So, we are half way through the first month of a new year — how’s that resolution doing? Yeah, mine too. Hopefully many of you are sticking to your 2015 plans for success more diligently than I have been sticking to my New Year’s goals.
As we entered the new year, many lenders made their plans for growth and in some extreme cases, for survival strategies for 2015. Some are seeing opportunities in retail, while others are looking at expanding their footprint in wholesale. Here are few opportunities I’ve heard about.
Community Reinvestment Act (CRA) or Low- to Moderate-Income (LMI)
Typically, many lenders wait until the end of the year to address this concern; however, more and more are making a diligent effort to start this process earlier to potentially maximize the value of the loans they produce within this business segment. They are looking for incremental margin pickup by identifying loans within their pipelines that can provide either CRA or LMI credit for loans that meet certain census tract requirements for larger or regional banks.
At MGIC, we have already been providing help to both sellers of these loans and regional banks looking for CRA or LMI loans in specific census tracts.
I recently had a bank that purchases broker and correspondent business nationwide approach me about its need to do more in Fair Lending. In fact, it is actively looking to find originators that support certain census tracts. It’s that serious, and it’s why many are looking to have these discussions earlier in the year — so everyone involved is more prepared!
Another need that keeps coming up in conversation is identifying portfolio jumbo investors. I want to make a distinction: Many REITs, Wall Street firms, private equity funds, etc., are pricing to the securitization market. They are not portfolio players. They will ultimately issue their own MBS securities or sell their production as whole loans into the secondary market.
The portfolio buyers have no immediate plans to sell these loans into the secondary market and are keeping them in portfolio as a long-term investment. These loans can be QM- or non-QM-compliant, depending on loan characteristics, such as Interest Only and/or expanded ratios. Typically, banks and/or credit unions fall into this category.
While many lenders still have an unwillingness to participate within certain market segments, many more are starting to explore various product efforts.
Some are researching and exploring a more active role in construction lending via a one- time-close construction loan program.
Others are looking at non-QM to grow their business. A multitude of lenders sees growth in the broader picture and wants to shore up its non-Agency product offering — even though the bulk of originations will still take place in the QM space.
The key will be how these lenders differentiate themselves from the competition while dealing with higher compliance costs and compressed margins.
MCM and HPA
We can’t overlook the effective use of DU® and LP® and some of the affordable programs the Agencies offer, like MyCommunityMortgage® and Home Possible Advantage®. The re-emergence of 97% LTVs can have an impact as we continue into the year. It will be important for lenders not to overlook all the available Housing Finance Agencies (HFA) programs in which they are eligible to participate.
As more Veterans return home and VA originations grow exponentially, we can’t ignore the VA program. Lenders originating these loans have seen a significant increase in share of VA business, compared to their overall government loan production. MGIC has blogged about this VA topic before.
Lenders will need to put this altogether into a cohesive strategy, given that volumes are to remain similar to 2014, per Fannie Mae, Freddie Mac and MBA, and that the mix of business should be more weighted toward purchase versus refinance business.
Another factor to consider is, as interest rates rise, ARMs will become more popular — especially at the higher loan amounts. Some portfolio lenders are seeing the 7/1 ARM becoming more popular than the 5/1 ARM, due to borrower qualification criteria.
These are all issues we at MGIC can help you with, as you navigate your survival strategies in 2015. If you would like to discuss any of these opportunities further, please contact your local MGIC Account Manager.
DU® and MyCommunityMortgage® are registered trademarks of Fannie Mae; LP® and Home Possible Advantage® are registered trademarks of Freddie Mac.Tags: Community Reinvestment Act, CRA, Jumbo Loan, Lending, Mortgage Education, Mortgage Industry, Mortgage Strategies