MReport December 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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M R EP O RT | 15 COVER STORY reducing costs in any industry, but it's especially critical in the housing and financial services sectors," Sogorka said. "The $8,611 price tag it takes to manufacture a single loan is astronomical, and it ultimately gets included in the lender's total price and passed along to borrowers." Joe Welu, CEO and Founder of Total Expert, said technology had made loan approval faster and more accurate over the past year. Welu said this had been a benefit in a heavy-refinance market—a sector where transactions that are on a fast clock. "As we move back to a purchase-focused market in 2020, lenders must master long-lead cus- tomer engagement because it takes four to five months for customers to find a home after loan pre- approval," Welu said. "If lenders don't automate their human touch and follow-ups, they will lose purchase customers during this home shopping period. Sogorka added that the compa- nies able to leverage AI will cut their costs and take the market share during these competitive times—especially with consum- ers expecting "every buying experience to be fast, cheap, and hassle-free." Welu said AI is similar to a smart loan officer assistant that "humanizes customer engage- ment" on long-lead purchases business. Welu, though, said automated customer engagement must come via loan officers and not robots. "Lenders can control this type of AI to their needs, and it's always best to have each touch— whether text, email, voicemail, etc.—come from the loan officer and not a generic address." "For automated loan approvals, technology must enable a seamless digital/human link where a loan officer and their processing/under- writing teams can intervene im- mediately with anything that can't be automated," Welu continued. Looking ahead to 2020, Sogorka said the industry needs to work to being all aspects of homebuying into "one seamless experience." "Today, borrowers can apply for mortgages through their lend- ers, find Realtors and property on a real estate website, select insur- ance with their provider, and sign and close on their homes with their title company," Sogorka said. "All these pieces are inherently interconnected, yet handled by different providers with different technology." Welu added that all advance- ments in technology over the next year must improve on giving customers a hybrid experience—in home searches, loan approvals, cus- tomer acquisition, and marketing. "It's not enough to simply automate these processes. The winning banks, lenders, and real estate companies in 2020 will master how to digitally enhance the human touch," Welu said. Caroline Reaves, CEO of Mortgage Contracting Services, said the mortgage industry "revolves around the use of images," and the manual review is costly, time consuming, and labor intensive. The use of AI in image review is one of the main advancements she sees taking place next year. "Automatic image classification will help to reduce (and over time eliminate) the need for human review of images. The use of AI in this area will continue to grow," she said. Additionally, she said Robotic Process Automation is another key area that holds enormous potential. Early implementations of this technology, Reaves said, allowed MCS to free staff from performing law-value tasks and to focus on activities that add more value to the business. Recessionary Fears E conomists and Wall Street sig- naled recessionary warnings in August as the Dow Jones crashed more than 800 points, and the 10- year Treasury yield briefly broke the two-year rate for the first time since 2005—an economic marker that has often proved a forerunner of recessions in times past. The market recovered, and Wall Street is touting record highs. Despite the seemingly favorable stock market, however, there are still some who believe a recession is possible, even as soon as the 2020 Presidential election. Casa said it is "too early" in the current cycle to begin predicting recessionary fears, as there has not been one-quarter of negative growth in recent months. "It takes two quarters in a row of negative growth to call a reces- sion," Casa said. "Recessionary fears would have to impact the major tailwind to the U.S. economy now that is consumer spending. If you keep an eye on consumer spending, that perfor- mance may become an observable predictor of a looming housing market slowdown." Duncan agreed that it is unlikely that a recession would occur in 2020 unless there is a "major blow up in trade" tensions or some other significant global factor. Overall, he said the U.S. economy is doing well. "Fears of a recession would be driven by a decrease in con- sumer confidence which is largely impacted by unemployment rates/ jobless claims," Bhat observed. "The result would be a chal- lenge in the ability to purchase a home and a possible uptick in the foreclosure rate due to changes in ARM rates." The question to ask, Duncan noted, is how strong will that next recession be if, and when, it eventually comes, which will have significant implications for housing. "The mortgage credit that has been extended is high quality. Delinquency and serious delin- quency levels are at over 20-year lows. We can see that the mil- lennials who are buying homes are actually much more conserva- tive in terms of the amount of debt they're taking on than their parents or their parents' parents," Duncan said. "One of the les- sons of the crisis was not not to overextend, and it appears that that message has gotten through reasonably well." Kiefer said his team at Freddie Mac is calling for no recession in "As we move back to a purchase-focused market in 2020, lenders must master long- lead customer engagement because it takes four to five months for customers to find a home after loan pre-approval. If lenders don't automate their human touch and follow-ups, they will lose purchase customers during this home shopping period." —Joe Welu, CEO and Founder, Total Expert,

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