“This year is shaping up as a year of volatility for the residential mortgage industry, with originations plunging as interest rates rise in response to $1 trillion reductions in asset purchases by central banks,” says industry analyst and blogger Les Parker, CMB, who is senior vice president of industry relations and consulting at LoanLogics.
“2018 just may look like 1994 to mortgage bankers,” says Parker, referring to the year following the first great mortgage refinance boom, when originations dropped sharply after interest rates rose, prompting many lenders to close or consolidate with stronger partners. “With the anticipated drop in originations and the scramble to keep market share, the resulting margin collapse and liquidity problems will lead to more industry consolidation and insolvencies,” Parker forecasts in his MarketLogics newsletter. “Non-depository mortgage bankers lack liquidity; when interest rates move outside of expected ranges, volatility expands and cash demands rise.”
“Mortgage servicing rights, already under distress, will discover a lower nadir due to too many sellers and too few buyers,” Parker adds. However, he notes, that will eventually provide a buying opportunity for some savvy investors. “Some of the new MSR investors will step up and buy at very good levels,” he adds.
But higher interest rates won’t be the only problem mortgage companies will face this year, Parker warns. “When volatility expands, the regulatory burdens of Dodd Frank, Basel III and other local, state, federal and international laws and rules will bring about unintended consequences of dislocation and illiquidity,” he says.
Parker manages LoanLogics’ life of loan analytics and monitoring capabilities and oversees its consulting services. He is also a contributor to the company’s strategic planning team and communicates with industry leaders to develop and maintain positive relationships.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at email@example.com.