Last month, we looked at how the automotive industry as a whole responded to their challenges. They made improvements to their process and required their third-party suppliers to adhere to the same standards. They made improvements to the overall quality and efficiency of their product offerings. They made major commitments to enhance safety. They focused on the consumer and leveraged technology in ways not thought about just a few years back. Certainly, some of this was driven by government intervention and regulations. But, you can’t ignore the fact that the automobiles today are significantly better in all areas then what was produced in the past.
What can we say about the mortgage industry? Let’s start with an overview of the current market conditions. Doug Duncan, Chief Economist at Fannie Mae recently said, “The housing recovery continues to proceed in fits and starts. Rising mortgage rates and a lack of supply have dampened housing market momentum. Those who still harbor doubts about housing, tend to point to economic conditions as the primary issue.” The National Association of Realtors (NAR) annual survey showed the top response was the consumer’s desire to own a home and the desire to own a larger home came in a distant second.
What can we say about homeownership? According to Redfin, National home prices have experienced double-digit increases the past two years. In contrast, inflation-adjusted median household income is nearly the same as it was 25 years ago. “I don’t think people have necessarily stopped dreaming about homeownership; I think many are facing a nightmarish set of marketplace realities making that dream hard to realize,” said Rick Sharga, former mortgage company president and current EVP at Auction.com Those harsh realities can be boiled down to two key structural challenges, according to Sharga. “Wage stagnation, particularly in the middle class, and stringent new lending rules.” In three recently completed focus groups, Tom Ward, founder of Path2Buy Homeownership Coaching Program, discovered their top two home owning concerns are the status of mortgage interest and real estate tax write-offs and uncertainty about whether the value of the housing market will ever appreciate as it once did. Historically, the first-time buyer accounted for nearly 40% of all residential purchase transactions. But that number is trending downward.
First-time homebuyers are concerned: Do I buy or do I rent? A recent series of articles in The M Report covered this segment. Analysts at Realtor.com compiled a list of cities across five categories that have the biggest impact on buyers new to the market: list price affordability, time on market, employment rates, supply of inventory and location. Steve Berkowitz, CEO, explained how these market economies can expect to benefit from the crucial first-time buyer. “First-time buyers have a widespread impact on the local housing markets. In transitioning from renters to owners, new buyers pay property taxes and other fees and taxes associated with homeownership that benefits local services and services.”
“The focus needs to shift back to what it was when our parents made the decision to buy a home. Shelter and a place to raise a family were the primary concerns. If house prices go up, then it’s a bonus; it’s not automatic. Build equity the old fashioned way, one month at a time. If you take a 30-year fixed-rate loan, eventually your payment will be less than your rent, since that increases every year.”
Looking at loan origination in a new light. I have known Garth Graham, from the Stratmor Group, for many years and always found him to be very insightful, imaginative, inquisitive and entertaining. His recent article, “Why Can’t Mortgages Be More like College Admissions?” is a great example. His article states, Today, college applicants have something called the “Common App,” which allows the applicant to put in all of the pertinent information, your rough GPA, your class rank, extracurricular activities and then it automatically pulls in your SAT scores, in one place. Any college that accepts that is one click away from your application. Imagine what it would be like if mortgage banking worked that way. You could put all of your information into a common online app—your income, your assets—and the system then pulls in your credit score. So, in the perfect mortgage application process, the borrower could press a button and send out all the data, saying “I want to apply to these specific lenders.” Those lenders would then, through whatever process they choose, provide an answer. And we, by the way, are nowhere near that at this point in the mortgage industry.
In a follow-up article, Garth wrote, “Several folks commented that we already had automated decisioning in the form of the agencies’ automated underwriting engines (DU and LP) and therefore that my concept was not that radical.While it is true that we have a standard data set that we use for automated decisions through DU, what we don’t do is allow consumers (with or without help) to fill out one data package and submit it to multiple lenders. Instead, consumers are being forced to use a different interface for each lender, who then creates a single data file to submit to the AUS for a decision.”
Looking at the technology of the future homebuyer. Garth goes on to say:“The common application method used by colleges is not their only impressive use of technology.First off, every school uses email and text to communicate status, and encourages you to create an online account to monitor your status. I am still amazed at how many mortgage companies still don’t do this, or when they do they use mortgage jargon instead of real worlds to describe your status. Of course, many of these colleges are competing for the attention of a different generation of users, so they use email, text and social media to communicate. And guess what happens when this generation graduates, gets jobs, saves up money and wants to buy a house? They are going to expect that lenders are going to communicate with them this way, too.”
There are some positive signs that the industry is moving in the right direction. A recent article in the M Report stated, “According to the JD Power 2013 U.S. Primary Mortgage Origination Study satisfaction across the industry increased for the third year in a row. The study ranks originators by taking into consideration four factors: application/approval process, loan representatives, closing and contact with lenders.
Of note is the fact that Quicken Loans earned the highest ranking for the fourth year in a row.” Personally, I believe it is because of their focus on the consumer. Next month, we will continue this discussion.
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