December 2015 - Fortune Tellers

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 3 CO NTE NTS 16 FORTUNE TELLERS Housing Experts and Mortgage Vets Weigh in on the Next 10 Years of Our Industry 20 THE INVISIBILITY CLOAK OF TRADITIONAL CREDIT SCORES How Alternative Credit Data Brings the 'Credit Invisible' into View 24 THE GHOSTS OF SERVICING PAST, PRESENT, AND YET TO COME A Reflection on the History and Future of this Transitioning Industry as the Year Comes to a Close 28 CRYSTAL BALL Two Mortgage Professionals Share Their Visions of the Future of Housing SPECIAL SECTION 31 DUE DILIGENCE GUIDE Learn more about some of the companies that are leading the due-diligence pack. DEPARTMENTS 4 YEAR IN REVIEW Year-End Flash Back: The Good, the Bad, and, of Course, the Memorable in 2015 6 MDWELL America's New Homeownership Picture 8 MTECH The Mortgage Industry Collaborates for Improved Quality and Compliance 12 TAKE 5 Donna Corley, SVP and Single-Family Chief Risk Officer, Freddie Mac TH E M R EP O RT | 17 16 | TH E M R EP O RT COVER STORY COVER STORY A s those working in the mortgage industry can attest, it often takes years for today's policy changes, technology updates, and demographic shifts to show their full impact. While short-term predictions have their place, it's important not to blow the typical ebbs and flows of the marketplace out of proportion. Which is why, to get a true big picture of the future of the indus- try, we asked housing experts and mortgage veterans to predict the market 10 years from now—once today's seeds of change have fully taken root. Though the experts we tapped come from different segments of the industry, there were a few common trends that they all see as playing a large role in the future of mortgage and housing— such as technology, millennial and underserved demographics play- ing a larger part, and the shifting role of the government. Technology Full Speed Ahead A s for what trends to look out for, expect technology to play a major role in the coming 10 years, says Kevin Watters, CEO of Chase Mortgage Banking. "The financial technology— 'fintech'—industry has evolved dramatically over the last year, and we're continuing to look for ways to participate more in this space," Watters noted, when asked about housing and the mortgage market's future. "We've made significant investments in innovation and automation to make it easier to do business with us. This will continue to be a top priority for Chase as we strive to deliver the best customer experience." Executives at Titan Lenders Corp., saw the handwriting on the wall in 2007 when they founded their company to provide process management and loan production offerings through the company's software technology. Back in those days, Mary Kladde, CEO and President of Titan Lenders, glimpsed 10 years into the future and spotted all of the regulatory and compliance needs that would change the space. She believed then, as she does now, that technology will become the ultimate gap-filler as the indus- try grows in new ways. "There will be a centralized data deposito- ry in the future," Kladde asserted, adding that some tech solution will come along that will allow every party of the transaction to get a look at the loan process from beginning to end without blind spots in the process. Ruth Lee, another Titan Founder and EVP, also sees the technology-gap narrowing, as smaller firms like big lenders find themselves needing data-centric and tech-savvy solutions to function. "For many years there was a huge technology gap," Lee said of the industry. "You had big lenders who had big technology. The last five years we have seen a democra- tization of that technology." But it's not just mortgage lend- ers or software and technology providers who are betting big on technology. Homeowners can expect tech amenities in their builders' plans 10 years from now, too. "The 2025 housing market will address the homebuyers and renters coming into the market," noted Gerald Howard, CEO of the National Association of Home Builders. "Likely move-up buyers in 2025 are today's first-time buyers who will be ready for a larger home with more current technology." He added, "Entry-level buyers and renters will be the later millen- nial generation, who will also want the latest in technology but will be less concerned with size since much of their time will be spent outside the home." Though technology will cer- tainly require builders to be flexible with their designs, spacing may become another issue as well. "Homes will be more flexible, with rooms serving multiple func- tions … For instance: a bedroom at night and an office during the day," Howard explained. "Spaces will be dividable for individual use but can be open to a larger space for entertainment." "Homeownership will re- main the dominate form of occupancy but new homes will be smaller than they are today in order to be affordable to a larger share of the population," he added. "Subdivisions will contain a mix of homes including some rental, smaller condominium units and single-family homes." Mark Greco, President of 360 Mortgage Group out of Austin, also expects home sizes to shrink as prices rise. "As the demand for housing increases over the next decade, the price of housing will continue to rise," Greco noted. "With the residential rental vacancies being at an all-time low—less than 7 percent nationwide—and the estimated growth of as many as 16 million new households forming by the year 2024, competition for afford- able housing will reach an all-time high. In urban areas, you will see the construction of high-rise condominiums and the shrinking square footage of dwellings overall. This will cause the government and our industry's governing agen- cies to become more aggressive in creating more affordable financing programs—i.e. mortgages with lower down payments." But these predictions are focused 10 years out. Before the housing market sees robust growth, it needs to go through a seeding stage—a period in which it grows from the recessionary trough levels of 2008 through a modest uptick in activity before emerging into brighter days. "I think it has been transform- ing since the financial crisis," said Sheryl King, Senior Director and By Kerri Panchuk THE WAY the COOKIE CRUMBLES The last 10 years in the mortgage industry were tumultuous. See what our experts predict for the next 10. Trust your mortgage intuition. It won't lead you astray. Evan Stone and his brother, David, outside one of Pacific Union Financial's early offices in Walnut Creek, California. "The mortgage finance market of 10 years from now will be differentiated from the mortgage finance market of the last 20 by . . . rising ethnic diversity of young millennial first- time homebuyers . . ." —Mark Fleming, Chief Economist, First American

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