Don’t Wait for Rates to Drop: How to Strategically Prepare for Mortgage Growth
February 19, 2025
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3 minute read – It might seem like an odd time to think about a mortgage loan boom. Mortgage originations through Q3 2024 are pacing similarly to 2023, one of the lowest years in two decades. Mortgage rates remain high, closer to 7% than 6%, with forecasts for 2025 suggesting rates will stay above 6%. Yet, these very conditions make this an ideal moment for scenario planning around increased mortgage demand. High rates often create pent-up demand as borrowers wait for more favorable conditions. When rates eventually decline—whether gradually or sharply—financial institutions that have prepared will be better positioned to capitalize. Scenario planning connects strategy, risk, financial performance, product development, customer experience, and process efficiency. It’s about asking, “what if?” to refine lending strategies, streamline operations, and prepare to meet customer needs effectively when the market shifts. The organizations that take the time to plan now will lead when opportunities emerge.
Start by working through a strategic thinking scenario. For example:
Mortgage rates fall below 5.5% for the first time in years. Purchase mortgage volume triples as many homeowners with mortgage rates under 4.5% decide that the combination of the large equity they’ve built up, a lower lock-in gap, and the desire for a new home is enough to make a move. Refi demand increases dramatically as those who took a “buy now, refi later” approach decide it’s time for a lower rate.
Think through a series of questions. Below are just some of the questions to consider:
- How would we define success in this scenario? What are the measures or KPIs that will help us track our progress?
- What is our risk tolerance in this scenario?
- What tools do we have to manage the risk of increased mortgages (selling, derivatives, etc.)?
- How will our financial structure and risk be impacted based on our risk tolerance and the amount and types of mortgages we portfolio and/or sell? Running multiple “what-if” scenarios through your ALM model can help clarify the impact of different decisions.
- What are the key priorities or service level agreements that we don’t want to sacrifice when it comes to customer experience?
- What is our capacity to deliver an excellent experience through the whole mortgage process if this scenario happens tomorrow?
- How could we be prepared to scale up for this scenario and then scale down if needed?
- What levers could we pull if volume increases outpace our ability to scale capacity while maintaining quality? During the pandemic, some institutions prioritized existing customers over new customers
- How proactive would we want to be with our current customers to refi their mortgage?
- How is our current product offering positioned to take advantage of the opportunities in this scenario?
While mortgage originations remain historically low and interest rates stay elevated, preparing for the next refinancing or mortgage demand wave is a strategic imperative. Anticipating scenarios where rates may drop below 5.5% and understanding the resulting surge in demand ensures your institution remains agile and competitive.
By proactive scenario planning, you can define success metrics, refine your risk management strategies, and enhance operational capacity—all while prioritizing customer experience and service excellence. This approach allows your institution to capitalize on market shifts, turning potential challenges into opportunities for growth and customer loyalty.
