Wednesday, June 26, 2019

MBA Secondary Market Conference Survey Scorecard

By Tom Lamalfa
June 3, 2019

MBA National Secondary Market Conference
Tom Lamalfa

TomLamalfa(Tom Lamalfa is a 40-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

2019 MBA National Secondary Conference Survey Results
1. Do you expect mortgage rates to be higher, lower or unchanged at yearend? H-6 / L-4 / UN-16
2. Do you expect aggregate origination volume in 2019 to exceed last year's? Y-15 / N-11
3. What percent of your YTD origination volume is purchase business? 77%
4. What percent of your YTD origination volume is conventional? 65%
5. What percent of your YTD origination volume is government insured? 25%
6. What percent of your YTD origination volume is non-agency jumbo? 13%
7. What percent of your YTD origination volume is non-QM? 3%
8. Is your firm's 2019 production volume up, down or flat versus last year's? U-11 / D-6 / F-8
9. Do you expect your FHA origination volume to exceed last year's? Y-6 / N-16
10. Do you expect your non-QM origination volume to exceed last year's? Y-9 / N-16
11. Are you doing more high LTV and high DTI lending this year than last? Y-14 / N-3 / S-9
12. What percent of your firm's conventional production is over 80 LTV? 43%
13. Have underwriting standards drifted lower in recent years? Y-21 / N-4 / UN-1
14. What was your firm's total origination volume in 2018? $18.4 B mean/$4.8 B median
15. In how many production channels does your firm operate? 2.4
16. Does your firm run a warehouse operation? Y-8 / N-18
17. Are your firm's operating expenses up year over year to date? Y-11 / N-10 / Un-5
18. Are your firm's operating revenues up year over year to date? Y-11 / N-12 / Un-3
19. Will the industry's origination profits be better this year than in 2018? Y-13 / N-13
20. How much overcapacity exists in the mortgage banking industry today? 16%
21. Will your firm be retaining, selling and/or buying MSRs in 2019? R-4 / S-5 / RB-8 / RS-9
22. What percent of your MSRs are sold? 42%
23. Scaled 1-10, what is your assessment of Freddie Mac's Loan Advisor Suite? 1-10 7.4
24. Scaled 1-10, what is your assessment of Fannie's Day One Certainty initiative? 1-10 7.6
25. Which has higher priority at your firm: reducing origination costs or improving the borrower's experience? RC-13 / I Ex-13
26. How will the Single Security change your secondary market decisions? More Fr-4 / Fa-0 / NC-22
27. Which GSE provides better support for third-party originators? Fa-8 / Fr-6 / S-12
28. Which GSE better supports you with adoption of technology innovations? Fa-4 / Fr-12 / S-8
29. Where will you invest more of your technology budget? LM-24 / SM-0 / Serv-2
30. Should the black boxes of DU and LP be opened to public review and scrutiny? Y-9 / N-17
31. Do you favor further alignment of GSE programs, policies and practices? Y-17 / N-9
32. Are phone apps changing the way your firm interfaces with the GSEs? Y-6 / N-20
33. Should Fannie and Freddie be consolidated and merged into one? Y-4 / N-22
34. FHFA Director Calabria wants to privatize the GSEs. Concur? Y-18 / N-8
35. Was Mark Calabria a good choice for FHFA director? Y-16 / N-2
36. Do you favor privatizing Fannie and Freddie but leaving each independent? Y-15 / N-11
37. Do you favor the GSEs involvement in the financing of MSRs? Y-4 / N-21
38. Should the FHFA and GSEs develop a new credit scoring model? Y-9 / N-17
39. Are you looking forward to the debut of the Single Security? Y-22 / N-3
40. Will the debut of the Single Security provide the market with greater liquidity? Y19 / N-5
41. For overall performance the past year, what letter grade would you give Freddie Mac? B+
42. For overall performance the past year, what letter grade would you give Fannie Mae? B-
43. For overall performance the past year, what letter grade would you give Ginnie Mae? B-
44. For overall performance the past year, what letter grade would you give FHA? C+
45. For overall performance the past year, what letter grade would you give the FHFA? B
46. How satisfied are you with the pace of innovation in your LO platform? 1-10 5.3
47. What percent of your closings use e-Notes? 1.6%
48. Has your firm reduced staff in 2019? Y-15 / N-11
49. Given employment & the economy, are you surprised the mortgage market isn't stronger? Y-16/N-12
50. What's slowing purchase production: interest rates, inventories or affordability? R-0 / Inv-14 / A-12
51. Scaled 1-10, how serious a problem is high house prices? 7.5
52. Do you expect house price increases to exceed inflation this year? Y-19 / N-7
53. Is now a good time for the average consumer to buy a house? Y-21 / N-5
54. Any reason to expect another mortgage market meltdown in the next several years? Y-7 / N-19
55. Should the so-called "DTI patch" be extended to 2021 and beyond? Y-17 / N-9
56. Has U.S. housing policy been a success for all Americans the past several decades? Y-6 / N-20
57. In general, are the big banks throwing in the towel on mortgage banking? Y-9 / N-16
58. Are market conditions ripe for a return to mortgage brokering and wholesale? Y-22 / N-4
59. Do you expect Zillow to "crash and burn" in the next several years? Y-6 / N-20
60. The FHA tightened underwriting standards on 18 March. Good decision? Y-24 / N-2
61. Is the industry over the hump in terms of new regulations? Y-20 / N-4
62. Were you surprised that Quicken's latest debt issue was rated non-investment quality? Y-14/ N-9
63. Grade PMI "black box" pricing tools oNan: providing lower prices for borrowers; providing clarity on risk & pricing; on streamlining the origination process? A-F C+

Report of Survey Findings
To those of you receiving this report for the first time, greetings. My name is Tom LaMalfa. I've been doing research in the mortgage banking sector since the late 1970s.

The following report was written from the 26 interviews I conducted face to face with senior mortgage company executives from an equal number of companies in New York City at the MBA National Secondary Market Conference May 19-22. The surveys, conducted twice annually and have been for more than a decade, are designed to capture facts, thoughts, opinions, attitudes and expectations of two dozen plus mortgage executives in the hope of capturing the thinking of an industry on a battery of questions concerning their firms and the broader lending community. That's the goal, anyway.

Responses to the survey are from a panel of experts assembled over the decades. All are veteran executives at major mortgage companies. Many are former clients while others are business associates connected through the MBA.

This report shares what was learned when 63 questions are put to 26 execs.

This survey's history, purpose, methodology, survey group, questionnaire and sponsor will follow the report of findings. Also included is a brief overview of what I picked up on talking with folks apart from the surveys.

Readers are encouraged to follow along using the Scorecard, as some questions are grouped along a topic or issue and therefore not singled out individually.

Survey Responses
Q1 asked if the executives expect mortgage interest rates to be higher, lower or unchanged at the end of 2019. A large majority, 16, expect no change compared with 6 who expect higher rates and 4 expecting rates to decline. Q2 wanted to know if 2019 will be a better year in terms of aggregate volume compared to last year. A modest majority of 4 expect a better year this year than in 2018.

Q3-7 asked what percentage of their YTD volume was: purchase, conventional, government insured, non-agency jumbo and non-QM. The respective shares were 77% purchase, 65% conventional, 25% government-insured, 13% non-agency jumbo, and 3% non-QM. The ranges were 60-100%, 20-100%, 1-80%, 0-75% and 0-35%, respectively. The modes were 65, 70, 30, 5 and zero.

Q8 asked if 2019's production volume was up, down or flat versus 2018's first 4 months. Nearly twice as many executives reported higher rather than lower volume during this period, while 8 others reported unchanged volume. Q9-10 wanted to know if FHA and non-QM volumes were expected to grow this year. Only 6 of 22 expect stronger FHA lending, while 9 of 25 expect higher (very modestly higher from a low base) non-QM originations. As for doing more high-LTV and high-DTI lending this year than last, Q11 reported 14 executives responded yes, nine noted no change, and 3 were doing less. Q12 wanted to know what percent of their conventional business was over 80 LTV. The average percentage among the firms was 43%, the range was from 15-80%. The modes were 20 for banks and 70 for IMBs.

Given the responses to Q8-12, Q13 wondered if underwriting standards had drifted lower in recent years. No doubt they have said 21 executives, compared to four who saw no such drift. Q14 sought each of the 26 firm's origination volumes for last year. The mean among the 26 firms was $18.4 billion in originations in 2018. The group's median was $4.8 billion. The median for banks was $3.1 billion and $7.0 billion for IMBs. In how many channels does your firm produce mortgages, asked Q15? The average was 2.4. Three of the banks and three of the IMBs were retail-only shops, but four of the IMBs produce in all four channels versus no banks. Q16 wanted to know if their firms owned and operated a warehouse bank. Of the 26 firms, eight have warehouse operations while more than twice as many don't.

Q17-18 inquired about operating expenses and revenues year over year to date. Were they up or down? Eleven firms reported being up in both expenses and revenues, 10 reported lower expenses, 12 reported higher revenues and five and three, respectively, reported no change in expenses or revenues. Q19 asked if industry profitability would be better in 2019 than it was last year. Here it was a perfect standoff: 13/13. As for overcapacity in the industry, meaning too much supply versus demand, the average for the 26 firms in Q20 was 16%, in a range of zero to 30%. The modes were 20% for banks and 10% for IMBs. Q21 and 22 ask about MSRs--first whether they are being retained or sold, then what percentage are being sold. Twenty-one of the firms retained some or all of what they produced and/or acquired. Another five of the 26 sold all their servicing. Whether retained or sold, the range was from zero to 100%. On average, 42% of the MSRs produced or acquired were sold (in one form or another). Interestingly, both banks and independents sold near identical portions, 42% and 41% respectively.

Q23 and 24 asked about Loan Advisor and Day One Certainty. The executives were asked to assess each technology initiative using a 1-10 scale, the higher the number the better. Freddie and Fannie were nearly identical, 0.1% on either side of 7.5. (How surprising is that?) Q25 inquired about picking priorities--namely which has higher priority at their firms--cost reduction or improving the borrower's experience. After being told numerous times that the two choices were tough to separate, the breakdown of choices was dead even, with 13 saying cost reduction was paramount and 13 choosing improving the borrower's experience.

Most of the next eight questions dealt directly or indirectly with either Freddie Mac or Fannie Mae. Q26 asked how the introduction of the Single Security would affect their secondary marketing decisions. It won't change anything, said 22 execs, with the remaining four indicating its introduction would send more business to Freddie. Q27 and 28 wondered which GSE offered better support for TPOs and then technology innovations. Fannie and Freddie came in nearly even in terms of their support of TPOs with 12 executives reporting that both GSEs provided them with good support. As for technology innovations, Freddie got three times more nods than Fannie, with eight others suggesting no difference between them. Q29 asked where most of their firm's technology budget would go over the next year, among three choices: loan manufacturing, secondary market, or servicing. Loan manufacturing stole the show, capturing 24 of the 26 responses. Q30 wanted to know if the executives thought the "black boxes" of LP and DU should be revealed. Nearly twice as many said don't open the underwriting systems to public review and scrutiny, than those who favored disclosure.

Q31 asked whether the executives favored further alignment of GSE programs, policies and practices. Here nearly twice as many favored better aligning the GSEs. (The Single Security should assist in this.) Q32 asked if phone apps were changing the way their firms' employees interface with Fannie and Freddie. Compared to the number saying yes, more than three times that said no they are not changing the way people connect. Should Fannie and Freddie be consolidated and merged into one firm, asked Q33. No, said more than five times the number favoring consolidation. Q34-35 asked if the executives concurred with FHFA Director Mark Calabria's desire to privatize Fannie and Freddie. In concurrence they are, with more than twice the number agreeing than disagreeing with the director on the goal of privatization. Q35 inquired whether the very, very new director was a good choice. He is a good choice said 16 of the 18 responding to the question, while the balance said they weren't close enough to render an opinion. Q36 asked if they favored privatization but leaving the two GSEs separate and independent. Independence is favored by a majority of four, with 15 favoring privatization and independence and 11 disagreeing with one or both privatization or independence.

Q37 inquired whether the executives favored GSE involvement in the financing of MSRs. No we don't, said 21 of 25 respondents. Q38 asked if a new credit scoring model was needed. Not needed, said about twice as many as those favoring a new model. Q39 and 40 dealt with the Single Security, specifically if they were looking forward to its debut (in June) and if they thought it would increase the mortgage market's liquidity. By wide margins the executives are both looking forward to its advent and think it will further improve liquidity.

Q41-45 sought grades for each of five agencies based on the executive's view of the overall performance of each in the past year. Freddie, Fannie, Ginnie and FHFA received grades of B and the FHA received a C grade. As for grades of A, the executives handed out precious few, four to Freddie and three to Fannie. (Tough graders.)

Q46 wondered if their firms' LOSs were flexible enough to integrate innovations. To determine this, the 1-10 scale was employed. The average response was 5.3, within a range of 1-9 and a mode of 7. Q47 asked about e-Notes and their use in closings. Not yet was the answer, in which the mode was zero and an average of only 1.6% of the group's business used e-Notes at their closings. Q48 asked about staff reductions this year. There were cuts in personnel this year at 15 firms, while the other 11 made their reductions in 2018.

Q49 asked the execs if they were surprised that mortgage activity wasn't even stronger given current (high) employment levels and a still growing economy. Surprised we are, said 14 compared to 12 who saw less inconsistency in the correlation between housing and the economy and therefore were less surprised. Q50 wanted to know which of three factors was curbing house sales the most: interest rates, (low) inventories, or affordability. Supply and affordability are clearly the key inhibitors, accounting for all the responses. Interest rates apparently are not the culprit slowing house sales. Market demand is there (thanks in no small part to leverage).

Q51 asked how serious a problem high house prices is on a scale of 1-10. The response garnered an average of 7.5 inside a range of 5-10. The mode was 8 for both banks and IMBs. Q52 asked if house price increases would (again) exceed inflation. Indeed they will, responded nearly three times as many with ayes as nays. And is now a good time for average (income) consumers to buy a house, Q53 inquired. It is a good time to buy--unless you're located on the coast--said more than four times as many as those who disagreed. Q54 wondered if a mortgage meltdown was expected in the next several years. Nearly three times as many executives said no than yes. Q55 asked whether the so-called "DTI patch" that expires at year end 2020 should be extended. Yes, it should be said about twice the number thinking it should not be extended.

Q56 wondered if the executives considered that U.S. housing policy has been a success for all Americans the past several decades. More than three times as many thought housing policy has failed at least some Americans. Q57 inquired if the executives saw banks giving up on mortgage banking. They are not said 16 of 26, compared to nine who thought it looked like banks were quitting or seriously downsizing the business. Q58 asked if more growth was seen for mortgage brokering and wholesale. A super strong majority saw growth ahead versus four doubting Thomases. Q59 asked if Zillow was expected to "crash and burn" in the next several years. Unlikely, with more than three times as many executives thinking Zillow was on safe ground, not accident prone.

Was FHA's decision to tighten underwriting standards on March 18 a correct and wise decision, asked Q60? Indeed it was, said 24 executives, with only two dissenters. Q61 asked if the regulatory environment was largely safe ahead. Five times more executives suggested that the weight of new regulation was past. Was Quicken's non-investment grade rating (from Moody's and Standard & Poor's) on its latest debt issue a surprise,  asked. It was said 14, while nine others weren't especially surprised by the ratiQ63ng.  sought input on the question of the new pricing tools the major private mortgage insurance companies were now offering. The new service received an average grade of C+ from the 21 executives who felt they could offer an assessment. Some factors the assessment was based upon were graded higher than others.

So there you have it--what I learned from interviewing 26 executives from my panel of experts at last month's MBA National Secondary Market Conference. In the next section, the focus will turn to the purpose, history, methodology, panelists, questions and sponsor of this Survey Report. Finally, a few words about the mood and tone of those I met with, other non-survey conversations, a committee meeting, and two (partial) sessions attended between survey meetings.

Survey Background
This is the 22nd time since 2008 that this survey has been conducted, distributed and published. It is conducted at the MBA National Secondary Market Conference and again each October at the MBA Annual Convention.

The survey's purpose is to ascertain the answers to a broad array of diverse queries. Questions are largely gathered over the six months preceding the conference. Several others are solicited.

Many are always asked. Topics range from production data to business expectations, the GSEs, market issues, risk and more. My meetings were arranged in the weeks before the conference. The individuals interviewed included five Presidents, six EVPs, six SVPs and nine VPs. A majority represented capital markets but others surveyed worked in operations, finance and, of course, production.

The survey group consisted of 13 mortgage companies owned by depositories--11 banks and two savings banks--and13 independently-owned companies. Firm sizes ranged from small (under $1 billion) to gigantic. The IMBs included various forms of ownership: homebuilder, private, hedge fund, private equity and realtor-owned companies. There are retail-only shops and others operating in two, three or four production channels.

Conference Takeaways
Although doing the surveys took almost every hour of the conference, I attended the Secondary and Capital Markets Committee for the umpteenth time, heard much of Dr. Mohamed El-Erian's presentation and listened to FHFA Director Mark Calabria's talk.

The committee's agenda was on priorities at the GSE and Ginnie Mae. MBA President Bob Broeksmit provided an update on the upcoming conference, discussed the arrival of the UMBS, and talked about what's on MBA's plate, especially GSE reform. An update on MSRs was also provided.

Dr. El-Erian was brilliant in providing a global perspective on world affairs from a world traveler and renowned economist. He discussed two major turnarounds, one about the change in Fed policy since late 2018 and the other the turn in global growth expectations. Five reasons for the shifts were offered and discussed. Dr. Calabria outlined his goals at the helm of the agency that oversees the GSEs. He appears to believe that change will come to Fannie and Freddie through a combination of administrative and legislative actions.

Unlike the more somber mood at last October's convention, the spirit at the conference was quite upbeat. After a weak Q4 and first two and a half months in 1Q19, the spring purchase market started popping, encouraged by lower interest rates and modestly larger inventories of houses for sale. Softer mortgage rates also brought back some refinance activity.

So, full speed ahead and damn the torpedoes. Hope to see you in Austin for the MBA's Annual Convention, and thank you Fannie Mae for your sponsorship of this survey.

(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; or Michael Tucker, editorial manager, at

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