October 2016 MBA Annual Convention Survey: Report of Findings
By Tom LaMalfa; Tom Millon, CMB
January 9, 2017
(Tom LaMalfa is a 39-year veteran of mortgage market research, whose focus in recent years has been on federal housing policy. He is president of TSL Consulting, Cleveland Heights, Ohio. He can be reached at email@example.com. Tom Millon, CMB, is president, chief executive officer and founder of Capital Markets Cooperative, Ponte Vedra Beach, Fla. He can be reached at firstname.lastname@example.org.)
October 2016 MBA Annual Convention Survey Scorecard
1. Compared to last year, is your firm's production $ volume up, down or flat? Up-23/Down-1/Flat-5
2. What portion of your YTD origination volume is purchase business? 62.8
3. What portion of your YTD origination volume is agency conforming? 62.3
4. What portion of your YTD origination volume is FHA/VA/Rural? 29.7
5. Is your FHA volume up, down or unchanged from last year's convention? Up-12/Down-8/Unchanged-9
6. What percent of your firm's conventional production is over 80 LTV? 32.7%
7. What portion of your business is consumer direct/call center? 10.8%
8. Are you doing more high LTV (>90) lending this year than last? Yes-12/No-6/Same-11
9. Are you doing more high-DTI (>41) lending this year than last? Yes-7/No-9/Same-13
10. Are you doing more low FICO (<680) lending this year than last? Yes-9/No-11/Same-9
11. Are cash-out refinances back in a big way? Yes-11/No-17
12. Are your firm's YTD profits higher this year than last? Yes-23/No-5
13. In the aggregate, is your firm adding employees or shedding them? Adding-25/Shedding-2
14. Is there a shortage of appraisers in one or more of the markets your firm serves? Yes-26/No-3
15. Is your firm retaining, selling or buying MSRs in 2016? Retaining-19/Selling-14/Buying-6
16. Are you more or less upbeat about originating FHA-insured mortgages? More-9/Less-15
17. How concerned are you about the liquidity & value of conventional servicing? 1-10 5.3
18. How concerned are you about the liquidity & value of Ginnie Mae servicing? 1-10 7.6
19. Does the GSEs' exemption from the 43% cap put you at a competitive disadvantage? Yes-2/No-23
20. What is your assessment of Freddie's Loan Quality Advisor Suite? 1-10 6.5
21. Is your firm selling more or fewer loans to Freddie this year than last? More-15/Fewer-5 /Same-4
22. Who is providing better service and prices, Fannie or Freddie? Fannie-13/Freddie-12
23. Is your firm selling more or fewer loans to Fannie this year than last? More-17/Fewer-9/Same-3
24. Is Collateral Underwriter working well at your firm? Yes-19/No-2/Not applicable -8
25. Are you pleased with the GSEs' new loan dispute appeals process? Yes-17/No-3/Not Applicable-9
26. Is expanding credit to LMI borrowers a supply-side or a demand-side issue? Supply Side-13/Demand Side-13
27. Are the GSEs requiring your firm to buy & use trended credit data? Yes-14/No-12
28. Are you seeing benefits from the use of trended credit data? Yes-5/No-10/Not Applicable-14
29. Are your firm's mortgage processes all or mostly electronic today? All-6/Mostly-20
30. How valuable is housing counseling proving to be for FTBs? 1-10 5.4
31. Do you expect industry profits in 2016 to exceed those of last year? Yes-25/No-4
32. Are you seeing or hearing about a measurable pick up in home equity lending? Yes-15/No-12
33. For overall performance YoY, what letter grade would you give Fannie Mae? B
34. For overall performance YoY, what letter grade would you give Freddie Mac? B+
35. For overall performance YoY, what letter grade would you give to HUD/FHA? C+
36. For overall performance YoY, what letter grade would you give the CFPB? D+
37. Do you deal with one or more of the mortgage cooperatives? Yes-16/No-12
38. By what multiple have compliance costs increased since Dodd-Frank's enactment? 4.1
39. Compliance costs consume about what percentage of your total operating expenses? 24.8%
40. All in, by how many dollars have regulations increased the cost of a mortgage? $1,788
41. Will loan production expenses rise further in 2017? Yes-12/No-16
42. Is your firm doing any offshoring of mortgage services? Yes-6/No-23
43. Has your firm been through a CFPB audit? Yes-12/No-17
44. Should traditional mortgage servicing compensation change or remain as is? Chanbe-12/Remain-14
45. Is your firm completely through the transition to TRID? Yes-17/No-12
46. Are disclosures under TRID a significant improvement for consumers? Yes-8/No-21
47. Have the recent proposed CFPB changes to TRID added greater clarity to the rule? Yes-10/No-18
48. Are you pleased with CFPB's recent changes to its consumer complaint database? Yes-4/No-19/Not Applicable-6
49. Will the TRID rules prove to be another long-term liability for the industry? Yes-23/No-5
50. Do realtors largely operate with impunity concerning CFPB rules and regulations? Yes-25/No-3
51. Have all the new rules made the mortgage finance process safer for consumers? Yes-14/No-15
52. Is California's housing boom coming to an end? Yes-14/No-13
53. How negative will the Wells Fargo cross-sell scandal be for the bank? 1-10 7.5
54. Will the fallout from the Wells Fargo affair adversely affect the industry? Yes-16/No-11
55. Do you expect mortgage interest rates to rise by more than 50-75 basis points next year? Yes-2/No-27
56. Does the country need a National Housing Policy director? Yes-23/No-6
57. Are the new updated CFPB rules for mortgage servicing a plus for consumers? Yes-12/No-12
58. Are TRID problems slowing the closing process? Yes-22/No-6
59. Are you adding IT staff to deal with all the new systems integrations? Yes-28/No-1
60. Is it taking more time to clear loans off your warehouse lines? Yes-10/No-16
61. Will the PHH ruling force the CFPB to make clearer rules & end rules by enforcement? Yes-16/No-12
62. Is FHA lending slowing your firm's use of the GSEs' affordable products? Yes-15/No-14
63. Does your firm view technology as an expense or an investment? Expense-8/Innovation-20
64. Should GSE reform end with a single guarantor or multiple guarantors? Single-10/Multiple-18
65. Do you expect IMBs' market share to reach and exceed 60% in coming years? Yes-19/No-9
66. Will the traditional loan officer model fade in importance in coming years? Yes-17/No-11
67. Do you favor ditching the CSP and replacing it with a conventional GNMA platform? Yes-4/No-24
68. Will the Republicans hold the Senate in next month elections? Yes-19/No-10
69. What will your firm's originations total in 2016? $10.8 Billion (avg.)
70. If volume falls sharply next year, will you: cut OH-17/acquire-4/staff up & grow-7?
Report of Findings
This is the 17th time since 2008 that this survey of senior mortgage banking executives has been conducted and distributed. It is completed twice annually, at the MBA Annual Convention in October and at the MBA National Secondary Market Conference each May.
My conference experience this year consisted of attending the Capital and Secondary Market Committee meeting, lunching with a Fannie Mae executive, meeting for an hour with the president of Ginnie Mae, breakfasting with two new potential clients and completing 29 surveys over three days. I've been a full-time observer and student of the mortgage banking industry since 1977 when I worked for MGIC and wrote a weekly newsletter on the secondary market for a decade-plus.
The Boston convention was my 35th in 39 years in the industry. As there are many new recipients of this report, it is worth mentioning that in 1996 I became the first public major critic of the GSEs within the ranks of MBA's membership. (Note: The referenced speech from the October 1996 Annual Convention is available to curious readers upon request.)
The purpose of this survey is to capture some basic production data and gather the opinions, ideas, values and expectations of senior mortgage banking executives on many of the business and industry's key issues, topics and concerns. A second purpose of this series is to bring senior executives further into a public discussion of key industry issues and topics without drama and despite the sometimes controversial nature of the underlying issues.
For this year's convention, 29 meetings were arranged and an equal number of surveys were completed. The surveyed group consisted of 13 CEOs/presidents, 8 EVPs, 5 SVPs and 3 VPs. Excluding the CEOs/presidents, all of those surveyed this year work in capital markets, production or operations. Of the firms represented in the survey, 9 will produce more than $10B in 2016, another 10 originated $2-9.9B and 10 produced less than $2B. The smallest firm, a brokerage, did $75 million, and the largest was the largest...you know who.
The executives surveyed represent 15 banks and 14 nonbanks. Included were two homebuilder-owned firms, one mortgage brokerage, a realtor-owned firm, 5 private equity-fund owned companies and another owned by a hedge fund. One of the firms runs an internet-based call center. Twelve of the firms originate through one channel, 10 produce loans in 2 channels and 7 of the 29 originate in retail, correspondent and broker wholesale. Several others run ancillary call center operations.
The surveyed group is carefully structured to be representative of the lending industry in terms of the size of firms, their reach and scope, physical location, product menu and operating channels. All efforts are made to mimic the membership profile of MBA.
The 70-question survey was drafted in the weeks before the conference, tested and run past several industry folks for completeness and clarity. Input into the questions was sought and received from past and present members of RESBOG and MBA officers, and from several past chairmen of the Capital and Secondary Market Committee. Except for the advance test group, all the surveys were completed face to face during meetings at the convention held 23-26 October. About 40 minutes was required to complete each survey. I had scheduled a meeting virtually every hour from breakfast to dinner on Sunday, Monday and Tuesday.
My survey process starts with recording the responses to the questions, then compiling the information in a spreadsheet, preparing a report of findings, and distributing it to those surveyed and other interested parties.
Information extracted from the questionnaires has been used for a years-old serial--"The Corner Office Outlook"--which was published periodically in Mortgage Banking. The August 2016 issue contained the tenth article in a series I co-author with Tom Millon, CMB/CFA and CEO of the Capital Markets Cooperative, sponsor of this year's survey. It was based around issues and topics contained in the survey from last May. With Mortgage Banking now shuttered, we'll take our articles--based on survey findings--to one of several interested mortgage finance magazines. (The first of which will examine the difference in responses between banks and nonbanks.)
As for the survey group, it consists almost exclusively of longstanding industry associates, clients and friends. The common denominator is that all are industry veterans. Many of those surveyed have participated in this bi-annual survey since its inception. Most are close industry contacts who have helped me stay abreast of intra-industry issues, trends and developments over the course of decades. Only 1 of the 29 executives was surveyed for the first time and no new firms were included in the survey group this time around. (Note that more than a half dozen changes in the surveyed parties were made over the past two years to adjust for the major secular shift to independent mortgage banks).
Although some of the questions are time-specific and appear on these surveys only once or twice, others are included in every survey. Data-driven questions like Q1-10 and 38-40 are static inclusions in the survey. Other questions may be asked several times and then abandoned, while still others are asked but once. Frequency depends on the importance and sustainability of the topic or issue.
Collected surveys provide a dataset of queries and responses over time. Analysis of the resulting longitudinal data shows patterns and trends and may signal new developments in the business and industry. For example, the heavy cost of regulation has become increasingly apparent in the data, as is concern over the risk characteristics of FHA loans. This particular survey evidences an industry having undergone substantial growth in production volume this year, ostensibly the best annual performance since 1H07. Despite the many regulatory hurdles, it has been a very strong year for mortgage banking. It is the 50th month of a nationwide sellers' market, with significant effect on house prices, as ICHR's data indicates.
Personally I find the information collected to be relevant, interesting, insightful, informative, useful and instructive, especially so for policymakers. It is not lost on anyone that the conservatorship of the GSEs is now 98 months old and Congress has accomplished precious little that addresses the two insolvencies and prepares for the future. It would be my hope--as an objective, independent researcher, analyst and observer of the mortgage banking industry--that policymakers in the Congress and Administration and at the Federal Reserve, the CFPB, the FHFA, Ginnie Mae, HUD, FHA, Fannie and Freddie think about, discuss and evaluate the surveys' findings and how they affect--to the extent they do--borrowers, lenders, transitional third parties and, importantly, the health of the mortgage market.
It need be said that given who is being polled, it is understood that the findings reflect only the responses within the mortgage banking industry, not a broader cross-section of the U.S. population. Not a random survey, there is nothing in these results that would necessarily apply outside the mortgage finance industry. It also deserves mention that survey results are only valid as of a specific point in time. Things can change, sometimes quickly. That said, I believe as a longstanding industry observer, the findings well represent the facts, expectations and thinking of the full mortgage industry. Indeed, most readers of this report will find many, many more confirmations to their own thinking about the subjects herein than any real major surprises in the survey findings.
Nonetheless, there are some of the latter buried in the information. For me personally, the almost 2:1 belief that the Republicans would hold the Senate post November 8 was a surprise. More important, the findings show where consensus exists and where little resides.
From my perch, the mood of this year's convention was quite positive. As suggested, the industry is experiencing strong production and nice returns for its effort and ability to keep up with a fast pace. This optimism among market participants was my key takeaway from this convention. Meanwhile, Fannie Mae's announcement of its Day 1 Certainty initiative had lenders buzzing and stole the show. It promises rep and warrant relief. The convention's downer was the announcement that MBA's leader, CEO David Stevens, was suffering from cancer.
Thus prefaced, it's on to the questions. Note that what follows is not an analysis; rather, it's a straight forward iteration of the collected responses. No attempt is made to provide any color on the issues or topics included in the questionnaire. None of the complexity of so many of these issues, or of the various nuances in topics or responses, is dealt with in this report. These are surface findings only.
Finally, readers are advised to use the Scorecard to follow along as a guide in reading the text as I often group questions along the same topic and thus omit a direct link to each and every query. Responses not adding to 29 acknowledge that not all the executives could answer every question or that the question wasn't applicable.
Q1 inquired if production was up, down or flat this year compared to 2015. Twenty-three of the 29 executives surveyed report production dollar volumes were up. This compared to 5 who reported flat year-over-year volume and only 1 who indicated that volume declined.
Questions 2 to 7 asked about origination volume, specifically what portions represented each of 6 categories of production. Purchase business accounted for an average (unweighted by volume in this or any of the questions) of 62.8% of the entire group's origination activity. The range of responses was wide: from 20%-99%.
Agency, defined as Fannie and Freddie, conventional volume accounted for 62.3% of production, with a range of 40%-95%; government-insured volume, which ranged from 2%-80%, averaged 29.7% for the group as a whole. FHA volume for the year was reported up at 12 firms, down at 8 and unchanged at 9 others. Q6 asked about the percentage of their firm's conventional business that was over 80% LTV. The average was 32.7% amid a 5%-70% range. Q7 asked about their call center, consumer direct business. The group average was 10.8% with a range of 0-100%. Eight of the 29 firms surveyed operate call centers which account for at least 10% of their business.
Q8-10 wanted to know respectively if they were originating more high LTVs, high DTIs and low FICO this year than last. Of the 29 firms, 12 were doing more high LTVs, 6 less and 11 the same amount; 7 were writing more high DTIs, 9 fewer and 13 unchanged; 9 were originating more low FICOs, 11 fewer and 9 reported no change year over year.
Q11 asked if there was a recent wave of cash out refis occurring. They are back in a big way said 11 executives, while 17 others reported no acceleration in cash outs. Q12 wanted to know about their firms' profits. Higher said 23 compared to 5 who reported essentially the same profit level or lower in 2015.
Are you adding employees, asked Q13? Twenty-five firms are adding compared to only 2 that have not added or cut back employment levels. Q14 inquired about any shortage of appraisers. Here 26 of 29 said there was a shortage in at least one of the markets their firm served. Many added that the appraiser shortage is nationwide.
Q15 and 16 dealt with the firms' MSR posture this year and their attitude toward originating FHA loans. Nineteen of the 29 are retaining servicing, 14 are sellers and 6 others are buying bulk. As for FHA lending, 15 executives were less upbeat about originating FHA loans, while 9 were more upbeat.
Q17 and 18 wondered if the executives were concerned about the liquidity and value of conventional servicing and of Ginnie Mae servicing. To answer I asked each executive to respond on a 1-10 scale with the higher number being very, very concerned. Conventional servicing scored a 5.3 on the 10 point scale, while FHA/VA/Rural servicing scored 7.6. The highest score was an 8.5 for conventional servicing, but was a 10 for Ginnie MSRs.
Q19 wanted to know if the GSEs' exception from the 43% DTI cap in the QRM rule put their firm at a competitive disadvantage vis-à-vis Fannie and Freddie. Only 2 of the executives, both portfolio lenders, felt they were disadvantaged by the exemption.
Freddie's Loan Quality Advisor Suite was the subject of Q20. On the 10 point scale, the group assessed the Freddie suite as a 6.5. The response range was from 1-9.
Q21 and 23 asked if their firms were respectively selling more or fewer loans to Freddie and Fannie. Fifteen executives reported selling more to Freddie year-over-year, 5 fewer and 4 reported no change. For Fannie, 17 executives indicated more sales, 9 fewer and 3 unchanged sales. Q22 asked who was providing a better service level and price. And the collected responses couldn't have been closer: 13 said Fannie and 12 said Freddie.
Q24 wanted to know if (Fannie's) Collateral Underwriter was working well at their firms. Yes, said 19 executives vs. 2 who said no. The remaining 8 said they weren't sure and deferred an answer. Q25 wondered if the GSEs' new loan dispute appeals process was viewed positively. Yes, responded 17 compared to 3 who weren't pleased. Another 9 indicated uncertainty and passed on offering a response.
Q26 inquired whether the constraints to extending more credit to low-and moderate-income borrowers were on the supply side or on the demand side. As fate would have it, a dead heat, with 13 indicating a supply-side (inventory) limitation and another 13 indicating a demand side (credit) deficiency.
Are the GSEs requiring your firm to use trended credit data, asks Q27. Fourteen executives reported either Fannie or Freddie was mandating use of trended data compared to 12 others who were not (yet) so required. As for benefits from the use of trended credit data, not much reported 10 executives, twice the number of affirmatives, with another 14 respondents saying it was too early to determine benefit.
All or mostly electronic, asked Q29 about the mortgage processes at their firms. Mostly, said 20 executives, while another 6 reported all their processes were done electronically and without paper. Q30 wondered if the executives thought borrower counseling was proving valuable to first-time home buyers (as mandated by some affordable products). Scaled 1-10, the group average was 5.4 amidst a range of 2-10.
How about industry profits in 2016, do you expect them to be higher than last year, asked Q31. Higher, said 25 compared to 4 executives who thought otherwise.
Q32 wanted to know if those surveyed were seeing or hearing about a measurable pickup in home equity lending. We are experiencing a pick up, reported 15, but another 12 saw no evidence of accelerating home equity lending.
Q33 to 36 sought letter grades A to F for 4 agencies based on the executive's evaluation of their overall performance over the past year. Fannie received a B, Freddie a B+, HUD/FHA a C+, and the CFPB a D+.
Do you deal with one or more of the mortgage cooperatives, inquired Q37? We do, said 16 of 28 executives responding.
Q38-41 focused on compliance/regulatory costs in the post-Dodd Frank mortgage market. For the group of 29 firms, the average multiple for which compliance costs have increased was 4.1 times, within a range of a 2-15 multiple; the average percentage of their firm's total operating expense driven by compliance was 24.8% in a 7%-50% range; the average cost added to a single mortgage loan due to regulations was estimated at $1,788 per loan inside a range of $250-$4,500; and 16 of 28 indicated that they expect loan production expenses will stabilize in 2017, but 12 other executives think expenses will rise modestly higher next year.
Q42-44 dealt with offshoring, CFPB audits and servicing compensation, respectively. Only 6 of 29 firms offshore at least some mortgage services, 12 of 29 have been through a CFPB audit and 12 executives think traditional servicing compensation levels should change vs 14 who prefer it remains at current levels (25 and 44 bp).
TRID was the topic of Q45-47. We wanted to know if the executives' firms were completely, 100% through the transition to TRID rules, if they found the requisite disclosures a significant improvement for consumers, and if the proposed changes added greater clarity to the rule. Seventeen of 29 respondents indicated they were completely TRID compliant and not experiencing any hiccups, 21 of 29 reported no improvement in the disclosures given consumers and 18 said no greater clarity resulted from the CFPB's proposed TRID changes released last August.
Q48-51 all involved the CFPB. Q48 focused on the recent changes to the consumer complaint database; Q49 wondered if lenders viewed TRID as another long-term liability for the industry; Q50 wondered if mortgage executives felt realtors operate with little liability concerning CFPB rules and regulations; and Q51 asked if all the new rules made the mortgage finance process safer for consumers. Among those surveyed, 18 thought the proposed changes added little clarity to the rule; 19 weren't particularly pleased with the consumer complaint database changes; 23 of 28 thought the TRID rules created a (legal) liability for mortgage banking. And yes, realtors are viewed as largely operating with impunity, said 25 of 28 executives answering that question. As for consumer protection, a mixed bag of responses: 14 thought the process was made safer for consumers, while 15 others saw no safer process (but a far more expensive one).
Is California's housing boom coming to an end, Q52 wanted to know? Again, a standoff response, with 14 executives saying it's ending and 13 others not so inclined. Q53-54 focused on Wells Fargo's cross-sell scandal. As for how bad for the bank, the group average was a 7.5 of a maximum of 10. The range was 3-10. Concerning negative fallout from the scandal on the industry, 16 said yes, there will be negative spillover effects, but 11 felt not inevitable.
Q55 wondered if the executives expected a spike in mortgage rates in 2017. Here 27 of 29 reported that mortgage rates were unlikely to jump by more than 50 or 75 bp next year. Does the country need a National Housing Policy director, questioned Q56? Indeed it does responded 23 of 29 executives. Q57 asked if consumers benefited from the CFPB's new servicing rules. Another dead heat, with 12 seeing the rules as a plus for consumers and 12 seeing no real benefit. Q58 wanted to know if TRID problems were (still) delaying loan closings. Sure are, said 22 executives, compared to 6 who reported no delays.
Q59 asked if their firms were adding IT staff to deal with all the new systems integrations taking place. Indeed they are, with only 1 of 29 indicating that IT employees weren't being hired to accommodate the myriad integrations of systems. Q60 wondered if all the new rules were requiring more time to clear their firm's warehouse lines. No, reported 16 executives (who mostly depend on in-house funding), but 10 others said yes, more time was required to clear lines.
Q61 asked if the recent ruling in the PHH case would cause the CFPB to both make clearer rules and simultaneously end its perceived policy of "rules by enforcement." All 28 who answered hoped this would happen, but only 16 responded yes, while 12 others thought the ruling would not have much effect on Director Richard Cordray's CFPB.
Q62 wondered if the widespread availability and understanding of FHA loans was slowing the adoption and use of the GSEs' affordable products, specifically HomeReady and HomePossible. The response drew a near tie with 15 reporting the availability of FHA loans has curbed use of the 97% products but 14 others saying FHA loans weren't slowing other affordable housing products.
Is technology mainly an expense or an investment, asked Q63? It's an investment (in the future), reported 20 of those surveyed vs 8 who thought it chiefly as an expense. Q64 wondered if the respondents wanted Fannie and Freddie merged, or if they felt the mortgage market was better served by multiple guarantors. Multiple guarantors are the route to go said 18 executives compared to another 10 who said merge ‘em.
With the market share of independent mortgage banks climbing sharply in recent years, Q65 inquired whether this upward trend would continue. It will, reported 19 executives, twice the number who thought IMB share wouldn't reach or exceed 60% in the next couple of years. Q66 inquired: will the traditional loan officer model fade away in coming years? Yes, said 17 executives vs 11 who weren't so sure of a much diminished role for LOs.
Q67 wondered if survey respondents favored ditching the Common Securitization Platform and replacing it with a Ginnie Mae platform for conventional loans. No go, said 24 of 28 executives, believing the CSP to be the better alternative. Q68 asked if the Republicans would hold the Senate following next month's elections. By nearly 2:1, those surveyed felt the GOP would maintain a Senate majority.
Q69 inquired as to the executives' firms' total originations in 2016. The mean for the group was $10.8B, with a range of $71 million to $200+ billion. The last question, Q70, wondered how those surveyed thought their firms would respond to a sharp (20% or greater) contraction in origination volume in 2017: would they cut overhead, merge their companies, make an acquisition, sell the firm or staff up and grow through the downturn. Seventeen executives said cut back overhead expenses, 5 felt acquisitions would be the strategy, and 7 said we'll hire and grow the company through the downturn. There were no merger strategies or sellers of firms.
There you have it, a brief summary of what was learned from the survey research project at the October MBA convention. My thanks to Tom Millon at CMC for sponsoring this year's lender survey of industry issues and topic. TSL Consulting focuses on survey research projects that benefit mortgage finance.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA Insights welcomes your submissions; articles should be of a general nature on the real estate finance industry. Inquiries can be sent to Mike Sorohan, editor, at email@example.com.)