A year that started off with doom and gloom from a residential mortgage origination perspective may turn out better than expected and slightly better than last year, according to the latest forecasts from Fannie Mae, Freddie Mac, and the Mortgage Bankers Association (MBA).

This was also an opinion shared by many of the attendees at this year’s MBA National Secondary Market Conference & Expo. This is an excellent conference to catch up on the latest trends, via both formal content from industry experts and tremendous informal networking opportunities.

A surge in mortgage originations

The overall lending environment was positive due to the surge in mortgage originations over the past few months. Lenders are making money again, although profit margins are slightly thinner than a year ago. A surge in borrower refinance activity combined with the early arrival of the spring home purchase buying season was a pleasant surprise. Thanks to lower-than-expected mortgage interest rates, this has created a “perfect storm” in a positive direction for the mortgage origination business. However, this does create concern for mortgage servicers with existing servicing portfolios paying off earlier than expected.

Perennial topics: GSE reform, technology, product lines and more

This year’s conference topics were consistent with previous years’, ranging from such headline stories as GSE reform to what happens when the LIBOR index goes away in 2021. Of course, everyone was talking about technology efficiencies and the digital mortgage! There are still many more questions than answers. The GSEs successfully implemented a major industry initiative for setting up a common security between Fannie Mae and Freddie Mac called the Uniform Mortgage-Backed Security (UMBS) along with the implementation of the Common Securitization Platform (CSP).

A secondary marketing conference would not be complete without a product discussion. Lenders are still actively looking to broaden their product menu to serve underserved markets. Some popular lender discussions included non-QM, prime jumbo loan options, single close construction lending opportunities, and other niche programs to support their lending footprint expansion.

There were also investors who were actively looking to expand their existing customer base as well as grow business and strengthen relationships with current sellers. On the surface it may appear to be strictly a price play, but in reality, many other factors go into these lender-investor relationships that can be beneficial to all concerned.

As mortgage bankers look to diversify and expand their product menu, so do the aggregators. Many investors/buyers of agency and FHA/VA loan programs are now expanding into the jumbo and non-QM space as well as other niche offerings. There is a strong interest from these loan buyers to further differentiate themselves in a crowded space.

Evolution in the warehouse lending space

One interesting finding from the conference? Just a few years ago warehouse lenders did not widely provide lines of credit and/or sub-limits for mortgage bankers to originate non-QM loans and construction loans. Now there is a broader base of warehouse providers supporting these areas of the business.

Warehouse banks were also present in full force. Many participants have been focused on trying to differentiate themselves in the market through MSR financing, portfolio product offerings, or other terms beyond a “term sheet” that allow the nonbank and warehouse provider to grow together. Many warehouse banks have seen an uptick in their business activity thanks to the recent surge in origination volumes.

The road ahead

As the industry works its way through record volumes from the past few months, there are still plenty of big issues and challenges that could fundamentally change how the industry buys and sells loans and servicing. From co-issue transactions performed from traditional grid pricing to live-bid pricing and allowing mortgage bankers of virtually all sizes to participate, this is a very exciting time in the mortgage industry.

Lloyd San

Lloyd San - Retired MGIC Mortgage Market Manager

A 30-year mortgage industry veteran, retired in 2021, Lloyd San served as Mortgage Market Manager for Mortgage Guaranty Insurance Corporation (MGIC). Overseeing a national effort, he was responsible for managing all client-related capital market activities in the areas of bulk and correspondent loan referrals, investor introductions, structured products, whole loan sales, as well as product and personnel introductions.

In addition, he is chairman of the California Mortgage Bankers Association, Secondary Marketing Executive Committee and also serves on the Western Secondary Conference Committee.

A graduate of San Diego State University in California, Lloyd received his MBA in Financial Management from National University. He also holds a California Real Estate Broker’s License.

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