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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2015

Embracing the Changes Ahead

Even with regulatory challenges, there are plenty of reasons for optimism in the mortgage industry

Embracing the Changes Ahead

Top 2016 Trends

  • Fewer marketing-service agreements
  • Resurgence of the mortgage broker
  • Broker-to-banker transitions
  • The wholesale channel
  • Correspondent lending
  • The millenial market

Even with all of the economic issues America has faced, those who work in housing finance are blessed. It remains a bright spot in the United States’ economy and is a key engine for national growth moving forward. There are certainly some significant issues facing the industry, particularly when it comes to increased regulation, but there is good reason for optimism.

You don’t need a crystal ball to see into the mortgage industry’s future. Anyone who has been working in the industry for some time — especially those who have held a variety of positions within the industry — can see some of the trends that may shape 2016.

For brokers and bankers, correspondent and wholesale lenders, and virtually everyone in the mortgage industry, this is a time of change. Several of these trends started to take shape in 2015. That, however, doesn’t mean they won’t play a key role in the industry for 2016, and beyond.

Marketing-services agreements

These agreements, also known as MSAs, are very controversial right now. They seem to be under siege from the Consumer Financial Protection Bureau (CFPB), and many would argue that regulators are trying to eradicate them. Dealing in MSAs will almost certainly draw scrutiny from the CFPB and, as such, the industry may trend away from them in 2016. Expecting complete eradication of them, however, may be a bit extreme, as some companies are staying firm, even in the face of CFPB audits.

So, although it seems that pressures from the CFPB may be effective at phasing them out, it is possible that MSAs will still exist by the close of 2016. If, however, you are going to do MSAs, tread lightly and make certain you have a great deal of legal counsel.

For companies with strong, thoughtful leadership — and with the right counsel brought in to implement the right strategy — MSAs can help create a unique value proposition. The vast majority of the mortgage industry, however, will likely continue to see them decline.

Resurgence of the mortgage broker

As 2015 has already showed, there is a resurgence in the role of the mortgage broker, and that trend is likely to continue in 2016. As banks have experienced disillusionment after the financial crisis, brokers have taken up the mantle for mortgage originations.

In many ways, the broker model is more fitting for origination than the banks' model.

In many ways, the broker model is more fitting for origination than the banks’ model. Originators are salespeople and are entrepreneurial, and working within the somewhat rigid structure of a bank can be stifling for them. Becoming brokers affords them more independence and allows them to focus more intently on building relationships directly with customers.

The CFPB doesn’t have a vendetta against brokers, but it does seem that regulators pay a disproportionate amount of attention to them — perhaps because many people, unfairly, laid the blame for the housing crisis upon brokers. Despite the risk of regulatory challenges, however, brokers are proliferating. They are growing in  number and strength, and those are trends that the industry should expect to continue throughout 2016.

Broker-to-banker transitions

Broker-to-banker transitions are not dead. Many brokers are making the transition with higher levels of survival — another trend that should continue into the coming year.

There are major hurdles in making the transition to a banker, perhaps none is bigger than the necessary net worth. You have to pay to play in the banking game, and a couple of million dollars isn’t easy to obtain. Those who succeed in making the transition are those who are really good at developing sustainable systems, policies and procedures. Be careful, though — the skills that make you good as a broker may challenge you as a banker.

If you’re considering making the transition from broker to banker in 2016, don’t just do it for the money. Do it because it’s right for you.

The wholesale channel

Third-party originations are thriving and growing, and should continue that growth in 2016. Working in the wholesale channel can be difficult, however, especially when it comes to dealing with regulators. There tends to be higher scrutiny of wholesalers doing business with mortgage brokers.

Everyone in this field should be prepared for a CFPB audit — it doesn’t matter how big or small you are. It is true that the CFPB typically hands out its heftiest fines to larger organizations, but any complaint from a borrower will put you on regulators’ radar screens. The CFPB isn’t just interested in money; they’re also interested in press — and you really don’t want to become a headline.

The best way to prepare for 2016 is to be ready for change. 

Correspondent lending

In the corresponding lending space, 2016 can be expected to produce an increasing number of large, independent mortgage bankers. This creates an opportunity for community banks to buy closed loans.

In 2015, some community banks launched corresponding lending programs using new technology to develop a lower-cost structure. In 2016, expect to see more use of advanced systems and technology, enabling correspondent lenders to become more efficient and drive down costs.

The millennial market

Many industry experts expect millennials to join the homebuying market, but also expect it not to happen for several years. There are two things, though, that may influence buying patterns of millennials in 2016: household formation and income growth. Millennials will join the homebuying market in larger numbers when they start having families and attain higher incomes.

When millennials do begin participating in the homebuying process, however, the way they participate is really going to change things. Rather than relying on professionals to do research for them, many millennials prefer to do the research themselves.

Living in the world of real estate-listing websites has revolutionized the process of buying homes. For example, the relationship between loan originator and Realtor may be turned upside-down. As millennials seek direct contact with lenders for prequalification, the referrals may begin to go from lender to Realtor. Wouldn’t that be something?

•  •  •

There are countless other trends that we can expect from 2016 — ones that will impact the economy, the regulatory environment, the housing supply and much more. After all, change is one of the few relative constants in life. All aspects of the housing and mortgage industries will see changes, and those who survive will be those who can handle the challenges those changes bring.

Whatever role you play in the industry, the best way to prepare for 2016 is to be ready for change. Have the right people and systems in place to face the inevitable challenges, and you’ll do just fine. Many of these changes will be for the better. The mortgage industry has been hit hard in recent years, but is on the path to recovery. In 2016, the only way to go is up. 


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