MReport May 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 42 of 67

TH E M R EP O RT | 41 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 ORIGINATION THE LATEST Lender Optimism High, Profits Low Dropping refinance activity is a likely culprit in decreasing profit margins. L enders are looking at the future of home prices with optimism, accord- ing to Fannie Mae's Q 4 2017 Mortgage Lender Sentiment Survey. Data from the survey shows that lenders see the economy heading in the right direction, possibly even reach - ing its highest levels since the survey's inception in Q1 2014. Despite the positive outlook, however, demand for purchase mortgages fell slightly below ex - pectations—something that can be attributed to unfavorable mortgage rates. Purchase mortgage demands for Q1 2017 were at their lowest first-quarter level since Q1 2014. Profit margins are up slightly from Q 4 2016 but still below this time last year and the year before. The outlook for lenders' profit margins rose slightly from its three-year low Q 4 2016, though it is still less positive than this time last year. Fannie Mae reported that larger institutions will most likely expect a decrease in profit margin outlook this quarter. Fannie Mae's survey respon - dents point to competition from other lenders and market trend changes, such as a shift from refinance to purchases, as top reasons for profit margin changes. However, respondents point to government regulatory compli - ance, historically a top reason for lenders' decreased profit outlooks, as a lesser reason. "This quarter, lenders' opti - mism toward the overall economy and home price appreciation hit survey highs, mirroring the consumer confidence seen in our February Home Price Sentiment Index," said Doug Duncan, SVP and Chief Economist at Fannie Mae. "However, lenders' profit margin outlook remains significantly less positive than this time last year and two years ago. Lenders cite competition from other lenders and a market shift from refinance to purchase— both of which reached survey highs—as the top reasons for the weak profit margin outlook. With mortgage rates expected to rise, we expect refinance activity will fall and purchase affordability will tighten, increasing competitive pressure in a shrinking mortgage market. Lenders may choose to adjust their production capabili - ties and staff resources given their profitability outlook." Current LOS Systems Don't Measure Up STRATMOR insights suggests today's LOS options aren't offering the digital functions consumers demand. C urrent loan origina- tion systems score low on digital mortgage functional prepared- ness, according to the STRAT- MOR Insights Report released in March. The report coincided with the opening of Stratmor's 2017 Technology Insight Survey, which was released the last week in March. The survey included expanded questions on LOS vendor support and lender opinions on cybersecurity. In preparation for the Survey, STRATMOR Senior Partner Garth Graham offered an analysis of two years of Technology Insights Survey results to assess the readiness of the current loan origination system (LOS) land - scape for the coming age of the digital mortgage. Graham said that today's originations systems fall short of the demand for digital mortgage capabilities. Most digital mortgage capabilities that are lacking in cur- rent LOSs must be achieved via add-on applications. In advising clients concerning LOS systems, he said, "We work toward implementing specific digital mortgage functional capabilities organized primarily around sales and fulfillment processes. Very few can currently be found in a commercial, off-the- shelf LOS." He said that usually there are specialized applications that need to be hooked up to the system. "Where they are currently available, satisfaction levels pale even behind those of LOSs in general." He added that the ef- fectiveness of any LOS depends on both the system's functional capabilities and the skill with which the system is deployed. According to Graham, technol- ogy vendors need to carefully consider where they are in the mortgage technology ecosystem and how they will compete in the future. On the other hand, he said that lenders also need to deter- mine their current state of tech- nology and from there, develop their own individual roadmap to the future. The STRATMOR Insights Report also looked at MortgageSAT borrower satisfac- tion data to determine how cer- tain practices related to mortgage closings affect levels of borrower satisfaction. The report stated that seemingly minor events can have a significant impact on borrower satisfaction. These include making contact with the borrower prior to closing and having the closing begin on time as scheduled. Of the borrowers contacted prior to closing, their satisfaction rate was 93 out of a possible 100. For the approximate 8 percent of borrowers not contacted by lend - ers, satisfaction rates dipped to 61, a 32-point differential. Likewise, for the 93 percent of borrowers whose closings started on time, overall satisfaction ranked at 92, as compared to a score of 76 for those whose clos- ings started late. The STRATMOR Insights Report also looked at data from the results of the 2016 Technology Insight Survey, which showed that: 83 percent of smaller lenders ($2 billion and less in origina- tions across all channels) and 50 percent of larger lenders (more than $2 billion) reported using a single, COTS LOS; 67 percent of large lenders currently using a proprietary LOS intend to move to one or more COTS systems; and approximately 10 percent of lenders indicated no preference for the future configuration of their LOS, perhaps suggesting they're open to different options as the market changes.

Articles in this issue

Archives of this issue

view archives of TheMReport - MReport May 2017