Shoemaker said: “We’ve seen the largest buildup of capacity in the history of mortgage banking and people are going to be using margin to try to fill the capacity they have and cover up the cost structure they have, and it’s going to be very, very painful.”
He said lenders would try to cover the cost structure they built until the industry shrunk, resulting in reduced capacity, a process that could take a “good year and-a-half to two years”, he said.
According to the latest data, there was a 1.1% drop in total mortgage application volume late last month, while the recent interest rate hike saw the 30-year fixed annual percentage rate (APR) edge past 3.10%.
Despite this, Shoemaker said there would be “a persistent robust purchase market” mostly due to the imbalance between supply and demand.
He said that as demand for refinance loans came to an end, the lending community would need to meet the challenge and readjust to new market conditions – a situation which would benefit mostly big lenders as they were better at absorbing rising costs.