The residential mortgage finance industry converged in Washington, D.C., Oct. 14-17, for the Mortgage Bankers Association Annual Convention & Expo. In contrast with last year, the good news is lenders appeared more prepared for a purchase market. The bad news is, despite a relatively strong economy, volumes are down for most lenders, housing inventories are still low and rising mortgage interest rates are putting more pressure on housing affordability.

Over the past year, various trade publications quoted plenty of executives who stated there would be considerable merger and acquisition (M&A) activity within the residential lending industry, but it was unusually quiet in the halls regarding this topic.

The convention seemed lighter in attendance compared with prior years, due in large part to the current state of the industry, with many lenders experiencing compressed margins and eroding financial net worth over the past year. Many warehouse banks and others confirmed this with shared concerns that the next 6 months should winnow out the survivors. Most agreed that many lenders are hunkering down and “right-sizing” for the new realities.

As many of you know, the MBA convention is a great venue for networking and learning about current happenings in the mortgage industry. Here are a few need-to-know takeaways from this year’s event:

  • Lenders/originators have put technology and product development in the forefront as means of reducing production costs and growing revenue
  • Non-QM volume will double again this year and into 2019. Industry participants in all channels remain very optimistic for growth in this segment. There also have been some reports of whole loan bulk deals going on in this segment. And look for continued growth in the number of correspondent investors within this sector
  • Correspondent investors, service providers and warehouse banks are starting to recognize the huge interest in construction lending and renovation products. Many lenders believe this is a great purchase market opportunity to support smaller home builders, provided loan originators are trained properly to support this type of business
  • Mortgage fulfillment services could see a steady pick up in business as banks and mortgage companies continue to look to reduce costs and regulatory burdens by outsourcing these services
  • Warehouse banks and aggregators are feeling intense pressure from originators to participate in eNotes and eClosings. The momentum and interest should see increased industry usage in 2019. A major aggregator recently announced its participation
  • Most firms are forecasting a slight drop in overall originations from this year to next, primarily due to even less refi and purchase business, weakened by all the reasons mentioned earlier. There are quite a few lenders still trying to grow production organically, but many are keeping a close eye on the fallout from lender closings and M&A activity for a possible pick-up in bringing on additional production teams
  • The GSEs are on pace to implement their Single Security and Common Securitization Platform (CSP) initiative by June 2019. Continued testing is in the works as they expect to be ready to go with very little market disruption
  • While the overall scratch-and-dent loan market has slowed down some, it has not gone away! Lenders active in that space have more time to clean up their investor repurchase requests and see which borrowers may be able to refinance rather than selling these loans into the secondary market so nonbanks can move them off their warehouse lines
  • The future of the qualified mortgage (QM) GSE patch has hit the radar for some industry experts, now that the industry is struggling to grow portfolios with higher debt-to-income (DTI) ratio lending in the Agency-conforming and FHA space. The GSE patch expires Jan. 10, 2021, or the day the GSEs exit Federal Housing Finance Agency (FHFA) conservatorship, whichever happens first. Under the patch, a Fannie Mae or Freddie Mac automated underwriting system (AUS) approval automatically receives QM status. Once the patch expires, any loan with a DTI exceeding 43% will have non-QM status, and, therefore, will be ineligible for purchase by the GSEs

Lenders and investors are cautiously optimistic going into 2019. The main themes for the new year are survival, growth and lender product differentiation. Industry participants are already competing in a shrinking market, yet many believe if they are still standing by the middle of next year, all should be good. Time will tell! The implementation and execution for needed technology, combined with effective use of people and product innovation, may well be the deciding factors in how much the lending community can control and how successful it will be.

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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