I have always found that looking back at the previous year (in this case 2018) with the benefit of 20-20 hindsight helps us to see where we need to head in the future.

  • We’re facing a 20+% drop in originations and low housing stock/inventories for homes for sale. Per experts, we have somewhere around 4 months of available housing inventory; normal levels are closer to 6 months. This, combined with the threat of rising interest rates, could put a slight softening on borrower demand, creating further possible obstacles for the industry as we enter 2019
  • In many areas of the country, home price appreciation is outpacing wage and income growth, although that dynamic has begun to shift. We are looking at a housing picture that’s not in sync in terms of inventory supporting current demands, including those of affordable housing borrowers

The picture described above is bringing increased industry participation and implementation for eNotes and eventually the digital mortgage. Once known as the “e-mortgage,” the digital mortgage transaction includes loan application through escrow, closing and recording and sale in the secondary market – all accomplished completely by technology. The big question is when, not if, it will happen. I suspect we will see more progress in 2019 on this front.

Changing Economy

Another major adjustment for the industry is to develop expanded products to support the changing economy (for example: Uber driver income in a “gig” economy) and underserved markets. We are already seeing quite a bit of momentum and growth within the non-QM space. It looks like non-QM origination volume could double every year for the next few years. Fannie Mae and Freddie Mac have shown a keen interest in rekindling the manufactured housing market and are currently considering implementing a pilot program. Some industry experts have applauded this as a “duty-to-serve” activity that supports affordable homeownership. Lenders are embracing these types of programs more readily than they would have a few years ago since many are seeing material declines in originations, where some of this lost volume could be replaced by expanding their product menu. This also helps many of them recruit loan originators and production teams.

The US economy has seen one of the longest recoveries on record. However, some experts believe we are headed into a recession over the next few years – some suggest as soon as late 2019 or 2020! With recent bond market behaviors and the “mini-inverted” yield curve reported recently between the 2-year and 5-year treasury, everyone is looking very closely once again to the spread between the 2-year and 10-year treasury and the Federal Reserve’s possible change in stance regarding raising short-term interest rates as many times as planned in 2019. Certainly, this can have an enormous impact on mortgage interest rates and short-term consumer borrowing costs. This is one of the unknowns as we head into next year but worth monitoring closely. This could ultimately have a “silver lining” effect for the industry with more refinances than expected and a slightly better purchase market than predicted.

Although the industry is right-sizing in terms of staffing, some participants still have not faced the new reality that total residential 1- to 4-unit origination volumes are expected to remain relatively flat from 2018- 2020 per the most recent Fannie Mae, Freddie Mac and MBA forecasts. Refinances will continue to drop from year to year and purchase business is expected to modestly increase over the next few years. Lenders also received an early holiday present from the FHFA regarding a 6.9% increase in conforming loan amounts, effective Jan. 1, 2019.

2019 Roadmap

Looking back on our industry in 2018 is a fantastic road map for moving forward into 2019. Embrace innovative ways to create efficiencies and prepare your organization to be responsive to niche product opportunities and underserved markets, where tremendous social and economic possibilities could be just waiting for you. Those are a couple ways we all can make an enormous difference.

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.