The residential mortgage market is operating in a fundamentally different environment compared to just a few years ago. Origination volume has fallen sharply, from over $4 trillion in 2021 to $1.5 trillion in 2023, while housing supply remains tight and affordability challenges persist. In this environment, relying on strategies from the last cycle is unlikely to be enough.
For lenders and originators, success today means preparing for the long haul. Innovation, discipline, and strategic capital relationships are now central to navigating the market.
As conventional origination volume contracts, many originators are adapting by moving into non-QM, HELOCs, and various bridge products. These are no longer just niche solutions, but core components of many lending strategies. Non-QM, for example, now represents almost 8% of total mortgage activity, twice what it was just a few years ago.
Newer products such as home equity investment (HEI) and residential transition loans (RTL) are, for now, most often the focus of specialist lenders. These platforms are built to handle the specific origination, servicing, and risk requirements of these products, which differ considerably from more traditional agency or non-QM loans.
There is potential for these boundaries to shift. As certain specialty products gain scale and demonstrate economic viability, conventional originators may explore entry. Market history shows that once-niche segments can attract broader industry attention as they mature.
With expansion into new products comes additional complexity. Each segment has its own operational and capital demands. Originators that partner with capital providers lacking specific product expertise may experience delays, inefficiencies, and operational risk.
The distinction between a transactional lender and a true capital partner is seen in the details. Efficient management of warehouse lines, reliably responsive funding, and the ability to respond to market volatility all set the best partners apart.
Sector experience in residential credit matters, especially during periods of uncertainty. The pandemic provided a real-world test: some capital providers were able to maintain funding continuity and adapt quickly to changes in risk, while others reduced exposure or paused activity. That resilience is typically a product of experience and robust infrastructure, rather than chance.
When evaluating capital partners, it’s prudent to look beyond headline pricing and advance rates. Attributes like transparency, speed, consistent communication, and proactive problem-solving are often decisive in navigating unpredictable markets.
Periods of market stress highlight the value of sound judgment and operational agility. During the peak of COVID-19, more than 8% of mortgages went into forbearance, a scenario that would have seemed highly unlikely just months earlier. In those moments, the most valuable capital partners were those that combined balance sheet strength with informed, transparent decision-making.
Regular sharing of market insights, proactive risk management, and alignment of interests can help originators and capital providers work through challenges together. When every day counts, these qualities are more important than ever.
Today’s market rewards action and adaptability. Success is driven by those who are willing to evolve, broaden their strategies, and work with capital providers who bring not just resources but relevant expertise and a commitment to partnership. In an unpredictable environment, it is these qualities that set the foundation for long-term performance.
Chris Huang is a Managing Director at BankUnited specializing in structured finance and warehouse lending solutions across residential credit markets. Contact: chuang@BankUnited.com