It often seems that the mortgage industry is overflowing with data. But which data is most important for today’s lenders? To understand the state of industry data, we spoke with Kevin Coop, President of the Data & Analytics Division at Black Knight Financial Services.
Q: Do you think it is fair to say that there is too much data in the mortgage industry for bankers to sift through?
Kevin Coop: Too much data is not the issue facing those in the mortgage industry. In fact, the more data we have access to – as individuals and as an industry – the better the tools we can build to leverage and analyze that data. Combining and cross-referencing deeper stores of data from more and different sources provides us with a more holistic visibility of borrowers, loans, portfolios, market segments and risk levels that simply would not be possible without an increasing availability of raw information.
However, for mortgage bankers to properly take advantage of data’s power, they need to understand what they want to learn from the data and how they intend to act upon that information. As long as the data is fresh and its quality is good, more data is usually beneficial. The data itself is of limited value: the tools and expert analysis of that data offer the most benefit.
Q: In view of the data you are receiving, is it possible to say that the housing industry is in recovery mode?
Kevin Coop: At its height, the U.S. mortgage market reached $4 trillion, and it has now declined to a $1.2 trillion market. In January, monthly mortgage originations were at their lowest point in at least 14 years. Why? Because purchase originations are basically flat, even though real estate transactions stayed relatively strong throughout last year.
Of course, an inordinately high number of cash purchases buoyed that level of transactions. In addition, rising interest rates have basically put an end to the refi market that had been driving the origination market for the last several years. Most borrowers who could qualify to refinance and benefit from it have already done so.
At the same time, home prices have risen considerably since the market bottomed in January 2012, and correspondingly, we have seen a steady and significant reduction in the number of borrowers who are underwater on their mortgages. In fact, equity positions in general are on the rise. With regard to delinquencies and foreclosures, all indicators point to a remarkable degree of recovery.
The new QM requirement of no more than a 43% debt-to-income ratio, and the possibility of a constriction in available loan products in the market, does suggest that there will likely be a much smaller pool of borrowers that can qualify. In truth, though, the heightened credit requirements of the past several years – while certainly contributing to the overall improvement in loan quality for recent vintages – has already thinned that pool of potential borrowers. As a result, the recovery that is underway is somewhat unique in that it is being driven largely by investors rather than by individual homebuyers.
Q: How has QM impacted the industry’s data needs? Specifically, has it added any greater or even unfair burdens to compliance related data?
Kevin Coop: The QM requirements are fairly straightforward. Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a Qualified Mortgage Loans that are eligible to be purchased by a GSE, FHA, VA, or USDA are QMs regardless of the debt-to-income ratio, as long as the GSEs are in FHFA conservatorship; or for federal agency loans, until a given agency issues its own QM rules.
For small creditors that originate less than 500 loans a year and are under $2 billion in assets, a loan is a QM as long as the creditor took into consideration the debt-to-income ratio. In this case, data – particularly borrower data – becomes even more important in terms of lenders’ compliance with the QM rules.
Q: A great deal of data relating to housing often seems contradictory. What advice can you give to those that want to focus on the most relevant and accurate data being made available?
Kevin Coop: On a macro level, I don’t really see much data that is contradictory, though there may certainly be variations. It’s possible that the reason two sets of data may look contradictory is just a function of comparing apples to oranges. In large part, the variations in data reported publicly by various sources come down to differences in the size and quality of datasets, methodologies, definitions and analysis.
On the whole, though, the macro trends are fairly universally indicative of what is happening in the market. And let’s be clear: even with the many varied sources reporting on housing and mortgage data, I don’t believe anyone has said that 2014 will be a better year than 2013.
Certainly forecasting can be very difficult, and there is no “crystal ball” that will give anyone a 100% definitive view of the future.
That being said, at Black Knight, we use models that provide scenario forecasting so that our clients can change a multitude of variables (interest rates or unemployment rates, for example) to see a wide range of possible outcomes. This is only possible by having the most up-to-date and comprehensive data available supported by quality modeling and analysis tools. Organizations that want to focus on the most relevant and accurate data should consider a proven source with a strong history of performance to help them meet their individual needs.
Black Knight Financial Services is online at www.bkfs.com.
Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.