Tell someone working in the mortgage industry that things are changing and you’ll get a shrug and a “what’s new?” Constant change is the only thing that never changes around here. Even so, it looks like we’re in for an extra helping with the new administration.
That’s because when he’s not busy signing executive orders, the new President is apparently thinking about housing policies. The Washington Post has suggested that “an array of potential new housing policies proposed during his campaign could help first-time buyers, increase the affordability of housing and address discrimination.”
That’s a tall order.
Not saying first-time home buyers can’t use the help, but we’d get more traction by offering incentives to home builders to build more starter homes instead of the middle market mansions that they find so profitable. Makes more sense than just telling lenders to find more borrowers because low inventory levels continue to be a major problem for these buyers.
It’s hard to keep homes affordable when buyers keep bidding up the few available properties. The Fed already took action that will do as much good as anything when it decided not to raise interest rates, which helped lenders keep mortgage rates low.
That means that lenders must make it their mission to delight their borrowers at every opportunity. Most will do that with some form of mortgage automation platform designed to impress prospective borrowers and empower mortgage loan officers to serve them. They will pay attention to the borrower’s journey and employ AI to anticipate their needs.
Speaking of borrower needs, it is now clear that Fannie Mae and Freddie Mac cannot meet all of the demand in the current market, even with the clarification of the rules for a Qualifying Mortgage, the removal of the CFPB’s QM patch, and the decision to purchase more loans in forbearance. More loans now qualify for purchase by the nation’s largest investors and the new seasoning rule will add to that number. But it’s still not enough.
The need for additional mortgage capital, specifically in the form of Non-QM loan products, is now quite clear. These products are back, with a number of lenders participating and experts now predicting an uptick in Non-QM lending for 2021.
It’s hard to find a story about this sector that doesn’t include a disclaimer telling us that it won’t be like last time. This is still the wild west of home finance, but the demand is there and the business is brisk.
Besides, we don’t have time to worry about whether Non-QM lending will lead to higher default rates because we’re worrying about whether forbearance will get that job done first.
It’s very hard to tell at this point because it’s difficult to say whether borrowers in forbearance now will be in a position to resume payments later. Those borrowers who were already in trouble are waiting quietly and trying not to attract attention, a task made easier since the FHFA has shut down any foreclosure activity for the GSEs, at least for now. President Biden did the same thing for USDA loans.
The current FHFA ban lasts until the end of this month and the USDA’s ban a month later, but unless people get back to work, the bans will likely be extended. We have vaccines rolling out across the country, which could give local governments the confidence to let people come out of their homes and back into the workplace. But how far behind will they be when they get there?
The combination of the end of the FHFA moratorium and the end of forbearance could be ugly. It’s the foreclosure backlog that has some experts concerned.
Meanwhile, the bans are costing the GSEs (read: taxpayers, as they are in conservatorship and while the Treasury may get the profits we will likely handle any bailouts) close to $8 billion in additional costs.
Fortunately, servicers are well prepared for this. They survived the foreclosure crisis, which some of us believed would destroy that part of the industry. They have access to powerful software for loan servicing that will help them mitigate the losses.
And nothing heals the hurt of loss like more business. Fortunately for our industry, the National Association of Realtors says more business is on the way.
Lenders who want to get the most benefit from the strong demand in the market will ensure that they are working from a strong technology stack and fall back on a good mortgage automation platform to do as much as they can with as little overhead as possible.
No industry is better at moving forward confidently into an uncertain environment than mortgage lenders. It’s not like they have a choice.
We have a new administration in office, a new acting head of the CFPB, a new vaccine rolling out across the country, growing demand for Non-QM loan products and new rules to determine what deals fall into that category, and a wave of new business on the horizon. Change is everywhere.
By the time lenders get the loans that are in their pipelines today to the closing table, virtual or otherwise, much of what we know about our industry will already have changed. So, what’s new?