Things look bad for home builders right now, industry experts and economists agree. New-home sales plunged in May after a sharp slowdown in April, and builder margins are being squeezed from all directions.
“It’s been a while that builders have expected pent-up demand to pop, but now there’s a situation where they’ve been robbed of the spring market a little bit,” said Jim Colella, head of national builder programs at Rate Companies, parent of mortgage lender Rate.
“Not catastrophic, by any stretch, but not the windfall that had been hoped for,” he continued, describing in a recent interview with Scotsman Guide how affordability barriers and persistently slow new-home sales have created an opportunity for mortgage lenders.
“We feel more needed than ever,” said Colella. “We’re as busy as we’ve ever been.”
Independent mortgage banks (IMBs) financing newly built homes say builder business models are also in the process of adjusting to a down market. Lenders need loans, builders need buyers, and necessity is the mother of evolution.
“Builders are expecting more from their lenders than ever before,” Colella observed. “Not just pricing and product, but technology, speed of execution and all these other things that IMBs already bring, like on-site prequalification, pipeline management, the works.”
The new-home imperative for lenders
Existing-home sales have remained near 30-year lows for more than three years due to a range of affordability pressures making it difficult to qualify borrowers, coupled with entrenched mortgage rate lock-in effects reducing home turnover.
A sharp slowdown in April and May lowered the annual new-home sales pace to 580,000 — its second-slowest pace since the third quarter of 2022.
But peak sales months for new homes in 2023, 2024 and 2025 exceeded peak sales months in 2017, 2018 and 2019, as new homes have maintained a steadily higher sales pace since pandemic-era disruptions.
“Larger IMBs are seeing that there’s not enough resale volume to survive if you’re not having a builder strategy,” said Nicollette Chapman of Zonda.
As head of national sales for the mortgage data division of the builder analytics platform, Chapman advises mortgage lenders on winning builder business. “Builders are the future of supply, period,” she believes.
But that future supply — measured by federal agencies on a monthly basis as housing starts and permits — broadly contracted in 2025 from 2024 levels. New-home sales were 7% lower year to date in May, according to the U.S. Census Bureau.
Meanwhile, builders in June reported rock-bottom outlooks for prospective buyer traffic when surveyed by the National Association of Home Builders, as hopes for a surge in sales production this year have quickly spoiled in the heat of geopolitical and economic uncertainty.
“It’s not so much the interest rate. The builder can buy the interest rate down to 3%,” explained Chapman. “If the consumer feels like they’re going to lose their job next month, that 3% doesn’t matter, because consumer confidence is actually what’s keeping the market low right now.”
Forward commitments drive production
Mortgage lenders can do little to rightsize consumer confidence, which fell to multidecade lows in May amid Iran war impacts on the economy and job market anxieties linked to artificial intelligence.
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Helping builders regularly buy mortgage rates down to 3.99% or 4.99%, however, is central to mortgage lenders’ builder strategies and what has made them valuable partners.
“Builders are spending an exuberant amount of money on incentives just to keep the needle moving on sales,” said Damien Mercer, who oversaw the launch of CrossCountry Mortgage’s national builder division in March as executive vice president of the unit.
Mercer said so-called “forward commitments” through which builders buy down rates have become the norm after rising in usage in late 2024 into 2025. Forward commitments are pools of financing that mortgage lenders arrange for builders with specified guidelines that enable builder sales teams to market new homes with clearer financing certainty.
“Over the past three-plus years that we’ve been doing forward commitments, we thought it would go away,” said Colella, the Rate executive. “We’re still cranking along with forwards. It’s still about payment and rate more than anything else, with exceptions by price point at market.”
By funding loans through forward commitments, interested party contributions (IPCs) like builder-paid mortgage rate buydowns and closing cost assistance stack differently under maximum contribution limits established by Fannie Mae, Freddie Mac and government mortgage insurance programs like the Federal Housing Administration (FHA). Non-qualified mortgage (non-QM) offerings and private-label securitizations have also cropped up in the space.
It’s cheaper “by a large margin” to originate an FHA loan through a forward commitment, said Mercer. Compared to a conventional counterpart, FHA loans carry lower downpayment and credit score requirements for borrowers, allow higher IPCs and offer less expensive execution to Ginnie Mae.
Builder file starts for FHA loans averaged an annual increase of 62% from 2022 to 2025 at CrossCountry Mortgage, the company reported. Rate has recently issued a debt-service coverage ratio forward commitment program.
“What we’re seeing in new construction right now is not a single breakout region outperforming the rest of the country, but rather builders becoming increasingly aggressive with incentives,” Mercer told Scotsman Guide, describing interest-rate buydowns as “one of the primary competitive tools” builders are using to attract buyers.
Big builders command use of forwards
Longtime players in the new-home mortgage space say overlapping incentives bind builders and lenders beyond the sales funnel.
“If 8 out of 10 financed sales are with one lender, think about the efficiencies from the builder side, from their backlog reviews to their anticipated closings,” said Mike Iorio, head of strategic parentships at Cornerstone Capital Bank, in a recent conversation with Scotsman Guide.
About two-thirds of the bank’s mortgage production is for new construction, and it has 13 joint ventures with builders across the U.S., having added three in the past 18 months. Iorio said Cornerstone’s oldest builder partnership is approaching 20 years old.
Like most trends in the current housing market, regional disparities shape conditions on the ground. The same holds true for builders’ use of forward commitments, said Iorio, which is largely dependent on whether a large public builder is marketing 3.99% rates in any given market.
“I don’t see them going away, but there’s less reliance on them,” Iorio observed of the shifting utilization of forward commitments. “We have some builders where the overwhelming majority of their sales are tied to a forward. We have other builders that have gotten off forwards completely.”
Others are leaning into a broad range of mortgage products and forward commitment structures that IMBs entering the new-home lending space offer alongside typically diverse product suites. Adjustable-rate and non-QM loans can be paired with forward commitments. Some lenders stack temporary buydowns on top of forward commitments to help bring closing costs down.
“We’ll still have several billion dollars of forward commitments that we fund this year,” added Iorio. “But I anticipate, unless something changes the second half of the year, that number will be less than what it was in 2025.”
