4 Trends That Impacted the Mortgage Industry in 2018
By Scott Henley
April 8, 2019
Scott Henley is Chief Production Officer of Gateway Mortgage Group, Jenks, Okla., a full-service mortgage company licensed in 40 states and the District of Columbia. He is responsible for overseeing all strategic initiatives that drive mortgage volume across the organization. Henley leads sales and operations functions for both retail and correspondent lending.
Prior to joining Gateway, Henley was a leader in Bank of America's Correspondent Lending Division, responsible for business development and driving revenue within BofA's correspondent clients consisting of banks, credit unions and independent mortgage bankers.
Every passing year brings change to the mortgage industry, and each year seems more interesting than the last. As 2018 moves further behind us, there are key trends to reflect on that impacted--and will continue to impact--the mortgage industry.
Though the U.S. economy continued to strengthen throughout 2018, the mortgage industry faced increasing challenges related to rising interest rates, margin compression and compliance requirements. Along with these challenges also came new technological innovations that simplified processes and improved the customer experience, helping to position mortgage lenders more competitively in the future.
Here is a recap:
1. Rising Rate Environment
Interest rates continued to rise in 2018. According to Mortgage Bankers Association's recent survey, in 2018 the 30-year fixed-rate mortgage interest rate rose to its highest level since 2011, topping five percent. In December, The Federal Reserve jolted markets for the fourth time within a year by raising its benchmark interest rate again.
The Fed recently announced that it plans to slow rate hikes in 2019, so the story may be different this year. Last year, however, loan officers were mainly concerned with this rising rate environment and its effects on home sales. As seen in the past, borrowers are highly sensitive to wavering interest rates. Any change, whether big or small, is enough to alarm loan officers. As rates go up, consumers perceive that their house payments are also going to go up. When consumers are anxious about rising payments, fewer enter the housing market with the intent to buy. Additionally, as interest rates rose, some interested borrowers were no longer qualified. A quarter of a percentage increase can make some prospective borrowers ineligible.
Effectively, the rising rate environment forced many mortgage office closings and staff layoffs. Among the many companies making headlines last year for layoffs were Wells Fargo, which eliminated 638 mortgage jobs, and JPMorgan Chase, which cut 400.
2. Margin Compression
Margins compressed across the board in 2018 as a result of the rising rate environment. As interest rates continued to rise, the number of interested borrowers decreased. Mortgage lenders tried to compete for the reduced loan volume by cutting margins. The increased competition resulted in decreased profitability.
Lenders were pricing loans lower and lower based on competitors, resulting in margins that were nearly impossible to make a profit on. As lenders priced loans below their threshold of profitability, it no longer mattered whether they beat out their competitors or not, because they were in turn putting themselves out of business.
In fact, according to the Mortgage Bankers Association's Quarterly Mortgage Bankers Performance Report of Q3 2018, only 59 percent of mortgage bankers were profitable. Lenders found themselves bailing out and consolidating.
As the mortgage industry faced economic challenges, additional issues with compliance arose. Mortgage lenders attempted to be creative and discover new tactics to help drive business and increase margins. As they stepped out of their comfort zone, they also had to pay close attention to risk and ensure all investments were up to compliance standards.
Advancements in technology also brought challenges to compliance. New technology practices brought risk, but so did failing to innovate. Analyzing new technologies and processes to ensure compliance is being met is critical.
Additionally, it was (and still is) critical that organizations have a strong compliance sector that could fully comprehend rules and regulations and how to apply them in daily operations. It was important to monitor how much compliance risk a company presented and to conduct internal auditing and testing to ensure that adequate compliance controls were in place.
In previous years, lenders played catch up and established robust compliance systems only after the need presented itself. Last year, federal and state regulators continued applying pressure to all aspects of lending, heightening the mortgage industry's need for skilled compliance professionals.
4. Technology and the Consumer Experience
While past year saw its fair share of challenges, there were also many advancements, particularly those focused on reducing the number of touchpoints and enhancing the borrower experience. The mortgage industry has moved beyond paper forms and emailed documents. New tools, such as digital lending platforms and machine learning, made it easier for lenders to guide borrowers through the origination process and discover new opportunities.
Last year it took an average of 44 days to close a mortgage. In an effort to reduce that number, many lenders began moving toward online originations. Companies that began offering digital lending platforms were able to reduce this process to 30 days. By offering customers faster closing and increased insight into the process, lenders that leverage digital platforms create a more convenient experience for borrowers while also lowering costs.
Beyond speeding up the loan application process, technology also allowed lenders to use machine learning to verify and track information, resulting in other cost savings, more affordable loan fees and a better consumer experience altogether.
As digital lending increased, so did the voice of the consumer. Consumers were able to redefine what "digital" meant to them, how it impacted their buying decision and how they chose to interact with their lender. Consumers are using multiple channels and methods, which they expect to be interchangeable. This has become an expectation lenders were forced to deliver on or risk losing business. This trend will continue as both technology and consumer expectations evolve.
There is no denying it--the 2018 mortgage lending environment saw challenges and advancements; however, the lessons learned from the challenges faced will continue to propel the mortgage industry forward. With many new developments and much to look forward to in the future, it's important for lenders to maintain their focus on consumers, who have a heavy hand in driving positive change.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)