Editor's note: This story originally appeared in the January edition of MReport.
Amid the economic havoc created during the coronavirus pandemic, the residential mortgage industry emerged as one of the relatively few bright spots in an otherwise dismal environment. That is not to say the industry didn’t face its share of challenges – rapidly changing federal regulations, the impact of social distancing protocols on a traditionally person-to-person business and the abrupt migration from offices to working from home were among the most pressing obstacles that the industry faced and, for the most, successfully overcame.
If 2020 was the most unusual year for the origination space, what does 2021 hold? Can we expect a continuation of last year’s difficulties or is a rollback to pre-pandemic normalcy on the horizon? And what new trends will dominate how the industry operates?
Industry leaders queried on what the near-future holds are forecasting both tests and trials that need to be addressed, along with new opportunities that could emerge when the tumult has finally subsided. But if there is one theme that is consistent across the origination space, it is the sense of optimism that 2021 will be a good year for the industry.
“I think the main trend is going to be a very, very strong mortgage and housing year across the board,” predicted Mat Ishbia, President and CEO at United Wholesale Mortgage in Pontiac, Michigan. “Rates are very low, the economy is recovering, and will recover. Housing demand is great, millennials are buying, mortgage brokers are growing their business channel, and the education of consumers is happening. I think 2021 is going to be one of the best years in history from a mortgage perspective.”
Matt Weaver, VP at Cross Country Mortgage in Boca Raton, Florida, is predicting “a very strong purchase market in 2021,” although he observed that low inventory will fuel more bidding wars among buyers.
“The purchase markets in most major markets are what we call a heavy multiple offer environment,” he said. “There is low housing inventory across most major markets, and high buyer demand. It's causing a lot of frustration with buyers that are seeking to purchase. Originator really need to step up their game in terms of speed and execution in order to compete and win in these multiple offers.”
Weaver added that originators need to focus on “winning the confidence of the listing agent and the seller, being able to react and deliver loan commitments or loan approvals very quickly and having a strong reputation and credibility about your pre-approval process. It's all about reducing risk to a seller and to their listing agent. We're going to be in this heavy multiple offer environment for a minimum of the first two quarters of 2021.”
Matt Hydrew, VP of Sales at CreditXpert Inc. in Baltimore, is expecting a continued push in refinancing for the course of this year.
“With the drop in rates, I think borrowers are still going to push for refinances,” he said. “While there's been some talk that the refi market is going to slow down and the purchase market will begin to take over by the end of the year, I don't know if that's necessarily going to happen.”
“According to some stats, there is quite a bit of equity out there,” said Ron Haynie, SVP of Mortgage Finance Policy at the Independent Community Bankers of America. “There's still a fair number of homeowners who haven't refinanced or may have refinanced a couple of years ago and now they're in the money. I'm one of them—we refinanced a couple years ago, and we got big 3.75% or something like that. And we thought that's insane.”
Yet Garth Graham, a partner with Stratmor Group in Greenwood Village, Colorado, argued that capacity management issues will impact on originators who are too heavily focused on refinancing.
“At some point, when rates go up, there will be a dramatic shift to a problem with excess capacity,” he said. “It won't be capacity management issue, it's going to be shedding excess capacity—i.e., staff—and very quickly. It's going to be an increase of purchase, roughly 10% year-over-year, and for lenders who were focused primarily on purchase, it should look pretty good. But for lenders who built the capacity to handle a huge surge in refinance, it's not likely to be a soft landing. I just have no clue when the landing occurs.”
The Non-QM Sector
One area in the mortgage industry that was temporarily disrupted by the pandemic’s economic upheaval was the non-QM sector. Atlanta-headquartered Angel Oak Mortgage Solutions saw its business hit the pause button during the initial weeks of the pandemic but has since moved forward and is looking into 2021 for the possibility of new competitors to challenge its lead.
“Absolutely, we see more lenders on the origination side starting to get involved in non-QM,” said Tom Hutchens, EVP of Production at Angel Oak. “They've enjoyed an amazing run in 2020 on the agency refi side and that could continue, but it also could end abruptly. So, we're seeing people want to drive their business more towards purchases, and non-QM is really built for that. A lot of lenders, and a lot of new lenders, are getting signed up with Angel Oak to build a non-QM business.”
But not everyone is on fully board the non-QM train.
“I don't really see it as a growth channel,” commented UWM’s Ishbia. “I think they've been talking about that for five years, and it's never really done much. I don't see non-QM as a growth plan in 2021 at all.”
“Lenders are not rushing down the credit spectrum right now, when they can make up very high margin on really vanilla product,” added Stratmor Group’s Graham.
Paul Buege, President and COO of Inlanta Mortgage in Pewaukee, Wisconsin, shared the lack of enthusiasm in non-QM, but he admitted being able to originate those loans could help with customer appreciation.
“Good referral partners will bring in customers that might need that non-QM loan,” he said. “I think it's starting to become a bit more available, although it going to represent a very small proportion of our business.”
The High-Tech Touch
The 2020 pandemic gave a new priority to technologies that bridged the barriers separating stakeholders in the origination process. Buege predicted originators would be wise to put more effort into strengthening digital offerings to improve customer service.
“We move loans fast, get them done, and create awesome experiences because we're going to want all of those customers and those referral partners that are bringing us loans to be ready to tell everyone else how delighted they were with the experience,” he continued. “And they're going to be very much needed in the second half of the year, when many people feel predict the headwinds of slower production. We think the second half of the year is going to give us a great environment where we can start putting our focus on investing in some more technologies that can prepare a company for the future in which we want to be much more of a digital experience for our clients and our referral partners.”
UWM’s Ishbia observed “most of the companies that have really struggled are ones that have not invested in technology,” which has resulted in slower closing times. He expressed concern that too many originators are not seeing the proverbial picture when it comes to using technology to create time and cost efficiencies.
“We're in an interesting industry because nobody wants our product that we're selling,” he explained. “Nobody wants a mortgage, they want the house, right? Or they want the savings. So how do you make it faster and easier? People really have to go all-in on technology, because too many times in our industry spend a lot of time partnering with this vendor and kind of doing a halfway job of really investing in technology. You’ve got to be all-in with technology if you're going to make the process faster and easier for consumers. If you're doing that, you're going get a lot more business.”
Some originators are bypassing the vendors for the creation of proprietary technologies designed to improve their operations.
“We have a very sophisticated and robust proprietary tech platform,” stated Rick Seehausen, President and COO at Denver-based Cherry Creek Mortgage. “It may be the best kept secret out there, but we’re hoping to change that.”
Seehausen credited Quicken Loans and Rocket Mortgage for putting a new emphasis on propriety systems.
“Companies are looking not only at technology, but at process reengineering to make the mortgage process simpler,” he continued. “It shouldn't be as complex as it is, and it shouldn't take as long as it does. Rocket Mortgage was founded on the notion of creating a better mortgage process, and that goal and objective is shared by Cherry Creek. Having a proprietary tech platform gives us a lot of flexibility in being able to apply automation and focus on the consumer experience, automating tasks and simplifying processes.”
Using technology to improve both external and internal communications is expected to dominate much of this year’s tech focus. Josh Friend, CEO at Insellerate in Newport Beach, California, pointed out that some lenders are still trying to master online media for sales generation.
“Let's say we're going to have a good amount of volume to be turned into purchase over the next two years,” Friend said. “Lenders are starting to try to get ahead of that by understanding how you manage the digital world. They are either trying to produce leads on social media or through Google AdWords, or by going into LendingTree and LowerMyBills and buying leads from there. And so now they're trying to figure out how to use and interact with these customers digitally. The trend we're seeing is this move to understand how you manage customers digitally or use this for customer acquisition.”
Angel Oaks’ Hutchens noted that his company was planning to devote more attention to automated strategies and solutions for streamlining the origination process.
“In our space, one of challenges to non-QM is that it's a pretty manual process,” he said. “We are always looking at tools and resources that we can use for ourselves or give to our origination partners that speed up the process, offer surety of execution and give them quick answers. We've been on that mission since e we started and really are seeing a lot of great progress on those fronts. In 2021, we hope be able to roll out some really great new technologies to help originators.”
But Joe Dahleen, SVP of Strategy and Sales at FirstClose, warned originators that the 2020 boom in eClosings will expand further this year.
“After what happened last year with COVID, you’d better be closing with an e-notary,” he said. “My wife's in Tennessee, I'm here in Seattle, so we can't meet and sit down for the closing—so, you’d better be able to accommodate that stuff. And, frankly, there are escrow agents out here in the West and attorneys in the East who are not good at doing that.”
Are Underwriters Still Wanted?
One dominant origination trend in 2020 involved the competition to hire as many underwriters as possible. This year, however, industry opinion is divided on whether underwriters will remain a precious and elusive commodity.
“The compensation for qualified underwriters has grown tremendously and it seems to be something that's going to be going on for a while, as long as the huge amounts of refinance volume continues to grow,” said Mike Fontaine, COO of Plaza Home Mortgage in Wakefield, Massachusetts. “That has been everyone's biggest struggle: finding enough people to do the job.”
“Underwriters are certainly the hardest people to get,” lamented Jim Bopp, VP of National Renovation Lending at Meriden, Connecticut-headquartered Planet Home Lending LLC. Yet Bopp also noted many former mortgage professionals were returning to origination, helping to fill the voids that occurred.
“I've had a couple of people who exited the mortgage business coming back here today,” he said. “I had another one who just emailed me the other day and said they were thinking of getting back in the mortgage business.”
“None of us could hire fast enough in 2020 to keep up with our volumes,” recalled Bill Lowman, President and CEO of American Pacific Mortgage in Roseville, California, who believed the peak of the challenge in locating underwriters has passed. “I think we're seeing new applications start to level off. We’ve seen our ability to fulfill those loans.”
Stanley Middleman, CEO at Freedom Mortgage Corp. in Mount Laurel, New Jersey, observed that “skilled labor in periods of high volume in a cyclical business always drives the price of that labor up, and there's always a shortage of that later labor.” He also predicted that as the industry moves further into 2021, more new people will be added for underwriting positions and, thus, prevent another labor shortage.
“I think it's going to continue to be an issue, but it'll be fairly short and duration, maybe a quarter or two or three,” he added. “I don't think it's an ongoing problem that continues forever.”
However, William J. Tessar, President of Civic Financial Services in Redondo Beach, California, did not see the pursuit of underwriting hiring as a continuing trend.
“I actually think exactly the opposite,” he said. “I think the underwriters and processors and transaction coordinators have been at a premium because they've done record volume. I think that record volume will take a step down because the refinances aren't going to be there. I don't think that at the end of the year there's going to be hiring challenges. I think there may be some opportunities because of the reduction in business flow to pick up some quality individuals out there.”