Navigating the Mortgage Gridlock: A Path to Yield and Origination

Mortgage Bankers see slower growth through 2027, as reported by Credit Union Times. Understanding the historical payoff rate, today's stagnation, and how lenders can respond

Historically, 10% to 15% of U.S. mortgage borrowers pay off their loans per year through three channels:

1. Refinancing — borrowers secure better terms as interest rates drop.

2. Home sales — the mortgage is paid off as part of the transaction.

3. Early payoffs — borrowers use cash reserves, inheritance, or sale of another asset.

   
   

Periods of falling interest rates and strong home price appreciation push payoff rates much higher. Between 2020 and 2021, refinance activity surged to record highs as homeowners locked in historically low rates.

Payoff Activity Is Stalled

The mortgage landscape has shifted dramatically since rates began rising in early 2022, and traditional channels of mortgage turnover have slowed to a crawl. In fact, most lenders report annual prepayment rates well below 5%.

Millions of homeowners hold mortgages with fixed rates under 4% — and many closer to 3% — with no financial incentive to move, refinance, or prepay. As a result, today's market is defined by profound stagnation–the mortgage lock-in effect:

• Refinance volume has collapsed, down over 80% from 2021 peaks.

• Home sales remain historically low, as owners are unwilling to give up their low-rate loans.

• Portfolio turnover has declined, leaving lenders with longer-duration, lower-yield assets.

These challenges are now reflected in forward-looking industry expectations. According to a recent report by Credit Union Times, mortgage bankers anticipate slower growth through 2027, underlining the urgency for new thinking and proactive strategies.

Why This Matters for Lenders

For credit unions and banks, this slowdown isn't just an academic issue—it's a balance sheet challenge. With billions tied up in low-yield, non-prepaying mortgages, institutions are seeing:

• Compressed margins as funding costs rise faster than asset returns.

• Duration risk as fixed-rate portfolios extend beyond expected holding periods.

• Stalled origination pipelines, making it harder to serve new borrowers and grow loan books.

  
  

What Would It Take to Restart Mobility?

Several conditions could reignite mortgage payoffs and borrower movement:

• Falling interest rates that narrow the gap between existing and new loan terms.

• Life-driven events that force moves regardless of rate environments (e.g., divorce, job changes).

• Innovative programs that allow borrowers to exit low-rate loans without full refinancing.

This last point is especially critical. Creative financial structures — like defeasance-inspired solutions that replace borrower and collateral while preserving cash flows — offer a way to unlock value from frozen assets without requiring lenders to take a mark-to-market loss.

Conclusion: Movement Is Good for Everyone

Mobility is essential to a healthy housing and lending ecosystem. When borrowers are stuck, so are lenders. As the market looks for a path forward, the institutions that embrace innovation and flexibility will be best positioned to convert today's challenges into tomorrow's growth.

If you're a lender looking to reignite yield and origination volume from sub-4% mortgage loans, now is the time to explore new approaches that put capital—and people—back in motion.