David Brennan
As the calendar has moved to 2019, we look forward with anticipation and predictions about what may be in store for the mortgage industry. As the old Danish proverb goes, “Prediction is hazardous, especially about the future.”
We just saw this in play recently when dire forecasts for the negative impact from the tax changes on the housing market never came to pass. On the other hand, we didn’t think we would begin the year dealing with the complications of a prolonged government shutdown. The one thing I am confident of predicting is that there will be many surprises during 2019.
Millennials Want Homes – Some Need Help
Previous studies had written off Millennials as not having any desire to obtain homeownership. This was concerning as this largest age demographic began entering what has been considered peak home purchasing years. In a bit of good news, more recent studies are indicating that may be changing and homeownership interest is increasing. Rather than a lack of interest, these studies suggest accumulating a down payment is a major roadblock to home ownership.
Although some would argue every mortgage should come with a 20 percent down payment, there are multiple products in the marketplace that offer down payments as low as 3 percent and options on how to get there. Many of these programs have shown that the industry is capable of underwriting low down payment mortgages that are responsible and sustainable for our borrowers.
Massachusetts is very fortunate to have, in MassHousing, a strong and active housing finance agency that offers an affordable and responsible mortgage path for qualified borrowers. This bodes well for addressing the needs of Millennials as well as other customer segments.
Digital Platforms Will Be Key to Success
The mortgage industry is going through the largest digital transformation since the GSEs introduced artificial intelligence through their respective automated underwriting systems. After several years when dedicated resources were required to implement new regulations following the 2008 financial crisis, the last couple of years have finally allowed us to focus on this digital transformation with the help of the ever-evolving digital, fintech and social media worlds. The success of any mortgage banker will rely on being able to meet changing customer and center of influence expectations with a robust digital platform that supports their business model.
Will We See GSE Reform in 2019?
Fannie and Freddie are critical in providing a level playing field in a national secondary market by offering direct access for all lenders regardless of size, daily pricing options, multiple delivery execution and retained and released servicing options. In addition, with their new digital tools, they have become our mortgage technology partners.
This year, we will closely watch the new Federal Housing Finance Agency director to see whether changes will be imposed to shrink the GSE footprint. Both Fannie and Freddie are scheduled to adopt the common security platform mid-2019.
Legislative and Regulatory Issues on the Horizon
Look for continued challenges with HMDA data. Congress and regulators will be focusing on fair lending and disparate impact under the Equal Credit Opportunity Act. Expect much focus and discussion on ability-to-repay, qualified and non-qualified mortgages. There will be a review of these rules by the CFPB that will create many diverse positions on whether the rules have inhibited responsible lending and limited access to mortgage credit or served to protect borrowers. Finding ways to replace the so-called GSE QM/Non-QM exemption will be in focus. The so-called GSE “patch” has provided a safe harbor for very significant volume.
Other items that will get attention from policy makers and regulators will be the continued industry advance into digitized services, with potential solutions built in-house or created through partnerships with fintechs. This data revolution will impact credit accessibility as the use of artificial intelligence is increased without disclosure of what’s in the “black box.” Regulators must try to ensure a level playing field exists for all lenders.
The coming year won’t be boring. But at the end of day we will all continue to work hard to help many people achieve a very important component of their life: a place to call home.
David Brennan is senior vice president and chief residential and consumer lending officer at the Cape Cod 5. He can be reached at dbrennan@capecodfive.com.
