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Here’s How Lenders can Make the Most of their Business this Year

bankMost economists in the mortgage industry project that the housing market will experience a slow down in activity in 2016, but that does not mean that lenders' businesses have to coast along too.

Dr. Rick Roque, Managing Director of Michigan Mutual shares some advice on how lenders can increase their business and prosper in the new year.

MReport: Where is the greatest area of opportunity for lenders to make revenue and how should they go about tapping into that?

Dr. Roque: Strictly market share, in my view. There will be considerable volume contractions, anywhere from 25 percent to 30 percent total throughout the industry. This year the industry is predicting a reduction in total volume and that is going to exert a lot of pressure on lenders struggling to maintain and grow their market share in a contracting market. They will need to essentially take business from one another. The volume in 2016 as a whole is supposed to be about 400 billion dollars less than in 2015. As a result, whatever you did last year, unless you’re growing your market share, will be less this year. In essence, the current number of lenders will be fighting for pieces of a smaller pie.

The competitive advantage that lenders are going to have to create will require opening up to new markets, opening up their licensing strategy to new states, and taking away loan officers from their competitors.

MReport: What do you see as the biggest threat to lenders in 2016? Why?

Dr. Roque: The biggest threat is going to be lender compensation and the Consumer Financial Protection Bureau (CFPB). There is still a tremendous lack of clarity as to what the CFPB will be looking for in audits and how they will work with lenders to resolve issues when they see violations. This is especially true with regard to the TILA-RESPA Integrated Disclosure (TRID) rule. All we know about TRID is that the CFPB will go easy on us for a limited time. But other than these general comments, what do we really know about TRID? At the end of the day, lenders don’t really know the extent and severity of penalties for non-compliance. Fair lending and loan officer compensation violations are going to be the main focus for 2016 by auditors. When they find a violation, how will they work with lenders to fix it? Will it be purely punitive or will it involve specific corrective actions and provide time to implement them?  There is currently tremendous ambiguity as to what the working relationship with the CFPB will be for lenders.  We know what the bureau has done with deep pocket banks, but we lack a good understanding of what is in store for mainstream mortgage bankers.

MReport: How will lenders be able to develop and sustain a competitive advantage next year?

Dr. Roque: The biggest competitive advantage is going to be operational. Leveraging technology in order to demonstrate that you can close loans in the shortest period of time with a borrower-friendly process is what’s going to drive business. With TRID, loan officers are becoming much savvier in their workflow and operational execution. You really have to reflect carefully on how efficiently you close loans. Lenders who can both demonstrate their operational execution and how well they satisfy and support consumers and Realtor partners will have the clearest competitive advantage.

MReport: What will be the biggest regulatory challenge for 2016 and how should lenders prepare for it?

Dr. Roque: The biggest regulatory challenge in 2016 is going to involve pricing strategies, market by market. This entails three things: the corporate margin, having a fixed branch margin, and loan officer compensation. There are a lot of lenders that are exhibiting explicit LO compensation violations and fair lending violations because their consumers can call the office of a particular mortgage branch and get multiple rates, depending upon which loan officer they speak to. I believe that 2016 will be the year of fair lending and we will see enforcement actions against lenders involving either loan officer compensation issues or fair lending violations. This will force lenders to take a much more uniform approach in their margin strategies in order to ensure they are compliant in both in fair lending and loan officer compensation.

MReport: Name an issue that you feel the industry should pay more attention to but hasn’t been focused on? Why is the issue important and why do you think it has not been an area of focus?

Dr. Roque: The industry and the Mortgage Bankers Association (MBA) should work much more proactively with public school districts and departments of education on a state-by-state basis to support and put together initiatives to improve consumer financial literacy.

When I speak to superintendents of schools, departments of education, or members of an administration, I find there is virtually no dialogue between bankers and these educational institutions regarding how to educate students and the general population to become financially literate, and that is a mistake.

Public school districts are the among the largest employers in communities around the country. I think it would be smart for the associations in our industry to enter into a broader dialogue with each state department of education on how the industry can support public school districts in promoting financial literacy. At the college and high school level there is little or no outreach in that regard, and we need to do a better job of training our consumers.  There are many benefits to having well-informed borrowers, particularly in the servicing side of the business.

The challenge is that the industry is still somewhat under fire and we are very much in a defensive mode. We are not being very strategic, and I think this is reason why we haven’t really been focused on such institutional plays. Let’s face it, there is virtually no educational foundation to instruct borrowers on consumer finance, financial management and buying a house, even though roughly two thirds of Americans purchase homes. There is little if any preparation coming from schools involving affording a home, paying for a home, or preparing for a home. It’s not there, it’s absent.

If 60 percent or more of Americans buy a house, it’s so strange to me that this is not even a topic of conversation in our schools. Financial literacy is a great example of how the industry can go on the offensive and work more proactively with consumers at every level.

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