TheMReport — News and strategies for the evolving mortgage marketplace.
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COVER STORY Head of Global Country Economics at Roubini Global Economics. "It is an industry that definitely got ahead of itself and thought it was too clever by half—in terms of being able to spread risk—and then the realization that you cannot spread risk without exposing the overall financial system to a potential col - lapse." "So the result has been an extraordinary amount of regulation within the mortgage market and the financial markets generally," King added. "The upshot for the housing industry is while financing will remain available, it is going to be back at a more traditional form of lending that is knowing your clients, lending at reasonable levels with reasonable levels of risk." Those who will feel the impact the most will be first-time home - buyers, who lack the credit history or financing to obtain credit, King suggests. This means the first-time buyer market could shrink some - what, she says. The Millennial Factor B ut looking five to 10 years out, King does see posi- tive growth for the under-35 segment, which represents the typical first-time homebuyer. "What we find is on a cyclical basis, there is definitely improve - ment," she added. "There has been a fair amount of job growth, and most of that job growth has been in the youth category under the age of 35. That is good for the overall housing market. It means people can form households, but it doesn't mean it will translate quickly into buying a home right away. We think it's more likely over the next five years or so … it is going to con - tinue to be a rental type of market." Ray Brousseau, EVP of Carrington Mortgage Services' Mortgage Lending Division, agrees that there has been improvement in recent years. "The market has moved from a very contracted consumer de - mographic, to a more extended distribution of loans, with loans available for borrowers with higher credit scores and new options for borrowers with lower credit scores that were not seen four–five years ago," Brousseau added. "The MBA in their Quarterly Mortgage Bankers Performance report showed that first mortgage loans for borrowers with credit scores at 650 or below moved from 5.88 percent of the market (Q 3, 2012) to 9.57 percent (Q2, 2015), indicating that lenders are recognizing the needs of borrowers with lower credit scores." Mark Fleming, Chief Economist at First American, is looking at the oft-mentioned millennial generation to save homeownership. "The mortgage finance market of 10 years from now will be differentiated from the mort - gage finance market of the last 20 by three main things: rising ethnic diversity of young millen- nial first-time homebuyers in the purchase market, reduced market turnover—which means fewer existing homeowners choosing to move every few years because higher rates increase the financial cost of moving, and much fewer refinance transactions, as the refinance incentive is reduced by higher mortgage rates," Fleming said. As part of this movement, Fleming noted that in the future, "[The] mortgage finance market will focus more heavily on at - tracting the first-time homebuyer and on home equity lending." Ray Rodriguez, Regional Mortgage Sales Manager at TD Bank, agrees with Fleming's assess- ment that millennials are key. "Millennials haven't turned into their parents yet because of labor market conditions and student loans," he noted. But, Rodriguez adds, they are starting to enter the market and consider it is a good time to con - sider homeownership again. Even though Rodriguez is hope- ful about this group over the next 10 years, he has some lingering concerns. "You still have to con- sider what is going to happen with wages. Will they keep up with the increases in the cost of housing and rental costs?" he asked. Those data points could play a major role in how housing performs in the next decade, Rodriguez gently warns. Governmental Influence T he reality for policymakers is that housing will inevitably change, just as it has in the past 10 years. But does everyone feel it is growing in the right direction? That remains to be seen. "Ten years from now, I am hopeful that Washington, D.C., will have woken up and acted on meaningful housing finance reform to protect hardworking taxpay - ers from footing the bill for future bailouts," said Congressman Randy Neugebauer, R-Texas. "Today, nearly 90 percent of new mortgages in this country are backed by the federal government. When you control housing finance, you control hous - ing—that is not the proper role for the government, it's certainly not efficient, and it's unsustainable. Ten years from now, I would like to see us reduce the federal government's share of the mortgage market and increase private sector participation. To get our economy back on track and make it safer for all Americans, we must ultimately phase out the government-sponsored enterprises." The congressman is not alone in his assessment that something has to be done in D.C. Stew Larsen, EVP and Head of Bank of the West's Mortgage Banking Division, has concerns about the lack of a private mortgage market and a need for more clarity on the future of Fannie Mae and Freddie Mac. "Our political leaders have made this difficult," Larsen added. "They have been unable to choose a path for the government agencies in housing finance. Until they make that future, it is difficult for the private market to develop." Still, Larsen does believe the industry will have a private market in the future and the government will play some role by serving as a credit backstop to create some liquidity. But, he says, change needs to come first, and political leaders will have to make those transitions within the next 10 years. As for Fannie and Freddie, Larsen said, "It is so difficult to call right now. Both parties have different ideas on how this will be resolved … but I believe there will be some form of government role." But does he see Fannie and Freddie going way? Larsen does not believe they "will stay in conservatorship that long," adding that, "Clearly, they will have to emerge—whether they become private parties or not. It is too un - clear for me to make that call." As for what Bank of the West is planning for the next 10 years, Larsen says, "We are looking at the customer experience. Frankly, there is nothing more stressful than get - ting mortgage," he pointed out. The 18 | TH E M R EP O RT A millennial will cross your path soon.