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22 | TH E M R EP O RT FEATURE T he mortgage industry will face several major challenges in 2018 and beyond as housing prices continue to climb, interest rates rise, and affordability chal - lenges remain the biggest obstacle for many potential homebuyers. Increased competition and tight- er margins will lead to additional industry consolidation. Smaller firms will struggle to maintain profitability, because of increased production costs. Productivity has been a challenge for many firms, because of a regulatory environ- ment that requires investments in underwriting and compliance staffs to reduce risk. The increased use of technology to automate many loan processes will help reduce production costs and improve profitability, but these advances will take time. Lenders need to enhance the mortgage-lending experience, while simultaneously improv - ing internal productivity with technology. Companies that can't invest in the required tech will need to partner with bigger firms that can or use third-party part- ners to make them more competi- tive. Those that can find the right balance between technology and superior customer service will be well positioned to serve the needs of more homebuyers across all generations and create customers for life. Five trends are emerging for lenders to monitor and manage in 2018 and beyond. 01 Digital Mortgages Will Become the Norm, But Human Touch Will be the True Differentiator O ur industry has seen a sub- stantial increase in lenders of all sizes moving toward automa- tion in the loan process. Offering a digital mortgage is becoming commonplace and is no longer the differentiator it once was. It's now a requirement to compete for business, as most lenders currently offer some version of a digital mortgage. Those yet to implement one are in the process of doing so. We've seen a push toward the 100 percent digital-mortgage pro - cess and some lenders have made e-closings a priority. Mortgage companies are working hard to make the lending process easier, faster, and more efficient. There's a perception in the industry that most customers want the complete digital-mortgage option. The reality is a mortgage is a complicated and sometimes intimidating process and many people have questions. Customers still want to be able to turn to a professional to get their ques - tions answered, from making the original digital application through closing. For most people, applying for a mortgage requires a personal touch. It's not like buying a dress, electronics, or other items online where no human interaction is required to complete the transac - tion. A home purchase is more complicated, with a majority wanting a high-tech, high-touch approach that combines technol- ogy with customer service from a trained mortgage professional. More important than the expec- tation that technology will deliver an intuitive and secure process, online customers need to have trust and confidence in the professional and the organization. To build that trust, lenders need to better communicate with every customer, have the expertise to help them select the right product, and use the right technology to make it faster and more user-friendly. Self-service digital applications typically offer limited choices. Beyond the asset, income, and other personal data, loan profes - sionals take individual financial goals into consideration to sort through more complex options to find what's right for each person. It's for these reasons that I don't expect the demand for 100 percent digital mortgages to be nearly as high as some lenders think. 02 Interest Rates Will Rise A fter some sharp increases early in the year, interest rates mostly remained stable in 2017. Economists from the Mortgage Bankers Association have predicted that interest rates will begin to rise over the next several years, possibly past 5 percent in 2019 or 2020. In addition to the much- anticipated hike in December, the Federal Reserve is expected to raise interest rates next year following a rebound in core inflation, making homebuying more expensive. When interest rates rise, pricing becomes more competitive, result - ing in lower margins and losses in some cases. With the high cost of loan production and declining volumes and margins, the next sev - eral years will result in increased consolidation among lenders. In this environment, many smaller lenders will reach a point where the costs of compliance are 5 Market Conditions To Impact the Housing Industry Lenders should keep an eye on these trends that will emerge in 2018. By Mary Ann McGarry

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