TheMReport — News and strategies for the evolving mortgage marketplace.
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TH E M R EP O RT | 19 COVER STORY focus is on creating an automated, streamlined process, where lending customers can receive clear commu- nications in a timely fashion. "There is a lot of automation," Larsen said. "We should take advantage of that and apply that to our industry, because we need to take better care of our customers." The Federal Housing Administration's role also remains a mystery, but one that should be a key component of the future housing market, suggests Donna DeMaio, President and CEO of United Guaranty. "Our industry may face more changes over the next decade than over the past 10 years," DeMaio said. "One thing that may look different is the government's role in hous- ing finance. As an example, FHA's mortgage market share of new pur- chases was 13.4 percent at the end of Q1 2015, up from 2.6 percent in 2005. Today, it's clear there are numerous companies backed by private capital that are willing and able to provide mortgages and private MI to quali- fied borrowers—without risking taxpayer funds" She continued: "There is definitely a role for government programs to help underserved bor- rowers, and it will be interesting to see whether FHA and similar government-backed programs will continue to expand beyond their historic mission and serve borrow- ers who can qualify for mortgages in the private market." Patrick Sinks, CEO of MGIC, also sees a role for the government in housing. "I am not sure if the actual enti- ties—Fannie and Freddie—will play the same role as today," Sink said. "With the advent of QM (qualified mortgage as defined in Dodd-Frank) and increased capital requirements, private capital—including mort - gage insurers—is in a position to absorb a material amount of risk that the GSEs are currently taking and the government could move to a remote loss position and play catastrophic back stop role. Either way, the vast majority of policy - makers and those in the mortgage finance industry believe that for our country to have a vibrant Housing Policy, the government will still need to play a role." A Fork In The Road For Mortgage Servicing T here's room for even more change when you consider the evolving mortgage servicing mar- ket. Back in 2008, Ed Fay, President and CEO of specialty servicer Fay Servicing, formed his company after recognizing a rapidly deterio - rating housing market around him and a need for servicers with the type of high-touch customer care that could handle the aftermath of excessive defaults. Seven years later, Fay's is still going strong. But Fay envisions a different type of market 10 years from now on both the lending and servicing fronts. He foresees a time when servicers will either choose to be - come prime servicers or specialty servicers. "Some people are going to be growing rapidly to obtain scale," Fay said of the servicing environ - ment. And servicing's changes will arrive as the lending environment shifts once again, creating different needs. With that in mind he said, "Historically, what you had in the 1970s was payday loans, finance company lending, and prime lend- ing; then subprime came into play. The fourth one is what caused the problem. Now you have payday lending and prime loans, but there is no middle ground today to fill the role that the finance companies did successfully for so many years before subprime loans started." When it comes to the predomi - nant servicing model of the future, Fay predicts a bifurcation in the market, with many firms not having enough distressed loan volume to make a servicing platform economi- cal. With this being the case, some firms will simply focus on prime servicing and then outsource the distressed loans to specialty servicers. Change is something the servic- ing segment has become all too familiar with. Go back to 2005, and "no one thought about servicing," Fay recalled. "Everyone talked about originations; it was an afterthought." But times have changed, and today's heightened regulatory envi - ronment put servicing back on the map. Another trend Fay expects to see over the next 10 years is a "high level of consolidation in the market." "You will need some consolida- tion," he explained, noting that scale is needed under the current servicing structures—especially when dealing with Fannie and Freddie loans. While scale can help, "con- solidation also gives less room for opportunity," he added, noting that less competition often ends up hurting the consumer first. Still, Fay says he is confident in the specialty servicer model he built in times of change and is ex - pecting to pull through the next evolutions in the market. What Does The Fortune Cookie Say About Housing? W hen the mortgage finance crisis hit seven years ago, everyone from lenders to servicers took a hit and braced for a new era. While forecasting is never an exact art, what professionals in housing and mortgage finance see is clear: Change will remain a constant, and as the years progress, all lenders, servicers, builders, and housing policymakers will have their work cut out for them as they continue to adjust to new realities. Of all the predictions above, the only one housing analysts can bet on is this: More change in housing and mortgage finance is expected, and those who stay ahead of it will own the future. KERRI PANCHUK is an attorney and financial writer with more than a decade of experience covering real estate, default servicing, residential mortgage-backed securi- ties, retail, macroeconomics, and commercial real estate. Panchuk graduated from the Southern Methodist University Dedman School of Law and Texas Tech University. Panchuk previously served DSNews.com as online managing editor/producer. Panchuk is a member of the State Bar of Texas.