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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2013

Taking Stock and Looking Ahead

Renewed strength in the mortgage industry points to good things for the economy

For many mortgage bankers and brokers with quality staff members, tight operations and fiscal discipline, 2012 proved to be a strong year — and quite a rebound from 2011. Those who succeeded were rewarded for staying the course, understanding and adjusting to the new regulatory environment, and knowing thoroughly their markets and their customers.

For many mortgage professionals, much of this past year’s success came from post-election economic factors. Although the industry still faces economic uncertainties, today we know who our president is, and for the most part, we know what our taxes are going to be. Regardless of their own personal opinions, many industry professionals also now have a better understanding of this new age of regulatory requirements and their processes.

Further, brokers and originators are beginning to see strong capital sources entering or re-entering the industry, and there are positive signs of improvements in a growing number of local home markets. Let’s take a closer look at the makeup of this past year — and what it may tell us about what the rest of 2013 could have in store for the industry.

So goes the economy

Clearly, this is not an era of robust economic growth. In fact, according to the Bureau of Economic Analysis, real gross domestic product actually shrank by a 0.1 percent annual rate this past fourth quarter, the first time this has occurred since the recession. Some of this slump may be attributed to the devastation caused by Hurricane Sandy, and reductions in military spending also may have played a part. Regardless, strength still was reported in areas such as consumer spending, home building and business investment.

Of these positive factors, housing added to our economy’s annual growth in 2012 for the first time in six years. This is good news, especially when combined with reports that home prices last year showed their best yearly gain since the housing crisis began. Although an ample amount of unsold housing remains — and countless individual homeowners still possess underwater mortgages — improved valuations and reports of new building in select markets represent good news for originators and the economy as a whole. After all, the status of the housing market often presents a good indication of where the overall economy is headed.

Even with all of this good news, however, there are still some potential bumps in the road to keep an eye on. For instance, there’s some chance that Congress may tinker with the home-mortgage tax deduction, perhaps with an overhaul of itemized deductions for high net-worth individuals. Even with modifications in this regard, however, home mortgage interest and real estate tax deductions likely would remain for most Americans who itemize deductions.

It also should be noted that mortgage rates have drifted upward recently, and there may be some impact on originations if rates continue in that direction, but the long-term interest-rate picture remains excellent. Overall, mortgage rates likely will remain historically low for some time. In fact, the U.S. Federal Reserve recently opted to keep interest rates unchanged — at or below 0.25 percent — and pledged to do so until 2015. This should provide the mortgage industry with ample opportunity to write loans in league with gains in consumer confidence and what could be called “strategic income.”

A great example of this is the recent announcement, reported by the Detroit Free Press, that Ford Motor Co. will pay a record $8,300 in profit sharing to each of its nearly 46,000 United Auto Workers hourly workers. This is the largest such bonus since the practice began in the 1980s and represents a $380 million boost to the economy.

A sense of stability

For many mortgage brokers and originators, this past year also was defined by working to understand and adapt to the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the subsequent guidelines released by the Consumer Financial Protection Bureau. In particular, the industry continues to receive new guidance with respect to loan officers and origination, with the latest rules slated to go into effect in January 2014.

"Despite the ever-changing nature of the regulatory landscape, however, many mortgage professionals are adjusting well to this environment and the current marketplace."

These rules address steering incentives, compensation systems, and qualification and screening standards from loan originators. Undoubtedly, other regulatory issues will arise in the future, as well. Despite the ever-changing nature of the regulatory landscape, however, many mortgage professionals are adjusting well to this environment and the current marketplace, but as always, they’ll have to adjust appropriately to the true costs — and incentives —   required to do business. 

Even if these movements in the regulatory arena don’t always go down like the proverbial spoonful of sugar, mortgage professionals everywhere can benefit from a predictable and consistent business environment. With that in mind, the mortgage industry should work hard in the future to deliver responsible and productive legislative input about any ongoing regulatory processes.

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Mortgage professionals’ overall performance as an industry in the days ahead will be measured in several ways. These likely will include consumer acceptance and satisfaction, support of the housing industry as valuations and construction rebound, and the ability to attract new capital.

The better the industry performs, the more credible its input will be to legislative and rulemaking authorities. Even more important, adhering to forthright and honest practices will only benefit the already competitive banks and brokerages that always have done things the right way.


 
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