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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2017

What Lies Ahead in 2017?

Several trends will impact the mortgage industry this year

What Lies Ahead in 2017?

As the years come and go, so do trends in fashion, food, technology and business. From bell bottoms and fusion cuisine to social media and webinars, we usher in new trends and bid farewell to old ones year in and year out. In the fashion industry, staying on top of trends can help a designer beat the competition to market with a new line of clothes, which can mean the difference between ruling the market and getting trampled by it.

In the mortgage industry, tracking trends is just as important. It takes time to change your focus from refinancing to purchase, for example, so determining when interest rates will rise can help originators prepare in uncertain times. What trends might come into fashion in 2017 that will have an impact on the mortgage industry? Let’s see if we can unzip the future and take a look.

The coming year will see a number of changes in the mortgage industry, including an increased use of trended credit data, the effects that a new presidential administration will have on housing issues, the impact of the new Uniform Residential Loan Application and more. Understanding these trends will give originators a leg up on their competition.

Trended credit data

The anticipated implementation of trended credit data became a reality this past September. Fannie Mae has indicated it doesn’t anticipate the availability of trended credit data to affect the percentage of people who get approved or denied for loans. In other words, the number of people approved who would have been denied will likely be offset by the number of people who now get denied who might otherwise have been approved. Time will tell if this is the case.

Nevertheless, it is likely that after a few months of wrestling with trended credit, new byproducts and tools might appear to help lenders interpret the new data. And, with improved interpretation of the data, it is likely that mortgage companies may become more willing to accept more risk — which could lead more of them down the non-Qualified Mortgage road.

On the other hand, it is possible that some companies could resist accepting more risk in the wake of trended credit data. As a result, they could see their pipelines begin to contract. When this happens, lenders will invariably get creative on how to make loans.

We could see loan programs that are designed entirely around trended credit data. Underwriting requirements may change, and technology companies may eventually introduce ways to manipulate the data with various what-if scenarios. Regardless of what patterns emerge, trended credit data will most certainly have an impact on how lenders approach decisionmaking throughout 2017.

New president

Prior to the election, President-elect Donald Trump shared very little about what he would do with the housing market, although he did acknowledge that over-regulation must be addressed. Trump stated in a speech this past August that no industry other than energy is regulated more than housing, and those very regulations are killing jobs inside and outside the industry. He said he wants to replace regulations with a job-creation program that operates without regulation.

Trump also said during his campaign that he wants to reconstruct the Dodd-Frank Wall Street Reform and Consumer Protection Act, adding that the law has made it very difficult for bankers to operate effectively. That intention may come to fruition. On a website launched by his transition team the day after the election, there was a section about financial-services reform with details about how Trump plans to approach the economy and how his administration will work to replace Dodd-Frank.

The website stated: “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.” Details about how Trump and his team would dismantle the law, however, and what exactly it would be replaced with, were not outlined on the website at the time.

With Trump’s experience exclusively in commercial real estate and multifamily housing, how he will approach the single-family market — which makes up most of the country’s housing — is a bit of a mystery. Given that his campaign was squarely focused on growing the economy and reducing regulation, however, there could be positive outcomes for the industry if the economy continues to improve and other issues don’t get in the way of it.

One specific issue President Trump may eventually have to address is what to do about Fannie Mae and Freddie Mac, given that the government-sponsored enterprises (GSEs) are scheduled to reduce their capital reserves to zero by 2018. Some believe he might begin to let the GSEs replenish capital to prevent this issue from boiling up. That may be a tall order due to opposition from lawmakers on both sides of the aisle.

Mr. Trump’s approach to immigration reform also could influence the housing market. Immigrants are a huge force shaping today’s households. The president-elect’s desire to deport illegal immigrants and reduce the steady stream coming into the country could negatively influence housing demand.

With the inauguration looming, Trump’s precise plans for the housing market and mortgage industry may soon crystallize. Or, they may not. Time will tell.

Mortgage rates

If recent history is any indication, mortgage rates may not move much one way or another in 2017; however, some analysts expect inflation to begin rising under the new administration, which could impact rates. Although it is possible that rates may increase this year, those increases are not likely to move enough to have any real impact in the industry.

Last year’s Brexit vote, when Great Britain elected to leave the European Union (EU), for example, caused rates to drop. The global markets bounced back quickly, however, and squelched the highly anticipated negative economic impact of Britain’s departure vote — at least in the short term.

Elections in France this spring could open the door to that nation’s own referendum on whether to remain in the EU. If France also exits, it is possible rates could drop again. If that happens, refinancings will could once again dominate the market.

Sales-data analysis

One major trend last year was the emergence of more and more data that enabled lenders to better understand what happened to their lost applicants and why. This trend is expected to continue in 2017 and beyond.

Technological advances are making it possible for mortgage companies to take a deep dive into their data. They can now determine if applicants closed their loans with competitors and, if so, with whom. Technology also allows companies to monitor portfolio run-off trends to improve customer retention and to assess pipeline fallout to improve closing rates. In doing so, originators can maximize their marketing return on investment, improve customer retention and reduce pipeline fallout with loan-level competitive intelligence.

Digging even deeper, marketing and sales staff can determine where leads went. Were declined applicants not qualified or did they go to a competitor? If so, why? Loan processors can determine exactly what happened in the pipeline that prevented closings from going forward. Finally, those charged with retaining existing customers can better assess why some may have left. With access to more detailed data, mortgage companies can more easily identify trends and alter their strategies, products and terms accordingly to successfully attract and keep creditworthy borrowers.

HMDA preparations

In 2017, mortgage companies must continue preparing for the expanded Home Mortgage Disclosure Act (HMDA) reporting requirements about their mortgage lending activity. These requirements will help demonstrate if community-housing needs are being met, aid in the distribution of investments in areas that need it, and help identify potentially discriminatory lending behaviors and violations of anti-discrimination laws.

In preparation for the January 2018 effective reporting date, various mortgage-services companies are considering creating products that will automate HMDA reporting and facilitate electronic-data submission. Look for possible HMDA reporting solutions to emerge through the coming year.

New 1003 form

This past August, Fannie Mae and Freddie Mac announced that a new 1003 application form is forthcoming. The 1003 Uniform Residential Loan Application form, has been significantly redesigned both in terms of layout and terminology. Originators may begin using the new form on Jan. 1, 2018, coincidentally the same implementation date for collecting expanded HMDA demographic information.

The new form adds data fields that will facilitate the collection of expanded HMDA data and also asks for more basic things, such as the borrower’s e-mail address and cell-phone number — now-common contact information that was not widely used when the original form was introduced 20 years ago. The form also includes additional capabilities that promote digital-mortgage workflows.

The application also has been reformatted to separate borrower-provided information from information collected and verified by processors during underwriting. The digital version of the form even allows borrowers to collapse and expand certain sections or use drop-down menus to detail personal information, such as liabilities and assets. Essentially, the new 1003 form acknowledges that not all loan applications are the same and, as a result, offers much more flexibility.

The new form’s effective date is a year off, so it is possible that additional changes may be made to it. Fannie and Freddie are expected to offer a timeline for implementation sometime this year.

•  •  •

As we look forward to 2017, one thing is absolutely certain: Change is synonymous with the mortgage industry. As these new trends take hold, others that are unforeseen at this point are likely to materialize as well. As mortgage professionals, we have no choice but to embrace trends and accept change as the industry continues to evolve and improve.


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