January 2016 - Out of the Woods

TheMReport — News and strategies for the evolving mortgage marketplace.

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TH E M R EP O RT | 15 COVER STORY By Rachel Williams T hough the media often declares the mortgage industry "recovered," some industry veterans are pushing back against the term. Though no one would argue the market hasn't made great strides since the Great Recession, as we enter 2016 many are concerned the industry isn't focused enough on the challenges that still lie ahead. "We are not fully evolved by any means," said Pete Pannes, chief revenue officer for LenderLive Network Inc. "Things will go through the stages. I would say largely the industry is digesting how best to comply with a lot of the regulations and how best to reduce costs, and so I think by and large we are beyond halfway in trying to figure that out." Of course grading the success of an industry as diverse as mortgage is depends largely on whom you ask and what segment of the industry they do business in. But whether they're in origination, servicing, valuation, or another sector of the market, most industry pros think the market still has a few challenges in the years to come. Shifts in the Origination Paradox I n response to the criticism that lax mortgage origination policies contributed to the subprime meltdown, credit naturally tightened post-crisis. While the move to - ward more responsible lending practices has been hailed as a good one, the same actions have resulted in some potential borrowers to be shut out of the market. "The number of mortgage purchase ap - plications have fallen dramatically since 2007 and are only slowly recovering," reported Anthony Sanders, distinguished professor of finance in the School of Management at George Mason University Jeff Tennyson, COO for Clayton Holdings, noted "the mortgage debt industry is originating loans today to a more quali- fied borrower." He also added that fewer people qualify as borrowers when compared to pre-crisis highs, and this construction "has created opportunities for the single- family rental space." But it's not just the originations side of the market that took a hit in 2007 and 2008. Post-crisis mortgage servicing also faced eight years of new regulations and oversight from federal and state regulators that influ - enced the way servicers do business. For Mark Calabria, director of financial regulation studies at the policy group Cato Institute, these changes continue to affect the market, perhaps making it difficult to gauge whether a true recovery–or a slightly manufactured one–has occurred. "With QM and the changes in servicing, foreclosure is becoming a near impossibility, even when its 100 percent merited," Calabria advised. "The securitized private market still remains dormant. Less appreciated has been the Fed's zero interest rate environment, which has worked its way into both hous - ing prices and mortgage practices." For Gagan Sharma, president and CEO of mortgage servicer BSI Financial, it is hard not to miss some of the reconstruction that has occurred on the mortgage servicing side due to the emergence of regulations post-crisis. "While we haven't seen too many players exit the servicing marketplace lately, we haven't seen too many entrants either," the CEO noted. "Given the increased complex - ity of the servicing business, the minimum scale required to do well and be profitable is much higher than pre-2008. Further, the cost of a mistake is higher as well. Given that, we expect that there will be limited number of new entrants and a likely con - solidation in the small-to-mid-sized space going forward."

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