MReport Jan 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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20 | TH E M R EP O RT FEATURE A s the CEO of a mortgage-banking firm with six distinct lines of business, I have to take a broad view when planning for the coming year. And while the complex world of mortgage finance makes offering predic- tions about what will happen in 2019 virtually impossible, there are some areas where change seems imminent. Here are a few areas where I think we can expect change and how you can posi- tion yourself to take advantage of market inflections. The Economy Will Slow Down (or Maybe It Won't) I am not an economist, but there are three major areas I follow: • • Recession—For at least three years now, most Mortgage Bankers of America (MBA) forecasts have warned of an economic slowdown, if not recession, sometime in 2019. MBA cites that a recession will be primar- ily fueled by the effect of tax cut stimulus losing impact over time. Although the stock market this month is giving indicators of a "recession ahead," the reality is probably a marginal slow- down but not recession. • • Trade•Wars—No one knows when a trade war resolution will come. It could be tomor- row; it could be never. At some point, we'll likely see actions that will stimulate a settling will be a panacea to a slowing economy. • • Fed•Action—The Fed is signaling one to three increases in interest rates this year. After a decade of suppressed rates, we can count on it happening. For the Treasury curve, that means flat to inverted. For the long rates, we'll probably end up higher in a range of 75 to 100 basis points. Once we take those predic- tions for recession, trade wars, and Fed Action into account, we can consider how they might influence our industry. First, the industry will continue to face the challenge of maintaining volume as the market shifts from being driven by refinances to being dominated by purchase home loans. Second, higher mortgage rates will further erode refinance volume at the same time they con- strict homebuying. That's because asset prices rise and fall based on the ability to finance home purchases. When consumers have to finance homes at a 5 percent to 5.5 percent rate, rather than the 200 basis points lower rates they had in previous years, they simply don't qualify to spend as much on a home. Unless wages rise in tandem with the rates, we'll see a de- cline in volume. There is a Wall Street adage that the Fed does not usually stop a rate hike path until "something breaks," which translates into a not-so-good envi- ronment. In summary, during 2019, we can also reasonably expect lower origination volumes due to falling home values in many markets. Correspondent Lending T he rising rate environment will lead to a lot of consolida- tion in the market. By the end of the year, we may see fewer investors, overall, in the corre- spondent business. As volumes fall, we may also see fewer lend- ers. The investors who stay in the market will step up with new offerings, which is good news for the surviving originators. To be successful in this market, the remaining correspondent lenders will need to offer innovative and niche products that will help meet the needs of the market. Some of those products could include: • • 203(k)—A 203(k) home loan gives homebuyers money to buy and renovate in a single loan. Where there's a shortage of new and turnkey existing homes, buyers can use 203(k) to buy and mod- ernize older housing stock. • • Lock•and•shop—This type of loan allows preapproved homebuyers to lock an interest rate for up to 120 days while they shop. This is of particular interest to those consumers who believe rates will continue to rise before they have a chance to find the home they want to buy. • • 2/1•buydowns—Buydown bor- rowers pay two points below the note rate for the first year and one point below during the second year. These loans give homebuyers the flexibility to buy high-dollar items, such as furniture and appliances. This can be attractive to consumers because of the rising cost of appliances. However, buydowns are challenging to explain to borrowers. Therefore, it is essential to understand how to comply with TRID require- ments. Technology and the Personal Touch C onsumers will continue to use technology as a yardstick for differentiating among lenders in 2019. Consumer-facing technol- ogy, like digital personal mort- gage assistants, will be the most visible change. And back-office A New Year, a New Attitude See how market trends will impact lending, servicing, and customer service in the year ahead. By Michael Dubeck NEW YEAR'S ISSUE

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