Mortgage Industry Trends

Now Comes Bad News on Home Sales

Mortgage Market Bad News
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Mortgage Market Bad NewsI’m getting a little confused about home sales, home buyers, the economic recovery and how all this affects the mortgage market.

A couple of weeks ago, I was hearing a rosier outlook for home sales from MBA. In fact, they increased their 2016 mortgage originations projection for 2016 to $885 billion, an increase of about $94 billion. This was on the heels of some positive reports on increasing home sales and mortgage financing. That was great news.

Then, I read that a Fannie Mae survey reveals that consumers may not consider the present to be a good time to buy a home (Consumer Confidence). What happened and why?

Understandably, there has been a little shake-up in the markets recently resulting from activity (or lack thereof) in Greece, China and Puerto Rico. That seems to have settled down, at least for the time being.

Are things so unstable that any negative activity or report will have such a drastic effect on our economy? I believe so. We have a fragile economy and any hint of bad news, whether it is financial, or otherwise, has a negative effect on people; and people are the homebuyers.

As a result of a decline in homeownership and related mortgage lending opportunities, lenders are again beginning to stretch the envelope. FHA loan business has increased again taking market share away from the agencies. This is partly due to the reduced annual premium coupled with the low down-payment requirements.

Banks have reportedly eased their credit and underwriting standards to attract more jumbo loans (as if they won’t default). So far, Fannie’s and Freddie’s “97%” loan programs haven’t really taken off as expected. Maybe that’s a blessing in disguise for them and the industry.

Dodd-Frank mandates a lender ensure a borrower’s ability to repay. Although this seems obvious, it wasn’t always so. Some lenders and industry professionals seem to have already forgotten the problems caused by a failure to validate this simple fact. People who borrower; should have the financial capability to repay the debt. Otherwise, the lender shouldn’t lend.

Interestingly the Fannie Mae survey shows that the number of those considering not just buying, but also selling, a home had declined. People are worried, and they have good reasons. In increasing numbers, consumers say there financial situation is not improving. This should be cause for concerns among lenders as well.

With the pie of potential buyers shrinking and refinances drying up, lenders will once again be forced to compete for loans. How they do so is important to their survival and the economic recovery. If done by the mere easing of credit standards to get more people into homes, we may be in for a repeat of 2008. If it is done properly, with an eye toward quality and ability to repay, we can survive and, in the long run, help the industry and economy improve.

As important as ever is that lenders have the systems and processes to carefully monitor loans to ensure that those loans that they close are compliant and defect fee. With the ongoing uncertainty, loan volumes will continue to fluctuate. Lenders need to properly size their operations to turn profits on fewer loans. This can be done through training supported by technology. An investment in both is well worth it.

Lenders may want to look at outsourcing options for functions requiring highly skilled people or technology solutions. Such outsourcing lends itself well in the area of compliance through pre and post-closing audits and/or software. This will provide variable expenses matched to the volume of loans closed.

The game keeps changing; are you prepared to compete.

Michael Vitali

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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Michael Vitali

About Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.
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