MReport November 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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M R EP O RT | 35 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 conditions and steep home-price appreciation." According to the latest Housing Affordability Index from the National Association of Realtors (NAR), housing affordability de- clined from a year ago in all the four regions, with the Northeast experiencing the biggest decline of 10.7%. The Southern Region experienced a weakening in price growth compared to a year ago of 7.1%, followed by the West with a dip of 4.9%. The Midwest had the smallest decrease of 4.8%. "Housing affordability was up modestly in all four regions from last month, except in the West where there was no change," NAR Research Data Specialist Michael Hyman said. "The South had the biggest gain of 0.4% fol- lowed by the Midwest, which rose 0.3%. The Northeast region had the smallest increase of 0.2%." With home prices reaching record highs over the past year, and more recent new construc- tion being larger and more expensive, average loan sizes have also grown and affordability has weakened—especially for first- time buyers. Joel Kan, Associate VP of Economic and Industry Forecasting for the MBA, does expect some of the affordabil- ity challenges to ease as for-sale inventory grows and home-price growth moderates. The current supply chain is- sues impacting home builders are being passed onto buyers, as the National Association of Home Builders (NAHB) reported that the change in price of softwood lumber products that occurred between April 17, 2020, and July 8, 2021, added $29,833 to the price of an average new single-family home. "Credit availability is still around 30% lower than pre-pan- demic levels," Kan said. "Mortgage supply will need to increase mod- estly so that qualified buyers can get access to financing for their home purchase. This will be im- portant for the wave of potential first-time homeowners who are approaching prime homeowner- ship age." Marina Walsh, CMB, VP of Industry Analysis for the MBA, noted that the industry is mov- ing away from the record-high production profits of 2020. As production volume declines, and the market shifts toward fewer refinances and more purchase activity, competition will fur- ther stiffen. In this environment, lenders can only chase market share for so long before there are substantial consequences to the bottom line. "Many lenders will rely more heavily on their servicing busi- ness to achieve financial goals. Higher mortgage rates mean fewer prepayments and a longer revenue stream of servicing fees combined with higher mortgage servicing right valuations," Walsh said. "However, the servicing outlook is more complicated today, with the expiration of many COVID- 19-related forbearances and the need to place borrowers into post- forbearance workouts. Servicing costs may rise as servicers work to meet the needs and require- ments of borrowers, investors, and regulators." According to the MBA's Quarterly Mortgage Bankers Performance Report for Q2, independent mortgage bankers' profits declined since Q1 of the year, but remained above aver- age. Independent mortgage banks, along with mortgage subsidiaries of chartered banks, reported a net gain of $2,023 on each loan they originated in Q2 2021, down from a reported gain of $3,361 per loan in Q1. That made for the lowest net production profits since Q1 of 2019, but the totals remained above their historic quarterly average. "Competition stiffened, produc- tion volume declined, and the market began to shift toward more purchase activity and less refinances," Walsh said. "The result for mortgage lenders was a combination of lower revenues and higher expenses." Walsh also noted a decline in servicing profitability, resulting from mortgage servicing right (MSR) markdowns, and increased operating expenses. Combining both production and servicing operations, 85% of firms posted overall profitability for Q2, com- pared to 97% in Q1. Most Borrowers Want to Close In-Person As the digitization of the real estate buying process becomes the new norm, buyers still want appraisals, closing to be done in-person. A s the housing market continues to adapt to unprecedented demand as digitization becomes the norm, 81% of borrowers still prefer an in-person closing over a digital one. This data comes from Solidifi U.S. Inc. (Solidifi), a network management services provider for the residential lending industry, who surveyed over 1,000 borrow- ers who refinanced or purchased a home within the last two years. While borrowers still want to complete closings in person because it instills a certain level of trust in the process, borrow- ers are also embracing the digital transition and want to be able to review their closing documents digitally before the closing date. "As the consumer mortgage experience becomes more digital and we continue to see generational shifts, investments in technology coupled with customer service- oriented, in-person touch points like the appraisal and closing will play a crucial role in transforming the real estate experience and experience and delivering proven performance that our customers can depend on, every time." ultimately determining customer satisfaction with a lender," Solidifi President Loren Cooke said. "In fact, borrowers who had an exceptional experience with their lender are more than twice as likely to recommend their lender, and 94% are likely to use the lender again." The survey also found that while boomers viewed purchasing a house as a financial transaction that provides stability, millenni- als viewed purchasing a home as a way to meet the needs of their family and community. While boomers and millenni- als had different approaches in the buying process, both groups still feel that owning a home is repre- sentative of the "American Dream" and represents an "investment in their future, stability, a place for children to grow and thrive, and it represents the most significant financial transaction in their life." "With our on-demand economy, the 'convenience factor' continues to morph consumer preferences in real estate as with so many other retail services," Cooke said. "Our survey revealed that convenience drives consumer preferences when it comes to closings, and the major- ity of borrowers prefer to close in an office or at their home versus online. This year, 62% of borrow- ers indicated that they would like mobile notaries to facilitate their closing, including 71% of millennials, who were the largest age cohort to prefer a mobile notary." The survey also found that ap- praisals continue to be an important part of the buying process. 2-in-3 borrowers who interacted directly with appraisers indicated that they had better experiences and therefore had more trust in their lender. "Our survey reiterated that the caliber of the appraiser and clos- ing agent continues to be a key determinant of customer satisfac- tion—and that Solidifi outperforms competitors on customer satisfac- tion," Cooke concluded. "Appraiser and closing agent professionalism, meaningful interactions, and com- munication make or break the consumer experience—that's why we focus on creating an extraordi- nary customer. "

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