Mortgage Banking Industry in the Time of Pandemic

In early October I again conducted a survey of senior mortgage banking executives. The purpose of the survey was to ascertain their thinking about a wide array of germane and important industry issues and topics.  It is conducted twice a year—at the MBA National Secondary Market Conference every May (see those results here) and again each October in conjunction with the MBA Annual Convention—since 2008. 33 senior level executives from 33 different firms were asked 76 questions this time around. The group included 16 IMBs and 17 banks of varying sizes. The group mean production year to date through September 2020 was $23.8B and the median $10B. The group is designed to serve as a model of the MBA’s lender members. Among the firms surveyed are 24 of 2019’s 100 largest lenders.

Finding I: Impact of the Coronavirus Pandemic on Mortgage Firms

What follows are the first 9 questions on the survey. They ask about the effects of the pandemic on mortgage operations, loan production, employment, revenue, operating expenses, and profits. Those surveyed were asked to assign a score of 1-10, least to most, or answer yes or no to the questions. Q9 asked the executives by how much this year’s production exceeded the 2020 budgeted production goal in late 2019.

How adversely has your firm been affected by the Covid-19 pandemic?  (1-10) Mean 2.8 / Median 2

How extensively has the virus impeded your firm’s day to day mortgage operations?  2.9 / 2

How severely has the virus hurt loan production at your firm?  1.4 / 1.0

Has the virus reduced employment at your firm?  Y- 1 / N-32

Has the virus reduced revenue at your firm?  Y-1 / N-32

Has the virus increased operating expenses at your firm?  Y-17 / N-16

Have your firm’s profits been adversely affected by the pandemic?  Y-1 / N-32

Is 2020 generating the strongest profits and production at your firm since pre-2008?  Y-30 / N-2

YTD, by what percent has your firm exceeded its budgeted 2020 production goal?  132% / 180%

The key takeaway was that the mortgage banking industry was experiencing a banner year with production producing the strongest revenue and highest profits since before the Great Recession of 2008. Record profits and production were the rule across all 33 firms. All things considered the mortgage industry had smooth sailing while other industries were less successful.

Finding II: Transition to Work from Home was Easy  

There were 6 questions in the survey that addressed working from home. What was wanted was knowledge about their company’s work force that was operating from home, how difficult the executives found working remotely yet staying in touch day to day, how remote operations were affecting productivity and loan quality, whether working from home was likely to continue for personnel in all corporate positions, and whether the origination process was adjusted early on to identify and mitigate new risks resulting from forbearance.

About what percent of your mortgage staff has been working from home?  89.1% / 95%

How big a challenge has it been to work remotely yet stay connected? (1-10)  3.6 / 3

Have remote operations been positive, negative or neutral for productivity and loan quality?  Positive-17 / Neutral-16

Has working remotely worked well enough to continue it to some degree at your firm?  Y-32 / N-1

Post pandemic are remote operations here to stay for operations personnel?  Y-32 / N-1

Did your firm modify its manufacturing process to identify and mitigate any additional risks presented by the pandemic?  Y-30 / N-3

It must be concluded from the assessments of those polled that having 90% plus of staff working from home was only a modest challenge, was deemed neutral for loan quality and positive for productivity, is expected to be continued to some degree into the future, and is likely to affect all personnel. Moreover, the industry was prepared for forbearance and put new procedures in place that affected everything from income and employment re-verifications to appraisal guidelines and loan deliveries.

Finding III:  Executives’ Expectations for the Economy, the Mortgage Business & the November Elections

Collective expectations offer a guide to the industry’s outlook for the period ahead. To that end the survey covered a broad number of expectations, from the potential length of the refinance run, to house prices and from bank involvement in FHA lending to the outlook for commercial real estate. Most important were the questions about the economy and the November elections.

What’s your best guess as to when the US economy will emerge from recession?  14.7 months / 12 months

Does the country need another relief bill to ward off an even deeper recession?  Y-31 / N-2

How many months will it take for the unemployment rate to return to 4% or less?  22.1 / 24

The expectation is that the economy will be in recession for the next 12-15 months, while the unemployment rate isn’t expected to return to the 4% level for about 2 years. Overwhelmingly the executives think a second dose of federal relief legislation is needed to avoid a deeper, more prolonged economic downturn.

Do you expect the Democrats to hold the House in next month’s elections?  Y-31 / N-2

Do you expect the Republicans to hold the Senate next month?  Y-21 / N-11

Who do you expect to win the White House next month, Trump or Biden?  Trump-10 / Biden-23

The congressional and presidential elections are only days away now. For many political observers it has been an unusual and challenging last 4 years. So, what did 33 mortgage executives expect would be the outcomes of the races for the House and Senate? Overwhelmingly, they expect the Democrats to hold their majority in the House. They also expect the GOP to hold the Senate though not as commandingly. And the next president of the United States? Joseph Biden by more than 2:1.

Finding IV:  Excellent News on Forbearance Requests

Last May when this poll was last taken no one had any real sense of how many mortgagors would seek forbearance nationwide. Some of the estimates prepared for the U.S. Treasury ran 30% or better. What were the executives’ finding concerning forbearance levels at their companies?

What percent of your FHA borrowers has sought forbearance?  7.2% / 8%

What percent of your GSE borrowers has sought forbearance?  3.6% / 4%

Clearly, forbearance hasn’t proved to be the problem it might have been. The group model found the mean and median forbearance rate for FHA borrowers was 7-8% and 3.5-4% for conventional mortgagors. (According to MBA statistics, the rate of forbearance is 6.3% overall, with Ginnie Mae at 8.3% and 4% among conventional borrowers. Thus the survey finding proves a nice fit to MBA data.)

Conclusions

Who’d have thought one year ago that the housing and mortgage banking industries would be experiencing record production and the best profits in over a decade in 2020, much less when juxtaposed against a long, difficult pandemic, economic and employment tumult, and social unrest?

In last May’s blog post I wrote: “… the industry pivoted, literally within days, to remote operations almost without missing a beat.” Six months later, one must conclude that that rhythm continues.

For a full report of the findings and to scan through the Scorecard to see how the 33 executives’ responses tallied on all survey questions, contact your MGIC representative.

The opinions and insights expressed in this Q&A are solely those of its interviewee, Tom LaMalfa, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.

Tom LaMalfa

Tom LaMalfa, President, TSL Consulting

Tom LaMalfa is a 35-plus-year veteran mortgage-market analyst and researcher. He has done pioneering work in the areas of secondary markets, wholesale mortgage banking, mortgage brokerages, financial benchmarking and GSE reform. He may be reached by e-mail at Tom.LaMalfa@gmail.com.