MReport March 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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40 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION The Luxury Angle What can wealthy homeowners' share of refinances reveal? A ccording to a report by CoreLogic, the share of cash-out refinances, particularly among fixed-rate borrowers, suggests the desire of homeowners to access cash by borrowing against home equity. Out of the currently ac- tive loans that were originated in 2013, 47 per- cent accounted for cash-out refinances. The next largest mortgage purposes-consolidation, and rate/term reduction loans, accounted for 21 percent and 16 percent, respectively. Interestingly, adjustable-rate mortgages (ARMs) is the preferred option for those financing luxury homes. Data revealed that 76 percent of borrowers refinancing ARM loans opted to go for another. Thirty-one percent of the fixed-rate borrowers switched to an ARM with a median initial interest rate at 3.25 percent. The adjustable period for these will begin by Q 3 2024, the report said. The report stated that, out of 230 total active "super" jumbo mortgages, 75 per- cent were originated since 2013. Refinances account for roughly 180 of the total count, and 74 percent of these were also originated since 2013. "The share of refinances high- lights the likely motivations of these wealthy homeowners," the report reads. Low interest rates and rising home values have driven refinance activity since 2013. Public records data shows a cluster of active-mortgage loans that have origination amounts between $10 million and $20 mil- lion in recent years. CoreLogic's data points out that a few borrowers took advantage of the lower in- terest rates in refinances. Expiration of the fixed-rate term on the preceding ARM may have acted as an incentive to refinance, the report stated. However, it indicated that borrowers were able to capitalize on lower interest rates before the first adjustment— wherein half of the borrowers refinancing ARM loans before the first adjustment were able to obtain lower interest rates, decreasing their interest rate by an average of 70 basis points. The average increase in original principal balance for loans identified as cash-out re- finance was $6.6 million. The report found an average refinance origination amount ex- ceeded the prior mortgage amount by $8.3 million last year. In the fixed-rate category, the 15-year term was the most popular with fixed-rate loans, followed closely by 30-year, based on CoreLogic public data. California topped the "distribution of cash-out refinance mega-loans outstand- ing by state list with a cash-out refinance share of 55 percent. Florida, Massachusetts, Connecticut, New York, Texas, and all other states accounted for 92 percent of all cash- out refinance mega-loans. Trends for Lenders to Watch In a digital future, what will mortgage lenders do to enhance the customer experience? H ousing and the economy entered 2019 on ground a little less solid than 2018's terra firma. Interest rates are up, the housing supply is still tight, and prices are high, even as houses are still selling at a brisk pace. For the mortgage industry, that could mean the year ahead will be a cautious one. At least that's what Fiserv is projecting for the sector in 2019. In a market increas- ingly defined by always-updating regulations, rising homeowner expectations, and the growing swell of millennials entering the homebuying market, "navigating the mortgage market in 2019 will require flexibility and patience from borrowers and lenders," Fiserv wrote in its look at trends for the year ahead. Millennials will be more in the driver's seat. The National Association of Realtors says that millennials ac- count for 36 percent of homebuy- ers in the U.S. That's the largest generational share, and millennials are just now entering their peak buying years. Expect more projects. With interest rates going up at regular intervals, home-equity loans for bill con- solidation and construction and improvement projects are likely to surge. TransUnion estimates that 10 million consumers will originate a home equity line of credit (HELOC) between by 2022. Things will go more mobile. A growing number of borrowers— remember, millennials are buying more houses and they're extremely comfortable with technology—are happy to complete mortgage and loan applications through laptops and mobile portals. Mortgage lend- ers, consequently, need to deliver a more efficient lending process "and compelling, differentiated bor- rower experience," Fiserv writes. "To grow their mortgage business, financial institutions will likely make greater investments in the customer experience in 2019." A challenge here, though, is to create a user experience that bor- rowers will like, not an anony- mous "chatbot" experience that they can simply disconnect from and go elsewhere. Even if face- to-face dies out, those nonhuman conversations must deliver a rich, digital experience. Data, data, data. Regulation and digitization have already brought about a lot of data on who a bor- rower is, what a borrower wants. Lenders will increasingly use technology to translate all the raw data into a more 360-degree view of borrowers and the lending operation. "The more lenders get the transparency, visibility, and quantity of data right—and make it easily accessible—the more it en- ables quicker, better decisions and reveals additional opportunities," Fiserv writes. Also, with machine learning and AI not far off, mortgage lend- ers will start paying more attention to the clarity of their data sets, which Fiserv calls "the precursor to artificial intelligence." Lenders will adapt and improvise. Smaller lenders, in particular, get weighed down by heavy regulation. And a lot of them are becoming nonbank providers and aggregators, "which are able to compete without many of the regulatory challenges placed on banks and credit unions," Fiserv stated. But it will be a tech-driven restructuring that relies upon more fully implemented automation that will make it all work.

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