Featuring the perspectives of:

Jeremy Collett
Chief Capital Markets Officer, Rate

Jeremy Luke
Senior Lending Manager, Chase

Julie Shrell
Mortgage Loan Officer, Cadence Bank

What do you expect to happen with interest rates in 2025?

Julie Shrell: I think we may see rates come down a little bit next year, but it will all depend on factors that we can’t really predict. I don’t think it will be as much of a reduction as many thought mid year. If unemployment spikes and inflation continues, something will have to give — prices or rates or both.

Jeremy Luke: Predicting how the market, and therefore rates, will react in the coming months is nearly impossible. However, with the recent rate cut from the Fed, we are seeing more optimism around mortgage rates and an uptick in home buying demand. There were some early indications that rates might fall further in the coming months. If we see any additional cuts, they are likely to be slow and gradual. This is a good sign that the economy is doing well, and a strong economy is great for housing recovery and stability.

Roughly 70% of mortgage debt is currently below a 5% interest rate. If rates continue to decline, we’ll likely see the lock-in effect soften, and consumers will be more willing to purchase a home and take on a higher rate than they currently have. While many factors influence mortgage rates, buyers will have more options than before if rates continue to drop.

Jeremy Collett: Markets have been trading decisively risk-on since Trump’s election win, characterized by large rallies in equities and crypto currencies. The inflows to higher returning investments have left the bond market teetering and as a result interest rates have moved materially higher. The outlook for future Fed rate cuts has cooled and our base case suggests we’ll only see 50-75 bps of cuts next year — so rates should be “lower, but slower.” Thirty-year mortgage rates likely remain in the 6s throughout 2025.

What will be the biggest challenges and opportunities for lenders in 2025?

Collett: 2025 looks like it will be more of the same for mortgage originators, with focus remaining on cost control, incorporating tech to chop origination costs and building upon diverse product offerings to deal with the market challenges of sustained elevated interest rates. There is tremendous uncertainty around impacts of tariffs, deportation and GSE (government sponsored enterprise) reform to also cope with.

Shrell: New construction neighborhood builder incentives are a big challenge. Increases in borrower debt and tightening of debt-to-income ratios also make it challenging. Portfolio options are growing as are bank statement loans and bridge loans. Some will get out of the business because of competition — but I think it will shake out as it always does. The lenders in it for a quick buck will struggle, while those who have weathered these storms and stick out the tougher times will stay the course. Educating agents and borrowers is really the key.

Luke: We expect to see continued demand for refinancing as rates drop. We’re already seeing volume pick up as a 50-basis point drop made sense financially for a lot of existing homeowners. If rates drop below 6%, roughly 4.7 million consumers would be eligible for a refinance opportunity, leading to increased activity in the refinance market. It’s critical for lenders to be able to keep up with the increased demand.

In Dallas, home sales increased while home prices also increased a significant amount. The increasing home sales could indicate strong demand in a recovering market, but rising prices will pose a challenge for many buyers.

Now is a great time for lenders to emphasize the resources and tools they offer to help homebuyers and homeowners educate themselves on the homebuying or refinancing processes. Lenders can offer resources to help make homeownership more affordable, like assistance programs. For example, Chase’s homebuyer grant offers up to $7,500 to eligible homebuyers in over 15,000 communities nationwide, and that can be used toward down payments and closing costs.

What will be the impact of AI on mortgage lending in 2025 and beyond?

Luke: AI will have a huge impact on almost every aspect of mortgage lending. The mortgage industry today is incredibly paper-based — we do a lot of our work manually or in online documents.

Implementing AI will help to streamline tasks, and ultimately increase efficiency and consistency for lenders. We also expect AI to play a role in the underwriting process and the technology will support lenders in determining creditworthiness. AI will be leveraged more in 2025 to analyze market trends and enable lenders to offer resources that align with the current market.

There is a lot in store for AI in 2025, but we anticipate it will be another 3-5 years before we see sustainable impacts of the technology.

Collett: In 2025, I believe AI is most likely to impact areas like compliance and underwriting, with its ability to quickly call up massive amounts of guidelines and regulation data and insert them into the origination process. There is certainly room and demand to incorporate AI functionality involving OCR technology, which is currently used in the conforming world, into the NQM market.

Shrell: AI underwriting has already started. It is good for quick decisions, but it still doesn’t take the place of a person who actually reviews specific information on a loan. It definitely reduces processing and underwriting time for salaried and W2 borrowers. Not so much for self-employed borrowers. It really only works if the employers and the financial institutions report to the system. Without that, we still need actual statements, tax returns, etc.

Check out this year’s other predictions below!