Veros Data Looks At The State Of The Market

Now in its 15th year, Veros Real Estate Solutions (Veros), a provider of enterprise risk management, collateral valuation services and predictive analytics, forecasts the vitality and expected market changes of the U.S. residential market for 2016. The company released its most recent VeroFORECAST, a quarterly national real estate market forecast for the 12-month period ending December 1, 2016.

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The VeroFORECAST report indicates residential market values will continue their overall upward trend during the next 12 months, with overall annual appreciation rising to +4.4% (from its Q3-2015 forecast of +3.6%) with 94% of markets forecast to appreciate. “Our current VeroFORECAST update continues to show increasing strength for the next year and above last quarter’s update,” says Eric Fox, VP of Statistical and Economic Modeling at Veros. “However in the 13 to 24 month forecast window, we expect the rate of appreciation to slow down with this forecast period expecting only +2.3% appreciation. The primary driver for this weakening can be attributed to tightening already begun by the Fed which is likely to cause mortgage interest rates to begin ticking upward. We don’t see dramatic increases in interest rates or a repeat of 2007 price declines. At this point, it simply looks like a slowing of the increase in house prices as we get into well into 2016 and 2017.”

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“The top forecast markets are all showing appreciation in the 10% range with the Pacific Northwest getting very hot,” continues Fox. “Portland, Seattle, and Bend are numbers 1, 2, and 4 in the nation, respectively. Denver and San Francisco continue to be strong as well rounding out the Top 5. Most of these markets have strong economies, growing populations, and month’s supply of homes around 2.0 months or less. With these conditions, it is difficult for these markets to do anything other than appreciate at a good clip. Oregon, Washington, and North Carolina showed the biggest gains in one-year forecast levels from last quarter’s update. Top performing markets continue to confine themselves to California, Colorado, Florida, Washington, and Oregon which comprise 21 of the Top 25 forecast markets.”

The forecast bottom markets are expected to be in the eastern portion of the U.S. New Jersey, Connecticut, parts of New York, West Virginia, Alabama, and parts of Pennsylvania account for well over half of the bottom 25 markets. However even these expected poorest performing of markets are only expected to depreciate slightly or be flat.

What’s In A Name?

*What’s In A Name?*
**By Tony Garritano**

TonyG***Your company name matters. Your name should say something positive about who you are and what you do. For this reason, I think it was a great idea for Leads360 to change its name to Velocify. Specifically, Leads360, a provider of cloud-based intelligent sales automation solutions, embarked on this rebranding to more accurately reflect the company’s mission to help organizations across industries dramatically increase revenue by enabling sales professionals to sell at the “speed of opportunity.” Here’s the scoop:

****This announcement also reflects the company’s rapid, triple-digit growth over the past three years, with product adoption of its innovative intelligent sales automation solutions by companies such as Allstate, Royal Bank of Scotland, USAA, Nationstar Mortgage and State Farm. “Our new name is intended to reflect what our solutions bring to the table for sales teams – the ability to increase the velocity of selling, in a very directed and deliberate manner,” said Nick Hedges, Velocify CEO.

****Today, most organizations use traditional CRM tools, which largely leave lead follow up and customer acquisition processes to the discretion of the salesperson. This creates variable results and limits the organization’s ability to scale and meet demand. Without change, many sales organizations fail to achieve the revenue growth levels they are capable of.

****According to studies conducted by Velocify, one-in-three sales leads are never responded to by sales representatives, mainly due to challenges in keeping up with the pace of incoming leads and inconsistent practices. This underscores the need for an improved approach by businesses.

****“Today’s sales organizations are akin to manufacturing in the pre-Industrial Revolution era, where tedious processes and tasks reduced optimal output. This creates significant variability in results and limits the organization’s ability to scale,” said Hedges. “We have brought intelligent automation and optimization to selling, helping sales teams evolve much like manufacturing did nearly 175 years ago. This creates true high-velocity sales environments where sales professionals and companies can maximize revenue opportunities.”

****Velocify’s sales automation solutions enable organizations to ensure sound response to incoming leads and improve performance of the sales team. Velocify is designed to automate and accelerate sales response, enforce selling best practices, keep sales reps focused on the highest priority sales opportunities, and maintain buyer engagement. With Velocify, sales managers can rest assured that prospects are consistently pursued with the right level of speed and persistence while sales reps are maximizing productivity.

****“Our solutions put the science of selling to work so that sales teams can automate processes at a much more granular level and then continuously refine their approach using performance insights,” added Hedges. “It’s not uncommon for our clients to see double- and triple-digit revenue gains within the first year of deployment.”

Are Lenders Wasting Money?

*Are Lenders Wasting Money?*
**By Tony Garritano**

TonyG***I’ve been saying for years now that technology makes a clear difference. Here’s the proof: independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $2,256 on each loan they originated in the fourth quarter of 2012, down from $2,465 per loan in the third quarter, as increasing costs outweighed higher revenues, the Mortgage Bankers Association (MBA) reported today. Here’s why this is happening:

****“Per-loan profits decreased in the fourth quarter, primarily driven by rising costs,” said MBA Associate Vice President of Industry Analysis Marina Walsh. “Historically, production costs have dropped with rising volume. In this quarter, however, despite high origination volumes, per-loan costs reached the highest levels we have seen in this study, other than during the first half of 2011, when origination volume was 60 percent lower.”

****Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:

****The average production profit (net production income) was 107 basis points in the fourth quarter, compared to 120 basis points in the third quarter.

****Average production volume was $488 million per company in the fourth quarter, up from $450 million per company in the third quarter. The average volume by count per company rose to 2,132 loans in the fourth quarter, up from 2,010 in the third quarter.

****The refinancing share of total originations, by dollar volume, was 61 percent in the fourth quarter, up from 57 percent in the third quarter. For the mortgage industry as whole, MBA estimates the refinancing share at 75 percent in the fourth quarter of 2012, up from 73 percent in the third quarter.

****Secondary marketing income improved to 279 basis points in the fourth quarter, compared to 271 basis points in the third quarter.

****Total loan production expenses – commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations – increased to $5,603 per loan in the fourth quarter, from $5,163 in the third quarter.

****Personnel expenses averaged $3,570 per loan in the fourth quarter, up from $3,320 per loan in the third quarter, with the largest increase being for fulfillment personnel expense, which rose to $858 per loan in the fourth quarter, from $739 per loan in the third quarter.

****The “net cost to originate” was $3,813 in the fourth quarter, from $3,353 per loan in the third quarter. The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.

****Productivity was 3.8 loans originated per production employee per month in the fourth quarter, down from 3.9 in the third quarter. Fulfillment productivity was 10.2 loans originated per fulfillment employee per month in the fourth quarter, down from 10.9 in the third quarter.

****94 percent of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2012, compared to 97 percent in the third quarter.

****MBA’s Mortgage Bankers Performance Report series offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. 72 percent of the 311 companies that reported production data for the fourth quarter report were independent mortgage companies.

****What does this mean? Despite an increase origination volume in the fourth quarter, profit still decreased. Why? Personnel expenses went up and so did the cost to originate. If this isn’t a signal to lenders that you can’t solve problems and make a profit by simply adding more people, I don’t know what is. The bottom line is that lenders have to think about using technology to gain efficiency and maintain compliance or else their profits will suffer.

Closing Costs On The Rise

*Closing Costs On The Rise*
**By Tony Garritano**

TonyG***As the cost of originating a loan has increased in 2013, consumers are shouldering more closing costs. In their quarterly study on closing costs, DocuTech found that the median closing costs in Q1 2013 increased by 0.4 percent from December 2012 to March 2013. Closing costs had decreased by 0.5 percent from April to November 2012. Here’s why:

****“Overall, settlement charges are still down from a year ago. However as reported by a recent study done by the MBA, the cost of origination has slightly increased,” said Scott K. Stucky, chief operating officer of DocuTech. “A large part of that increase is lenders spending more money on compliance costs due to changing regulations within the industry – with these costs now being passed onto the borrower.”

****In December 2012, the median settlement charge was 2.561 percent of the loan value. The charges continued to increase each month until it reached 2.940 percent in March 2013. These findings are a part of a quarterly effort to highlight how changes in the mortgage industry are impacting the cost for consumers to obtain a mortgage.

****“We are starting to see firsthand through our quarterly tracking reports of our nationwide lender base that it’s not just the typical originator, servicer or lender feeling industry change; the consumer is beginning to feel it in their wallet too,” said Stucky. “The uncertainty looming in the industry will continue to have a direct correlation onto the consumer until a level of confidence is reinforced and implementation dates take effect.”

****DocuTech tracks its closing costs through the strong integrations between its document compliance system, ConformX, and lenders’ loan origination software. The data files are transmitted from the lender to DocuTech through the loan origination system to generate the documents. Therefore, DocuTech has access to a significant amount of financial data regarding mortgage lending transactions including all of the fee and collateral information.

A Big (And Long) Crash

*A Big (And Long) Crash*
**By George Yacik**

NEW-GeorgeY***I don’t mean to throw a wet blanket on the recent euphoria about the (somewhat) revitalized housing industry, but it seems to me few people in the mortgage business are talking much about the expected sharp drop in originations later this year and next.

****Both the Mortgage Bankers Association and Freddie Mac are predicting a sharp dropoff in mortgage production, mainly due to refinancings, later this year and an even bigger decline in 2014. The MBA, for example, is forecasting a 34% drop in refis in 2013 followed by a 56% decline next year, with total production down to $1.4 trillion this year, down from $1.8 trillion last year, and a further drop to $1.1 trillion in 2014.

****Freddie Mac’s numbers aren’t any better: down to $1.4 trillion in 2013 from $1.6 trillion last year and falling to an even $1 trillion next year. Mortgage refis are expected to fall to just 45% of volume next year, down from 65% this year and 75% in 2012, according to Freddie.

****But according to a long-time research analyst who’s made some early calls about turns in the mortgage business over the past 25 years – and one I know well, since I worked for him for more than 15 years – that decline is just the tip of the iceberg.

****Stu Feldstein is president of SMR Research Corp. in Hackettstown, NJ, which he co-founded back in the mid 1980s. He’s been covering the mortgage business since then; in fact, SMR was the first firm to rank the top players in the business.

****Feldstein is predicting an “historic crash in mortgage production” when interest rates eventually rise, with the originations famine lasting well beyond 2013 and 2014. Indeed, Feldstein says, we may not see another refi boom for eight or 10 more years. In the meantime, we can expect “a much smaller loan market that stays small for a long time.”

****Lenders have been focused the past several years on cleaning up the mess left by the mortgage industry meltdown plus learning to deal with the new more stringent regulatory regime coming. Understandably, they’ve paid very little attention to this coming refi cliff. But they should, SMR says.

****What’s really worrisome about the coming crash in originations is how long it will last, which is unprecedented, Feldstein says.

****“We see as much as 10 years passing without much to write home about for production-oriented lenders once the current refi boom ends,” he writes in SMR’s Mortgage & Home Equity Loans Industry Outlook 2013 report. “It is very likely to be the longest sustained period of modest loan production in modern history, and it looks inevitable,” although he says it’s hard to predict when it will begin, since that pretty much depends on when the Federal Reserve starts to let interest rates rise.

****What’s driving this expected originations dry spell? There are three main reasons, SMR says.

****Feldstein notes that we’ve now been through more than three full years of historically low interest rates, four if you count this year, five if you add 2014. “There has never before been a time when rates were so low for so long,” he notes.

****That has enabled a huge percentage of homeowners to refinance at rates so low they may never refinance again. More than half of U.S. homeowners currently have mortgages below 6%, SMR estimates. And the longer the Fed keeps rates low, the bigger that population will swell, to as many as three out of four homeowners by the end of 2014.

****In the future, mortgage rates would need to come down to below 5% in order to get these people to refinance again. “Based on history, this seems pretty unlikely,” he says.

****The second reason is the change in the term of the average mortgage loan, which has been shortened dramatically.  Super-low rates have led to a “radical increase” in the number of borrowers who have loans less than the traditional 30 years. The 15-year mortgage has become “the loan of choice for more borrowers than at any other time in recent history,” SMR says.

****A third factor is the drop in home prices, which has led to smaller mortgage debts. Combined with the second reason, people will owe less, and the less you owe, the less likely you are to need to refinance.

****Feldstein notes than in previous refi bust cycles, lenders came up with various strategies to soften the blow and keep the origination mills humming, such as lending to subprime borrowers and rolling out interest-only and payment-option mortgages in order to shoe-horn more people into loans.

****But all of these “tricks,” as Feldstein calls them, ended in disaster, as we all know, with record numbers of foreclosures and a collapse in housing prices, not to mention a global financial crisis. As a result, “when the next interest rate up cycle begins, there will be no offsetting production stimulation strategies left,” he says.

****Purchase mortgages may pick up some of the slack, but not nearly enough to make up the difference from lost refis.

****The sum total: “We believe total annual mortgage volume will drop by 50% or more in the coming crash,” SMR estimates.

****There are a couple of silver linings to this scenario, but only if you’re a big servicer or a big home equity lender.

****“The good news in this is that serviced loan prepayment speeds will become a non-issue,” SMR says, “and the change could usher in a huge rebound for home equity lending.” That’s particular good news for the home equity business, which has been living through more than five years of hardship.

****Of course, if President Obama and Congress would agree to create HARP 3.0, which would enable borrowers with mortgages from subprime lenders to refinance through Fannie and Freddie, that would give the refi business a boost for another couple of years.

****ABOUT THIS COLUMN: We are happy to welcome George to the PROGRESS in Lending team. He’s a veteran financial services reporter with vast industry knowledge. In this regular column he’ll reflect on the latest news and industry trends in his own voice, sharing his unique views, which we hope you’ll find to be very “Interesting,” hence the title of this new column, Points Of Interest.

Market Analysis: Not Much Has Changed

*Not Much Has Changed*
**By Tony Garritano**

***Ellie Mae just released its report on mortgage activity for the month of June and it found more of the same. Despite record low interest rates, the percentage of refis was the same as a month prior as was the average time to close a loan. So, what did change? “In June, the average closed loan had a slightly higher credit score (746 vs. 744), lower loan to value (80% vs. 81%), and more conservative debt-to-income ratio (23/35 vs. 24/35) than in May,” said Jonathan Corr, chief operating officer of Ellie Mae. “This tracks with the slight decline in closed conventional refinances with LTVs of 95%-plus, which were 10.2% in June, down from 11% in May.”

****To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the March applications) to calculate a closing rate for June. Ellie Mae found that 46.2% of all applications closed in June 2012 compared to 47.2% in May 2012 (see full report).

****“June’s 30-year note rate at 3.992% was the lowest monthly rate since we started tracking in August 2011 and nearly two-thirds of a point lower than the rate at that time,” Corr noted. “So it is hardly surprising that borrowers are opting for 30-year mortgages and that the share of adjustable rate mortgages (3.3%) and 15-year loans (15.8%) is diminishing. Also in June, the average refinance loan closed in 47 days, one day faster than in May, but the average purchase loan took two days longer, or 46 days, to close,” he said.

****The report draws its data and insights from a robust sampling of the volume of loan applications that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network.

Understanding The News: How Long Does It Take To Close A Loan?

*How Long Does It Take To Close A Loan?*
**New Research Sheds Light on Cycle Times**

***Ellie Mae released its Origination Insight Report for May 2012. The report draws its data and insights from a sampling of the significant volume of loan applications—more than 20% of all originations in the United States—that flow through Ellie Mae’s Encompass360 mortgage management software and Ellie Mae Network. Here’s the scoop on cycle times, volume, and much more:

****“In May, the average loan-to-value (LTV) for closed loans broke the 80% mark for the first time since our tracking began in August 2011,” said Jonathan Corr, chief operating officer of Ellie Mae. “The increase appeared to be driven by an easing of LTVs on conventional refinances (the average LTV was 72% in May compared to 69% in April). Last month, closed conventional refinances with LTVs of 95%-plus jumped to 11%, up from 7.1% in April and 3.6% in March, which may be a sign that HARP 2.0 is helping more borrowers.”

****To get a meaningful view of lender “pull-through,” Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the February applications) to calculate a closing rate for May. Ellie Mae found that 47.2% of all applications closed in May compared to 48.1% in April (see full report).

****“As you’d expect in the Spring sales season, the percentage of purchase loans increased to 46%, their highest level of the year,” noted Corr. “Credit scores for closed loans decreased slightly to 744 in May, with the biggest drop in FHA refinances, where the average credit score declined to 713 in May from April’s average of 720.

****“The combination of record-low interest rates, flexible HARP 2.0 refinances and a growing perception that housing prices finally may have bottomed are all creating increased demand—and slightly longer waits—for mortgages,” said Corr. “In May, the average loan closed in 46 days, one day longer than in April; and the average refinance also took one day longer, or 48 days, to close.”

Winning The Battle For The Borrower: Keep Your Customers Loyal And Your Pipeline Full

*Keep Your Customers Loyal And Your Pipeline Full*
**By Stephen Margrett**

***As consumer direct becomes more and more relevant, I bet you want a portion of that business. So, what do you do? My guess is that right now you are wisely seeking the optimum solution for maximizing the value of your key business relationships through effective database management and innovative marketing. However, your database of existing customers requires special attention. Loan originators who focus on relationships rather than transactions understand the ever-expanding influence of loyal customers.

****Studies show that a 10% increase in customer retention can translate to as much as an 80% increase in profitability. This means you have to stay in touch with your customers and track the results of your loyalty building activities. You must do the same for your prospects and referral partners. What are the options?

****You’ve probably tried various software products and customer relationship management (CRM) systems that are supposed to organize your database and distribute e-mails, postcards and gifts. These products may have met some of your objectives. Maybe not. Probably not.

****However, if you’re looking for an all-encompassing application that combines world-class technology with superior marketing capability and compliance, then you need to really look beyond CRM. What do I advise? This enterprise solution should provide loan officers with these key features:

****Database Management

****Once you import your database into your enterprise marketing automation engine, you can maintain it with a few key strokes—and you’ll find it’s easy to enhance the data for marketing purposes by adding client nicknames, birthdays, language preferences, e-mail addresses and other data. In addition, a link to the U.S. Postal Service ensures that address changes are automatically recorded in a timely fashion.

****Automated Programs

****These strategically timed sequences of professionally crafted personalized communications establish a firm foundation for your long-term success. That’s because an enterprise-class marketing automation tool provides high tech automation of both electronic and conventional output, which ensures your programs are so hands-free that there’s nothing for you to do but respond to the steady flow of referrals and repeat sales.

****On-Demand Marketing

****The Custom Campaigns feature of enterprise-class marketing automation enables rapid response to changes in market conditions with relevant sales messages delivered to precisely targeted audiences. The system provides a simple process for driving your campaigns on-demand and—being seamlessly connected to a state-of-the-art production and fulfillment operation. Further, economy, speed and security are guaranteed.

****Those are my tips for you as you look to automate more to capture more business. Take my word for it, it works.

Powering Today’s Lenders: How To Increase Your Volume

*How To Increase Volume*
**By Gregory Crosby**

***The pressure on lenders to remain viable in the market is ever present. They need to achieve volume growth that is both profitable and manageable. This determination is rather easy to conjure; however, what isn’t easy is how to go about it.

****For those lenders who participate in the secondary market, technology can make the largest impact in changing the bottom line. Technology can best help address the three areas where they can look to make an impact on their business. Technology can help lower operating costs by increasing efficiencies. It can also provide a clear view of their operations, and it can better prepare them to act and react to ever-changing market conditions.

****As a technology provider in this field for more than 20 years, we have participated in a number of recent success stories where the proper application of and adherence to technology has helped lenders not only survive, but thrive in today’s market.

****For example we implemented our secondary marketing solution offering for a small-sized originator. Their operation was lacking in quality control and was rife with manual tasks that supported a high maintenance/high risk environment. They dedicated an inordinate amount of trained resources to maintaining their pipeline and fixing errors as they happened. They had been forced to offer a product that had a high margin embedded as they were not confident they could manage the interest rate risk.  It was inevitable that their volume levels were low. They felt trapped, as their volume levels and staff experience prevented them from justifying an investment in software and staff.

****However, they made the decision to move forward as the status quo was no longer tolerable. Concurrent with implementing PowerSeller they hired a capable person with only a small amount of secondary marketing experience.  The solution was able to help streamline and automate tasks that had been time-consuming, error-prone manual operations. The willingness of the originator to embrace the technology and to hire a person who could utilize the solution to price, pool and hedge the pipeline allowed them to roll out new products and pricing strategies that improved volumes and overall profit levels.

****Other examples of technology’s impact on lenders include transmitting loan delivery data in a variety of formats including the ULDD; segregating and monitoring a variety of execution options; gaining information insights through the various reporting and business intelligence tools, position risk management from a perspective that fits a specific management style, and better insight gains into fallout tendencies and using that knowledge to reduce hedging costs features.

****By embracing tools such as a quality secondary marketing solution, lenders were able to manage their secondary business in an opportunistic, adaptive, time efficient, cost effective and repeatable manner. This set them on the path to becoming more efficient while having a better understanding of their position in the market and better preparing them to react to changing conditions to improve their results.

****We will be at the upcoming Secondary Marketing Conference in New York City May 6 through May 8, and we invite you to join us for a brief discussion of your secondary marketing operation, both present and future, and see if we can help you achieve and exceed your performance goals. Call me at 800-628-4687 x149 or email me at

Video Insights: Increase Origination Volume

*Thrive In A Down Market*

***At the ENGAGE 2011 Event presented by PROGRESS in Lending, lots of quality discussions and ideas were exchanged. For example, are you struggling to survive in a lending world with less origination volume? Help is on the way. We discussed new techniques and methods to ensure success. Our speakers for this panel included prominent lenders, vendors and consultants. Here’s what they had to say on this topic: