TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/105753
feature or ig i nat ion ORIGINATION Policy and Prophesies: S e c on da r y M a r k e t a na ly t ic s se r v ic i ng Will More Regulation Boost Profits? Though legislation has put a strain on lenders' resources, new data demonstrates that industry standardization could lead to healthier revenue growth. By Tory Barringer T he housing finance industry is always awash in market forecasts claiming to present prescient predictions for the future of lending. Faced with a deluge of market information and commentary by everyone from expert economists to amateur armchair analysts, originators are tasked with determining which findings may be prophetic and whose figures are facetious. Despite the data drama, however, mortgage professionals can tap into the power of trustworthy trend reports to develop successful strategies, and a recent study from FBR Capital Markets is offering lenders a new perspective on the mortgage business—one that provides insight into optimal positioning rather than an attempt to spin statistics. 42 | The M Report According to the group's survey, establishing methods to maximize standardization will be the difference-maker that drives greater stability for housing, and FBR's report delivers key analysis that focuses on guiding the industry's efforts to maximize operations. According to the forecast, FBR believes that "companies directly involved in mortgage banking or housing, or involved in a derivative of the two, such as homebuilders, housing rental companies, mortgage/title insurance, and reverse mortgages, should enjoy strong profitability, less volatility, and better valuations relative to historical expectations." At the same time, portfolio lenders and privatelabel securitizers "will be at a strategic disadvantage." The report, titled Future of the Housing & Mortgage Markets: Winners & Losers, examines the impact of heightened scrutiny and changing markets to determine where the industries will head in the next five years. While many mortgage professionals have been expressing anxiety about certain aspects of proposed regulations, FBR points to the end result: a more stable market with higher underwriting standards and lower risk from "exotic" mortgage products such as low/no-doc loans and prepayment penalties. "The capacity constraints created by increased barriers to entry and regulatory oversight, coupled with the standardization of the mortgage product and the continued dominance of the government guarantee, should produce a more stable and consistently profitable mortgage origination market," the report reads. Although the mortgage industry as a whole is expected to benefit from the increased regulatory oversight, some proposed regulations—particularly those related to qualified residential mortgage (QRM) rules—are expected to give preference to loans securitized by Fannie Mae and Freddie Mac. These risk retention requirements may stifle any private securitization activity and potentially keep out new entrants who could otherwise bring down underwriting standards.