10 Bold Predictions for the Future of the Mortgage Industry
September 6, 2016 6:00 AM
If the past 40 years has revealed anything about the mortgage industry, it's that change is constant, and inevitable. From the future of Fannie and Freddie to the role technology will play in underwriting, here's a look at 10 bold predictions that will shake up the mortgage industry.
Conservatorship Era Comes to a Close
No matter which party wins the White House and Congress, this one is bound to happen, and soon. After all the talk, in the end Fannie Mae and Freddie Mac will become fully-privatized companies and returned to their shareholders because it's the easiest thing for the government to do. In the future, Fannie and Freddie won't have any government charter or guarantee, which will open the door for others to compete in their space. That makes it quite likely one or both will be acquired by a financial exchange.
Bye, Bye Bankers
Mortgage lending is a cyclical business that banks have exited in the past when they think it isn't going to be profitable. Remember, before the merger with Norwest, Wells Fargo had actually outsourced all of its mortgage originations to PHH. Today, there are even more financial and regulatory requirements attached to mortgage lending. As a result, in January BankUnited closed its retail production unit because it felt it could not originate enough loans to be profitable.
Hello, Brokers
The bank exodus from mortgage lending isn't the only reason that brokers are poised to make a comeback. The broker-to-banker migration gained momentum in the post-bust era because of the fear of new regulations that would limit their ability to originate loans. But a number of small and midsize lenders are already reversing course to become mortgage brokerages as they have to deal with increasing compliance costs from being mortgage bankers. More will follow.
The Return of a Functioning Subprime Mortgage Market
Lending to lower credit score borrowers was a very successful business when non-conforming originators stuck to tight parameters in other criteria. But today, the only loans made to low credit score borrowers are done through government-guaranteed programs. There is an opportunity to serve low credit score borrowers with non-conforming products but those lenders will adopt the same cautious practices being used to underwrite conforming loans today.
Expanding Conforming Loan Standards
Underwriting is more than just credit scores; variables like debt-to-income and loan-to-value ratios are also part of the decision to approve a loan. Right now, lenders are only approving conforming loan applicants who fit a narrow qualification matrix. It is inevitable that criteria in the matrix will widen. Being able to originate more loans means more fee and servicing income for mortgage bankers.
Do-it-Yourself Tech Will Replace Loan Officers
The millennial generation is known for being more willing to do things online and on their own, and that will lead some lenders to experiment with an entirely self-service online experience for applying for a mortgage. However, surveys show that some millennials still at least want the ability to interact with an expert to answer questions and provide advice, which means this approach won't work for all lenders and all borrowers.
A.I. Will Replace Human Underwriters
Current automated underwriting systems are rules-based and still require human intervention to address exceptions to standard rules. But as machine learning advances, artificial intelligence will be able to fill that role, helping lenders cut approval turn times and costs from their operations.
Marketplace Lenders Will Not Be Major Players in Residential Mortgages
Crowdfunding and peer-to-peer platforms have found opportunities in providing financing for commercial real estate. But CRE lending isn't regulated as heavily as residential mortgages and those complications will keep marketplace lenders from being a driving force in residential mortgages.
Compliance Will Force E-Mortgage Adoption
Regulatory pressure will force lenders to adopt e-mortgages. It will be easier for lenders to acquire the data to comply with the requirements of the Uniform Mortgage Data Program and the new Home Mortgage Disclosure Act reporting rules, plus prove TILA/RESPA Integrated Disclosure compliance. Image: Adobe
Appraisals Will Become Obsolete
As automated valuation models become more accurate, appraisals will become obsolete. Still, there will always be a need for lenders to understand the conditions of a subject property. That's why lenders will require borrowers to share the results of their home inspection. The inspection, combined with the results of the AVM, will provide the details necessary to evaluate the collateral backing mortgages of the future.
