MReport July 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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38 | 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 Rise of Nonrevolving Credit Take a look at the trends that have impacted consumer mortgage credit. N onrevolving credit, as well as debt, is rising according to an analy- sis of the latest Federal Reserve Consumer Credit report by the National Association of Home Builders (NAHB). Citing the report's data, the NAHB analysis said that consum- er credit increased at an annual rate of 4.5%. This included a rise in revolving credit (for loans such as home equity lines of credit) at an annual rate of 3.3% and nonrevolv- ing credit (loans such as mortgages) at a rate of 5% annually. Nonrevolving debt also grew at 6.1% during the period, the analysis revealed, even though there was a "significant downward revision to nonrevolving debt" by the Federal Reserve moving forward. The current, outstanding level of debt on a seasonally adjusted basis is $4 trillion, approximately $15 billion higher than the previous month's outstanding balance. The analysis pointed out that while mortgage applications had increased over the past few weeks, they were not likely to impact the data on nonrevolving credit. This was because "instead of resulting in new mortgage originations, the lion's share of activity was in refinancing." According to the analysis the weekly MBA mortgage applica- tions survey had shown a surge in home refinancing, with a week-to-week increase of 39% on a seasonally adjusted basis. Yet, "despite the widespread decrease in mortgage rates, changes in purchasing activity were not as sensitive to the drop as were ap- plications to refinance." However, the analysis said that this was more due to the seasonali- ty of loans during this period rather than any other external factors. Additionally, from January 2019, the non-seasonally adjusted level of debt reduced by about $15 bil- lion, with depository institutions' holdings accounting for most of the decrease. Within depository institutions, "the non-seasonally adjusted decrease in debt was largely in revolving credit." Fintech and the Mortgage Process These are some technologies that lenders prefer to use over others. L enders are looking to new fintech when trying to gain advantages over competitors, according to a recent study from Fannie Mae. The Q1 2019 Mortgage Lender Sentiment Survey from the GSE indicates that Application Programming Interfaces (APIs) and Optical Character Rec- ognition (OCR) are the top two technologies with the greatest potential to help improve or streamline processes, according to lenders. Businesses are increasingly leveraging digital technologies to reduce errors and costs, transact faster, and drive a richer and better customer experience," said Prabhakar Bhogaraju, VP, Digital Products at Fannie Mae. "In the mortgage industry, many pro- cesses involve transmitting a large volume of data among a series of interconnected parties, including consumers, investors, and an array of service providers and stakeholders. Over the past few years, technological advance- ments such as artificial intelligence, APIs, and document digitization have gained trac- tion, enabling digital transformation." Fannie Mae's Economist and Strategic Research group found that nearly two-thirds of lenders selected APIs and OCR as the top two technologies with the greatest potential to help improve or streamline processes, and were the most likely technologies to be rolled out by lenders within the next couple years. Other technologies lenders reported as offering the greatest potential to improving lending processes included AI/machine learn- ing, robotic process automation, chatbots, and distributed ledger technology. Ease of technology integration was cited by lenders as the most important criterion in deciding whether to adopt a third-party API. Bhogaraju noted the importance of tech to lenders. "Throughout the past several quarters, lenders have continuously reported the challenge of declining profit margin and the need to reduce costs and improve customer experience," Bhogaraju said. "APIs and OCR have the potential to help address these issues. However, previous research has shown that integration difficulties and investment costs are lenders' top barriers. Identifying the benefits that justify technol- ogy investments may not be easy since the impacts are often multi-layered and include a mix of direct and indirect benefits." According to Bhogaraju, APIs and OCR may also yield fewer mistakes, less rework, and an ability to translate fixed labor costs into variable costs, allowing a business to scale capacity up or down as the market expands or contracts.

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