The mortgage industries most challenging issues for 2025

Lack of qualified home buyers, affordability issues and high interest rates are on the mind of most mortgage professionals for 2025.

In a report published by Arizent, home finance professionals overwhelmingly ranked the lack of qualified home buyers as the No. 1 challenge in 2025. Forty-one percent of respondents in Arizent's survey put it in the top position, while another 16% listed it as the second-biggest obstacle. 

A problem with few obvious solutions, lack of affordability took on heightened importance this decade as prices surged to record levels, putting home ownership out of reach for many aspiring new buyers. A spike in overall demand, alongside supply constraints, drove costs up, leaving available only a limited number of starter homes. 

"That pool has definitely been lessened," said Joey Davidson, president of Acopia Home Loans. "The entry level to buy a home has changed. The qualifiers to buy a home have changed." 

Even as the rate of price growth eased throughout 2024, they still headed upward, regularly hitting new record high levels with each monthly increase. In a three-year period between October 2021 and 2024, housing prices accelerated 21.6%, according to the Federal Housing Finance Agency.

Mortgage rates also displayed volatility throughout the year, with occasional downward trends bringing with them hopes of sustained market activity and supply to attract customers at all levels. However, interest rates failed to maintain downward momentum to the disappointment of lenders.

Mortgage rates are absolutely the number one way to make houses more affordable by lessening the monthly payment. However, many borrowers still struggle with the up front capital required for a down payment.

To create a substantial level of affordability, "there's going to have to be initiatives and maybe different pilots to see if there are ways of doing this. It's not going to solve itself," Rupena said. 

While household incomes are improving, they haven't risen to match the pace of price hikes since 2020, leaving a share of buyers locked out with no quick recovery unless prices took a fall to where they stood a few years ago.

In some areas of the country - especially those areas susceptible to wild fires or hurricanes - home owner insurance has increased dramatically.

"It was kind of a perfect storm already that we were dealing with, and then out of nowhere, cost of insurance just added a different layer on top," Davidson said. 

The rise in premiums means lenders can no longer rely on their own estimates in trying to pre-qualify a borrower. "You can't do that right now. You've got to get that quote from the insurance company," Davidson continued.

Some companies are trying to take the initiative on affordability, though, continuing to offer the programs that have proven staying power in the past few years. "People have learned that to truly gain affordability, you have to be willing to be a little bit more creative in your product offering," according to Davidson.

"We've always been a creative industry as far as providing multiple options for loans and different things. But the programs that have been revived now, like buy-down programs and discounts have become a more popular thing," he said.

To that end, lenders are also thinking of implementing new measures to open up the credit box. Arizent's survey showed a majority of lenders now looking at nontraditional income as a measure of ability to pay. Fifty-one percent of respondents said they would consider opening up borrowing to such customers with alternative income sources. 

Meanwhile, 20% of the industry said they would look to raise loan-to-value ratios or lower down payments.

Those efforts, alongside ongoing affordability programs like down payment and closing assistance and initiatives to forego partnerships with other businesses in the housing market, could provide some momentum for lenders. And while rates may not suddenly create the affordability many hope for, they still move the needle to encourage lending activity once they ease. 

To create lasting affordability, though, the housing market will need to see a concerted effort from across the home finance system, including government agencies, lenders and secondary market players, Rupena said.

"We can build all the homes we want, but if people can't afford them, or people can't carry the payment, it's not really going to help," he said.

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