflation Rate

Interest Rates

Upward trajectory in the economy means one thing for the mortgage industry: rising rates. Under standard monetary practice, the Fed raises rates to curb inflation. This year is no different.

30 Year Fixed Mortgage Rate

source: 30 Year Fixed Mortgage Rate - Historical Chart


From the end of 2009 (rebounding from the housing crisis) until the beginning of 2020 (start of the COVID pandemic), inflation hovered around the Fed’s target rate of 2%. At the end of 2009, inflation was close to 2% and the average US 30-year fixed was around 5%. At the end of February 2022, inflation was nearly 8% and the average US 30-year fixed was roughly 4.2%. That’s a 400% increase to inflation with a 16% decrease in mortgage rates.

Mortgage rates are not rising as much as they did in prior decades to combat inflation. So how does this impact profitability?

Aside from CPI (Consumer Price Index), home prices rose to record highs. At the end of 2021, prices were up 16.9% from 2020, according to the NAR (National Association of Realtors). Increased home prices, spending, and rates suggests fewer refinances will be expected in the near term. A more competitive rate market amongst lenders for purchase business will be expected as the overall profit margin per file will continue to shrink.

While that all sounds dreary, there is good news – mortgage rates cannot keep going up forever. Home appreciation rates are decelerating and will continue to in the coming years. The economy is also bound to recover. This will help with affordability and will reopen the refinance market as homeowners look to leverage their substantial amounts of home equity.

Supply shortages

Despite the deceleration, the COVID pandemic supply chain crisis is putting upward pressure on prices. Shortages across the world increased prices of raw materials, decreasing profitability for builders. As a result, the average home value increased 0.6% in October, which was the smallest increase in 10 months, but still nearly three times the 10-year average rate for the month. While this too cannot last forever, there is concern that the supply chain is roughly 5+ years behind being able to keep up with the current demand. This means lenders will have to be highly competitive and have expertise in construction lending and new home lending as a product they can offer to borrowers. It can be noted that the ongoing recovery of supply chain issues is not just a challenge for the mortgage industry; the COVID pandemic highlighted the limitations of the outsourcing production and the possible inefficiencies of the current supply chain system for virtually every industry. Addressing these challenges will be key in paving the way for positive impacts in the mortgage industry.

A special thank you to the Texas Mortgage Bankers Association (TMBA) for providing education to the real estate finance industry. Firstline is a proud member of the TMBA. Data and information above can be found at their live events, webinars, and website.

What is your outlook on the industry? Join the buzz with mortgage professionals by contacting us at (831) 235-4469 or

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