Editor's note: This story was originally featured in the December issue of MReport, out now.
Anticipating what’s to come is always a tricky business. 2017 was a year defined by unpredictability, with the housing and mortgage industry facing technological updates, policy changes, demographic shifts, and a slew of natural disasters. Now, 2018 offers a clean slate and a sense of optimism as the industry continues to grow and learn.
This new year will see the industry now knowing a bit more of what to expect from the now-established presidential administration, but still with plenty of questions about what course the government will chart in 2018. Both natural disasters and digital threats will almost certainly continue to provide challenges, but emerging technological advancements will also provide enormous opportunity for those who can evolve their processes and best incorporate them.
But without a Magic 8-Ball to provide all the answers, the best way to predict what 2018 has in store is to talk to the people who’ve been in the trenches during the twists and turns of 2017. With that in mind, MReport spoke to a cross-section of leading industry experts whose day-to-day duties demand that they try and anticipate the next challenge, the next opportunity, and the next unexpected curveball.
The best way to build a better future is to understand the past. While the challenges of 2017 won’t be left behind, it is how the industry responds that is key. One trend many industry experts agree on is that the expansion of digital tools will be crucial for anyone hoping to remain competitive.
“2017 provided for many good challenges in bringing more and more automation and technology to an industry that desperately needs it,” said Mike Lyon, EVP at Nexsys Technologies.
Using digital tools as a means to enhance consumer experience through workflow may become the primary focus for many lenders in 2018. As in many cases, efficiency will be key.
“Lenders are going to have to be more efficient—if the purchase business takes more effort, you have to get more efficient in the business,” said Jonathan Corr, President and CEO of Ellie Mae. “Technology can help address this challenge by helping lenders close loans faster, close more loans, and reduce the cost to originate, all while operating with the compliance necessary in today’s world.”
Jeff Sandman, Co-Founder of Pendo, added, “The adoption of technology has reduced redundancies, errors, and simplified the process while producing an appraisal in less time and with better accuracy.”
As the industry moves into 2018, there are also technology solutions that lenders can implement to drive costs out of the mortgage process and deliver greater transparency and control for proof of compliance.
According to Tim Anderson, Director of eServices at DocMagic, “What was once referred to as eMortgages has now been renamed to the Digital Mortgage process to take time, paper, and risk out of the entire process and store critical data and docs to ensure compliance of the process all the way from initial loan application to closing and investor delivery.”
There will inevitably be speed bumps along the way, of course. While Stanley Street, President of Street Resource Group, suggests the industry will see an accelerated use of eNotes in 2018, He says much depends on adoption amongst the secondary market.
“Major lenders are actively pursuing completely digital technology, and warehouse lenders have become increasingly comfortable financing digital-mortgage products,” said Street. “Our hope is that increase demand for eNotes next year will help move additional aggregators and institutional non-GSE investors off the fence.”
Looking ahead, Shelley Leonard, Black Knight’s Chief Product Strategy Officer, forecasts a renewed focus over the next five years on leveraging innovative technologies to improve the experience for the borrower and advance the mortgage industry as a whole.
“Examples of these include continually innovating new ways to apply data and analytics throughout the mortgage lifecycle,” Leonard said.
Overall, these advancements can improve profitability and efficiency for the lender or servicer, while also buoying customer satisfaction.
With greater technology comes a greater ability to acquire data. With pools of high-fidelity data available, the industry can accelerate and expand the use of alternative and innovative forms of credit risk transfer, particularly those utilizing reinsurers, according to David Gansberg, President and CEO of Arch Mortgage Insurance.
“While the mortgage industry has made tremendous technological advances over the years, there are still massive opportunities to adopt emerging technologies to further benefit the entire lending ecosystem—from lenders to borrowers to mortgage insurers and GSEs,” Gansberg said.
Easing the Consumer Experience
While financial technology is accelerating rapidly and providing new opportunities for lenders, it can also create confusion among customers, according to Eric Egenhoefer, President & CEO of Waterstone Mortgage. Companies that understand how to leverage technology effectively to increase efficiency and reduce friction will come out ahead and increase their market share.
“Today’s consumers are increasingly more informed about the mortgage process, so lenders need to be up to speed with current customer service trends, from providing a mobile application to enhancing communication with clients,” Egenhoefer said.
To best prepare for 2018, it is important to keep focusing on providing a better customer experience and understanding where to place technology bets to support it.
“Borrowers are demanding a better customer experience,” said Scott Slifer, Chairman and CEO, Sutherland Mortgage Services, Inc. “Lenders must find a way to stand out and win new purchase business.”
In fact, borrower expectations could be the biggest element to shift in 2018, says Joe Dombrowski, Director of Product Management at Fiserv. While compliance has grown and access to capital has changed, those changes have largely been incremental over several years.
“Among the biggest market challenges in 2018, housing professionals will have to address building new lending products to reflect changing borrower needs,” said Dombrowski. “We see hints of this already with work being done on improved reverse-mortgage products and introduction of new equity products.”
Rob Chrane, CEO of Down Payment Resource, said that improvements for 2018 include educating buyers. He believes first-time homebuyers’ biggest problem isn’t that they don’t qualify to buy a home, it’s that they think they don’t qualify.
“Since these consumers aren’t actively seeking homeownership, mortgage professionals need to seek them out in ways they haven’t in the past,” said Chrane. “More than ever, there’s no one-size-fits-all mortgage, and buyers will want to work with lenders who can help them evaluate multiple options.”
Millennial homebuyers will be a key group to target in the upcoming year. As a demographic cohort, millennials are far more educated about consumer choices than prior generations, seeking more education about loan products and the loan process.
According to Dombrowski, lenders should be examining the means they use to educate first-time borrowers, as well as boomers who may be looking at their next loan.
“Saturday-morning first-time homebuyer seminars may have worked 15 years ago, but a more digital approach is needed today,” said Dombrowski.
However, while evolving technology can provide plenty of opportunities in 2018, there are also potential perils.
Data breaches and cyberattacks were a big challenge in 2017, and some industry experts claim it was the biggest challenge of the year—and one that will continue in 2018.
“Housing professionals are ‘one-stop shopping’ for cyberthieves, as we all have multiple pieces of confidential information on each party to the transaction,” said Bill Burding, EVP, General Counsel, Orange Coast Title Company. “The types and means of fraud have morphed literally from day to day, so it is a full-time effort to keep up with this challenge.”
Going into 2018, it is important to regularly review and update cyber policies and ensure that the highest standards are maintained to protect consumers.
Paul Wetzel, EVP of Product Management at Mortgage Cadence, said cybercrime is a growing threat for the mortgage industry. The quantity and complexity of hacking efforts are on the rise, leaving borrowers’ personal and financial information, not to mention company reputations, at risk.
“In order to confront this risk head-on, housing professionals must invest in an alternative solution to email, the most common point of entry for hackers,” Wetzel said. “A private network that enables multi-party communication and real-time collaboration will prove to be the industry’s best defense against cybercrime, and must be adopted sooner rather than later.”
A Shift in the Market
In the past, the industry has experienced several significant changes in the marketplace that will require more attention from lenders in 2018.
Ray Brousseau, President of Carrington Mortgage Services, LLC, said that the days of simple “rate-and-term” refinancing are largely a thing of the past. Interest rates have dropped as much as possible, and there is a shift from refinancing to consumers taking advantage of the increased appreciation in their homes and cashing out.
“Second, we’ve experienced a very slow shift in the willingness of lenders to help distressed or borrowers with credit challenges,” said Brousseau. “The overall market has been slow to respond to them and demonstrate its willingness to work with this underserved market.”
Dan Hoppes, SVP at Assurant Mortgage Solutions, said market valuations have shifted dramatically in the past five years.
“Coming out of the mortgage crisis, there was a high degree of regulatory focus on all parties, including appraisers and appraisal management companies (AMCs),” Hoppes said. “Add the changes to closing a loan with regards to TRID, and the industry had a lot of change to digest in a very short time period.”
There is still a high focus on the regulatory environment, but now that everyone is gaining a comfort level with most of the increased requirements fostered by Dodd-Frank, the focus is moving toward innovation and efficiency.
Not everyone agrees with the comfortability of the increased requirements. Anderson said he is hopeful that he will see a bit of moratorium slowdown in the number of major regulations to provide the industry some breathing room. Major regulations include: Qualified Mortgage (QM), TILA-RESPA Integrated Disclosure (TRID), Home Mortgage Disclosure Act (HMDA), and Uniform Closing Dataset (UCD).
Additionally, Matt Woolley, SVP of Sales with LoanLogics, zeroed in on one aspect of the mortgage industry he would gladly leave behind in 2018.
“In a word, overregulation,” Woolley said. “Under the current administration, we look forward to the elimination of burdensome lending regulations that added costs to loan production, yet did not provide consumers and investors with any concrete benefits.”
Forecasts for 2018 also include looking forward to more of a purchase home loan market versus the heavy percentage of refinances experienced over the past several years.
“Although many companies continue to survive on these refinances, a successful housing and mortgage market cannot be sustained by an overabundance of refinances,” said Woolley. “Refis artificially bolster the economy with a short-term boost from the extra cash homeowners realize after refinancing.”
Will Fisher, SVP, National Sales and Marketing Director of Citadel, said the market will experience a “sea of change” in the type of borrower that is available to purchase or refinance.
“This will be due to two factors: the first, increased interest rates,” Fisher said. “Second, government intervention, with potential changes to the tax code and housing regulation.”
However, a sustainable and successful housing market and economy are based on a strong home-purchase market—and Woolley believes the industry should start to see a stronger purchase market in 2018 and beyond.
Tom Hutchens, SVP at Angel Oak Mortgage Solutions, anticipates 2018 to shed light on winners and losers emerging from the refinance cliff.
“We have already seen refinance volume dry up as rates rose throughout 2017,” Hutchens said. “Lenders who prepared by adding additional purchase products have been successful in attracting new customer bases. However, those who did not diversify their product offerings will face challenges in 2018 and beyond.”
The expected rise in interest rates may reduce refinancing ap-plications and also drive competi-tion in the market, potentially resulting in decreased margins for lenders.
Seth Kronemeyer, Vertical Marketing Leader, Equifax Mortgage & Housing, says preparation is paramount. “Mortgage lenders should develop their purchase-market strategy and target anticipated Closing Protection Letter (CPL) acquisition costs through all marketing mediums, including direct real estate and indirect lead providers.”
In fact, competition among lenders in purchase markets could be a driving force in 2018, according to Jonathan Corr, President and CEO of Ellie Mae.
“As a lender, you’ve got to be doing more to achieve that volume on the purchase side,” Corr said. “It’s a relationship-oriented market—it means working with real estate agents and perhaps longer gestation periods. Lenders have to get in earlier in that point of interest for the homebuyer.”
The Year of Uncertainty
One of the biggest challenges the mortgage servicing industry will face moving from 2017 to 2018 is the lingering impact of the unprecedented hurricane season of 2017.
Although the servicing and property preservation industries have responded to massive increases in disaster-related inspections, Chad Mosley, COO at Mortgage Contracting Solutions, said, “We have only started to scratch the surface related to the preservation, rehab, and repair on properties in these impacted areas.”
“It will be imperative that servicers and service providers alike build on the lessons learned from the 2017 hurricane season,” Mosley added. “There were positives related to the massive volume of highly concentrated inspections that were completed in a short time period, as well as new technologies that were implemented to assist with the inspection and reporting on storm-damaged areas.”
In addition, the marketplace is at a tipping point—there is quite a bit of unknown.
“For example, what will happen with the GSEs and the regulatory environment?” asked Charles Chacko, Managing Partner at OS National. “How fast will new technological innovations be implemented and embraced? We will also have new leadership at several posts, and add to the mix interest rate changes.”
According to Denis Brosnan, President and CEO of DIMONT, one of the biggest challenges the industry will face in 2018 will most likely be continued uncertainty within the regulatory environment and the Consumer Financial Protection Bureau (CFPB). Additionally, there remains ambiguity around the Federal Reserve, particularly with the replacement of Janet Yellen in early 2018.
“There was an expectation in 2017 that the new administration would enact sweeping changes that would either benefit or harm the mortgage industry,” said Dave Worrall, President, Executive Department of LoanCare, a ServiceLink Company. “However, as the issues that the administration has chosen to take on, such as mortgage interest deduction, are very controversial, it is unclear what will change and when.”
If there is one thing that is certain, it is that despite all the predictions, the industry will never truly know what’s in store for the new year—which very well could be the biggest challenge in itself.
“Uncertainty can lead to nervousness that can gather momentum,” said Edmond Buckley, President, Aspen Groves Solutions. “So, as housing professionals, we prepare for that by focusing on the positives and providing innovative solutions to combat the uncertainty and remove obstacles—perceived or real.”
Predicting the future might be an uncertain business, but it’s not just about anticipating the future—it’s about working to help shape it proactively. 2018 looks to be an exciting ride for the housing and mortgage industry, so long as the lessons of 2017 aren’t forgotten as they fade into the rearview.