New York, NY (May 20-23)
Central concerns for lenders attending MBA’s National Secondary Market Conference & Expo 2018 in New York City included increasing interest rates, falling applications, and smaller margins. With mortgage originations continuing to plunge, many participants were hoping to find the secret to originating loans more efficiently and cost-effectively. The conference represented another productive event for Aspen Grove Solutions.
Originations on the Decline
MBA chief economist Mike Fratantoni warned that originations are trending negatively. He pointed to the latest MBA Mortgage Performance Report, which highlighted the adverse effects that regulation, additional fixed costs, fierce competition, and a move from refinancing to purchase are having on mortgage profits. Fratantoni noted that overcapacity and high expenses led to losses at mortgage banks during the first quarter, for the first time since the same period of 2014, and he also pointed out that many independent mortgage banks are considering abandoning servicing.
Many mortgage originators are pinning their hopes on digital mortgage processes. According to Michael Drayne, senior vice president of issuer and portfolio management, Ginnie Mae will release a plan in June that will address the role of digital mortgages at the agency.
Ginnie Mae securitizes production for the Federal Housing Administration, Veterans Affairs and the U.S. Department of Agriculture Rural Housing Service, and all of these agencies discussed planned technology upgrades designed to help lenders cut costs. To underline the interest in digitization, the final general session at MBA’s National Secondary Market & Expo 2018 was called “Securitizing the Digital Mortgage.”
Non-QM (Qualified Mortgage) Loans
A key aspect of the conference was a marked interest in non-QM (Qualified Mortgage) loans. With market conditions becoming more difficult, it is becoming harder to find easy loans where borrowers meet qualified mortgage standards. This means that the future of the mortgage industry is likely to depend on atypical borrowers, who may not meet conventional lending criteria but are a good risk for the appropriate product. Partly because of this, the non-QM market is forecast to increase by 400% in the next year. Panelists discussed non-conforming loan types, such as bank statement loans and condo loans, although several cautioned against likening non-QM to subprime. They also noted that underwriting non-QM loans can be challenging, especially because they have limited potential for automation.
Attendees left MBA’s National Secondary Market Conference & Expo 2018 with a keen sense of the demands facing them in the lending market. There may be some good news for the industry in relation to the passage of Dodd-Frank reforms that relax the rules restricting thousands of small and medium-sized banks, but the general outlook for mortgage lending is challenging.