TheMReport — News and strategies for the evolving mortgage marketplace.
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14 | TH E M R EP O RT COVER STORY Will Fisher, SVP, National Sales and Marketing Director for Citadel, the largest nonprime/nonQM lender in the country, expects 2018 to be a "coming out party" for nonqualified mortgages. "The current vintage of loans are much better than sub - prime and other non-comforming loans from the early 2000s. These loans have better credit and income documentation than 10 years ago. The ability to repay is being heavily scrutinized." When they were still in vogue prior to the mortgage meltdown, the availability of no-doc and low- doc loans meant that the ability to repay wasn't always confirmed. That has changed with strin - gent verification of income, debt, history of payments, and other financial information. In 2008, mortgage insurance companies were just starting to get hit with their first claims from the collapsing mortgage market, says Brien McMahon, Chief Franchise Officer for Radian, the nation's largest mortgage insurer with a 20 percent market share. The company has also made acquisitions to expand into other areas of mortgage and real estate services. The claims were so extensive that they eventually led to the collapse of other private mortgage insurance companies. Those private mortgage insur - ers that survived the depths of the market are now positioned to help creditworthy borrowers obtain loans with very low down payments. Radian also has an insurance product that will cover mortgage payments for up to six months in the event of a job loss. Hard-Earned Stability T he housing market is stable, with prices appreciating in most areas, coastal markets hot, and some older areas benefiting from regentrification. Though prices are up—and up rather sharply in some popular areas like Seattle, San Francisco, and New York—they are not up into the bubble territory of 2003-2005, mortgage industry experts agree. In 2008, home values were drop - ping sharply, with some sinking to half of what they had sold for only a few years earlier—leading to many borrowers being under- water on their mortgages. Today, home values are rising in most markets, which can be a double- edged sword. It makes homes, from starter homes to luxury homes, more valuable for the owners, but also more expensive for prospective new buyers. It's a seller's market—as long as they can find buyers who can meet loan qualifications. However many homes are still affordable for those prospective buyers who do the research to find the right loan product, McMahon says. He and several others point out that, even though rates are rising, they are still historically low. Homeowners can build equity and wealth, unlike renters. In spite of this, a higher percentage of people are renting now. In 2008, homeownership rates were still near their peaks of more than 67 percent, and now that is closer to 63 percent. Some millennials are still hesitant to buy after watching their parents suffer with declining home prices a decade ago, Melchiorre says. A Farewell to Paper— Mostly I n 2008, the mortgage process, from application to closing, was still largely a paper-driven process—paper documents at the beginning, a large paper packet at the end, and loads of paper shuffling for the 45 to 90 days between those two points. "Whether the application was done in a branch or in an office, the loan operating systems were still dealing with a lot of paper; that was a problematic approach," says Steve Comer, Director of Financial Services Sales for Hyland. Simply reviewing the pa- per before bringing the documen- tation to underwriting took 45 to 50 minutes per application. Now it's only 15. Some paper had already left the mortgage business before 2008 thanks to the low-doc and no-doc loans, but by 2008, lenders and underwriters were already look- ing for better proof of a mortgage prospect's creditworthiness. "Paper was coming back in into the sys- tem," says Jeff McGuiness, Chief Sales Officer of Embrace Home Loans, an independent mortgage banker. As a result, underwriters with less than a decade of experience were dealing with much more documentation than what they had been accustomed to, slowing down their decision making and the entire loan process. Mortgages that had been complete in 30 days were now taking twice that amount of time, or more. Underwriters who were reviewing and decisioning up to a dozen applications a day only a few years earlier were down to only a couple a day in 2008. "There were a lot of hands touching a lot of paper," McGuiness says. Today, automated data capture and data extraction enables many documents to be digitized imme - diately, if not already in electronic form, and to stay digital through- out the process, explains. A decade ago, even if the informa- tion was put into digital format at one stage of the process, that data had to be rekeyed in another area because systems for differ - ent parts of the mortgage process didn't always communicate with one another. Another benefit, according to Schwartz, is that lenders are not just automating old processes; they are starting to re-engineer workflows for a more efficient process. Servicers were also behind the technology curve a decade ago, says Tim Anderson, Director of eServices for DocMagic. As more mortgages became distressed, servicers first attempted to address the problem by adding people. "The meltdown showed what was lacking in terms of technol - ogy," Anderson says. Consumers were seeking loan modifications, but documentation was needed to confirm those. The servicers' sys - tems couldn't handle those requests. Automation could handle only the most rudimentary functions. "In 2018, everything is about digital mortgages," Anderson adds. "We are seeing investment in technology and innovation, something that we have not seen in the last decade," Schwartz says. "Freddie Mac purchased the first 'truly digital' end-to-end mortgage in the fall of 2017. New technology [companies], great advancements in data usage as the source of truth and shifting attitudes in the use of technology has created a revolution around the mortgage space. It will be important to make sure that regulation is keep - ing pace with the innovation." "The meltdown showed what was lacking in terms of technology . . . In 2018, everything is about digital mortgages." — Tim Anderson, Director of eServices, DocMagic