The Forecast For 2016 Is …

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TME-TGarritanoAs a regular reader of this column you should know that it is usually all about my thoughts about what we can do to move the mortgage industry forward. I’m going to switch things up and continue the industry conversation that was started in the last edition. I reached out to some industry heavyweights to see what they thought about 2015 and what they expect will happen in 2016. Here’s what they said:

David Green, Founder & President of The StoneHill Group, noted that he sees some trends developing. He noted, “I see three primary trends affecting the mortgage industry over the next year – more regulatory challenges, higher loan costs, and a steady growth in digitizing home loans.

“The mortgage industry spent a great deal of time, effort and money on regulatory compliance in 2015, and 2016 promises more of the same,” Green said. “TRID was far and away the largest hurdle mortgage lenders have encountered in years, and the industry will continue to struggle with new disclosures well into the new year. But TRID is not the only obstacle lenders face. This year, HUD will implement more changes to its 4000.1 handbook, particularly for FHA rehab loans. Meanwhile, from the perspective of both the FHA and GSEs, servicing quality control has become as important as purchase QC, if not more so.

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“For the average lender, scrutiny over loan quality and the ongoing impacts of Dodd-Frank and the activities of the CFPB are creating an enormous need for greater numbers of QC professionals in our industry, as well as the need to provide better training to those responsible for analyzing and reviewing loan quality. As a result, I expect loan costs will continue to rise in 2016. However, I don’t think they will rise as dramatically as they did in 2015, and in fact, they may even stabilize a little.

“Lastly, I see a growing trend toward digitizing the mortgage process,” Green continued. “Technology can help lenders tremendously when it comes to ensuring loan quality and absorbing the impact of new regulations. Most lenders already are leaning heavily on their loan origination systems to handle the requirements of TRID, for example. I expect lenders will increasingly rely on technology in 2016, which will help loan costs from getting out of control. I doubt lenders will leverage technology as much as they could or should. But I definitely see progress ahead.”

Rebecca Walzak, president of rjbWalzak Consulting, added that there will be an “emphasis on affordable housing and fair lending that will continue to be driven by both race and gender. With the two female presidential candidates—one from each party—leading the charge, the emphasis on gender bias will increase.

“City based housing will continue to grow as both the baby-boomers and millennials look for in-town housing. However, this must be tempered with the growing development of suburban town centers, which provide much of the same amenities as downtown experiences. Many Gen Xers are looking to move closer to town or these town centers.

“Immigration will continue with middle-eastern families becoming a larger percentage,” Walzak pointed out. “I expect that the minimum wage will remain low as that population will likely accept lower-paying jobs. The number of rental units will continue to increase. We are seeing numerous new apartment buildings going up in Southeast Florida, for example.

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“Lenders will focus much-needed attention on the consumer and making their process for applying and closing a loan easier. They will begin using more of the applicant’s personal data stored in numerous databases to individualize their approach. Data, the analysis of data and use of this analysis will become critical to those lenders who wish to survive.

“Operational risk and the associated understanding of “quality” for loans and servicing will grow in stature and data on this will be demanded by the secondary and capital markets,” Walzak concluded. “This will build off the standardization of “defects” that was begun by the agencies.”

Chris Backe, business development director, financial services, at Velocify, pointed out that, “In 2016 we’ll continue to see a strong focus on marketing technology. In 2015, we saw a large uptick in the number of lenders acquiring mortgage CRM tools, especially marketing automation solutions. This included an increase in enterprise type deals, because lenders see the value in marketing not just for demand generation purposes but for nurturing purposes as well. No lender can afford to lose prospects or sell a loan and simply hope for repeat business. The market is far too competitive. The fact that Ellie Mae has purchased another mortgage CRM provider suggests that it’s still very important to lenders.

“I think we’re starting to see a shift in the housing industry regarding who owns the consumer relationship. Historically, Realtors were in the driver’s seat, and they wielded an enormous amount of influence over which lenders their clients worked with. But this is starting to change.

“Right now, we have millions of potential Millennial borrowers who want to figure out what they can afford before they look at certain neighborhoods. Getting a mortgage is also trickier than in the past, so it does consumers little good to talk to a real estate agent before they understand their purchase power. They can get these answers online at any time,” Backe noted. “As a result, the majority of borrowers have already developed a relationship with their lender before even talking to a Realtor.

“Before, it was like being at the car dealership. You’d shop around and when you decided you were ready to buy, the salesperson would be introduced to a finance person, who was usually tucked away from the showroom floor in a back office somewhere. But in the mortgage industry, the Internet has really shifted that paradigm. It has allowed lenders to come out of the background and make connections with borrowers as a trusted source of information.

“I think this is the impetus behind the popularity of mortgage CRM and marketing automation solutions on the market today. When you see a bunch of marketing vendors suddenly coming out of the woodwork, it suggests that lenders are seizing the opportunity to own the relationship with the consumer. Assuming the purchase market continues to expand in 2016, I think this trend will continue,” Backe stated.

Lastly, Brent Chandler, Founder & CEO of FormFree, said that 2015 was pivotal. He said, “We saw the return of purchase loans and a transition toward a more wholesome housing market, which I see continuing next year. Compliance became a huge focus of lenders in 2015, and it will remain so in 2016. The CFPB has shown it is serious about bad actors in the financial services industry, as the agency’s enforcement penalties doubled between 2014 and 2015.

“Yet lenders have more to worry about than the CFPB. As the purchase market grows and improves, a large segment of the industry is still relying on paper-based methods of verifying borrower data and asking borrowers themselves to submit proof of their own income and assets, which leaves lenders open to mortgage fraud. At the same time, more lenders are realizing that the only way to stay compliant, increase efficiency and avoid borrower fraud is to stop fussing around with paper bank statements and go right to the source of the data. In fact, a growing number of large banks and consumer direct lenders are embracing digital verifications, and the GSEs now accept them too.

“I also see a general trend toward a more digital mortgage transaction based on straight-through processing and direct source data from borrowers, which leads to greater certainty in lending decisions,” said Chandler. “I’m not just talking about electronic documents and PDFs, but digital data packets that include all the data about a borrower’s identity, income, assets, tax returns and credit. This data will provide transparency into every mortgage transaction, from origination through closing and delivery to the secondary market.”

Chandler conclude, “To create a totally digital mortgage process, however, lenders need to start thinking beyond traditional technology solutions. But that will change as the competitive advantages of digitizing borrower data—which include increased speed, efficiency and cost savings—become more apparent.”

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