TheMReport — News and strategies for the evolving mortgage marketplace.
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TH E M R EP O RT | 17 COVER STORY A re low- and moderate-income homebuyers having difficulty obtaining a mortgage? As late as 2017, the answer to this question was a resounding "Yes." Recently released numbers on mortgage originations from the Bureau of Consumer Fi- nancial Protection prove the point. The data indicates that while home-purchase originations increased from 4 million in 2016 to 4.2 million in 2017, the share of home-purchase loans extended to low- or moderate-income borrowers was only 26.3 percent of total loans originated. The same report also pointed to a trend that has become more prevalent in the mortgage indus- try in 2018. Refinance originations in 2017 showed a significant drop from 3.8 million in 2016 to 2.5 million in 2017. Despite purchase- loan originations rising, the total number of mortgage originations declined in 2017 by 12.4 percent. A June 2018 forecast by Freddie Mac found that higher mortgage rates are weighing on refinance activity, and despite an increase in purchase-origination volume, are likely to slow total origina- tions by 6.4 percent by the end of 2018. "Higher home sales and house-price appreciation will drive purchase origination volume up by $60 billion, but not enough to offset the decline in refinances," the forecast projected. "Full-year originations are therefore forecasted to fall in 2018 to $1.75 trillion and stabilize at $1.74 trillion in 2019." The result of these headwinds is a more-competitive market. "Lenders remain bearish this quarter as they continue to face headwinds from rising mort- gage rates, tight supply, and strong home-price appreciation, which have drastically reduced refinance activity and restrained home-purchase affordability," said Doug Duncan, SVP and Chief Economist at Fannie Mae, explaining the findings of Fannie Mae's Q2 Lender Sentiment Survey. "These factors have combined to squeeze mortgage- origination volumes and have increased competitive pressures," added Duncan. The "restrained home-purchase affordability" mentioned by Duncan has also dampened the interest of potential homebuyers struggling to find their ideal home in what is now largely a sellers' market. As fewer borrowers come in through the doors to pick up conventional mortgages, lenders and loan officers are rethinking their strateges to look at new avenues and borrower pools to generate revenue. Enter millennials, those work- ing the gig economy, and those with low credit scores or from low- to moderate-income house- holds who so far have found it difficult to obtain a mortgage. Nonprime to the Rescue? D o we, or don't we? It took lenders a good part of the last decade to answer this ques- tion when it came to ledning to nonprime borrowers. And not without reason. The subprime crisis of 2008 remains a bad memory for many lenders. The By Radhika Ojha