There are a lot of potential influences on the mortgage and real estate markets at any given time. While many of 2016’s issues are merely the continuation of 2015’s technology, regulation, rising prices – there are some new trends of which lenders need to be aware. Below are some of the challenges mortgage professionals will face this year.
Funding volume: Industry loan funding volume is anticipated to fall by about 10 percent overall nationwide. As interest rates are expected to rise, the decline will be primarily in the drop of refinance volume. Though overall loan volume is expected to decline, loan funding volume from purchase transactions are expected to rise nationally 10 percent, and even further in some of the strongest housing markets in the country.
The mortgage bankers and depositories that have strong, purchase-focused origination platforms should outperform competitors and could be up year-over-year by better than 20 percent to 25 percent.
Marketshare: According to the most recent Home Mortgage Disclosure Act data (2014, released in October 2015), there is a continuing trend towards independent mortgage bankers (IMBs) taking marketshare from deposit-based commercial and retail banking institutions, both big and small. Over the seven-year period of the most recent data (2008-2014), IMBs’ marketshare is up 71 percent and the depository share is down 29 percent. I suspect this trend will accelerate as loan volume mix of refinance versus purchase transactions normalizes to its historical data norm of 65 percent to 70 percent purchases, and 30 percent to 35 percent refinances by volume. Credit unions will also increase their marketshare (up more than 33 percent during the aforementioned period) as both IMBs and CUs remain focused on the consumer and not the transaction.
Further regulatory pressures will also push the larger depositories away from this business line as more and more enforcement actions by the Consumer Financial Protection Bureau (CFPB) and the Department of Justice are announced and made public.
Keith Polanski
Rising interest rates: The Federal Open Market Committee (FOMC) recent decision to increase the overnight lending rate by 25 basis points. This is the first time the rate has increased in over seven years. While this well telegraphed-headline was widely expected by most economists and financial market pundits, its impact has been primarily muted. Recent geopolitical turmoil, especially in the Middle East, will probably give the FOMC pause on further rate increases in the near term.
However, these marginal increases in mortgage lending rates will be a positive for the industry and real estate market. The analytical data shows that a 1 percent increase in rates from their current levels would cause a “pull-forward effect” on homebuying, as consumers “get off the fence” and make purchase decisions prior to rates moving higher. In fact, both the Mortgage Bankers Association and Fannie Mae forecasts show a 10 percent increase in purchase transaction volume with a nominal increase of current mortgage rates of about 1 percent.
Regulatory headaches: I think everyone in the mortgage industry is still shaking off a regulatory hangover in the New Year. The cumulative “risk on pressure” of the CFPB’s regulatory rulemaking through enforcement actions and not the normal, transparent process has the industry constantly looking over its shoulder. Whether it is the extremely vague and poorly written TILA-RESPA Integrated Disclosure Rule (TRID) that went into effect on Oct. 3, the use of Disparate Impact legal theory (recently confirmed by the Supreme Court), the lingering effect of the Dodd-Frank Act and the recent use of the False Claims Act, among many more, everyone in the industry is unsure how to run their business in a compliant way – even with immense resources being spent to be so. The mortgage companies and depositories that stay keenly focused on these issues will see growth in their business.
Big data: More and more forward-leaning companies will use “Big Data” to predict consumer-buying behavior, household formation and migration, wage and employment stats, and – possibly most important – fraud and red flag data to assist in loan underwriting and risk mitigation. Technology remains an important, ongoing investment for all players in this space.
Millennials and minorities: Winners in the real estate and real estate finance industry this year, and beyond, will have clear and articulated strategies to serve Millennials and diverse communities. Hispanic-American and African-American homebuyers, along with Millennials leaving their parents’ basements, will be the driving force in household formation over the next 10 years. Your business and your workforce will need to be representative of this fact.
This looks to be a good year in the mortgage industry. With homes sales and mortgage applications near or above industry norms, a healthy regional economy and favorable rate environment, real estate professionals have every reason to be optimistic heading into the New Year.
Individuals and organizations who recognize the catalysts of home formation in 2016 and beyond – Millennial and minority homebuyers – and devise demographic-specific tactics and strategies to embrace these groups, will position themselves best to enjoy a prosperous 2016.
Keith Polaski is COO and co-founder of radius financial group inc., a private, full-service mortgage lender in based in Norwell, Massachusetts.
