The Winds Of Change
Following what was arguably a shocker of an election, it is perhaps cliché at this point to say that the winds of change are poised to strengthen to a gale over the next four years for the mortgage industry. The big question, of course, is just how much of an impact might a Trump administration have on the mortgage market? The big variable, in my view, is the degree to which the new administration will seek to undo the regulation that was put into place as a result of the financial crisis. Will Trump seek to dismantle Dodd-Frank and the Consumer Financial Protection Bureau? And what of Trump’s proposed picks to head up the U.S. Department of Housing and Urban Development and the Treasury? The possibilities for the transformation of the mortgage industry under a Trump administration seem almost endless. It will, indeed, be very interesting to see what proposals are put forth over the next four years.
Meanwhile, all the industry can do is forge ahead under the assumption that the current regulatory framework will remain intact. Granted, any rollback of existing regulations will take time to implement, so these are changes that are expected to occur slowly, if they happen over the next four years at all. More immediate issues facing the industry are rising interest rates and an impending rate hike by the Fed, which, if it comes in December, will significantly weaken the refinance segment for at least several quarters to come.
As such, mortgage lenders will be almost entirely focused on the purchase market. In fact, the Mortgage Bankers Association (MBA) is forecasting that purchases will reach $1.1 billion in 2017, which is an increase of 11% compared with a forecast of about $900 million this year. Refinances, meanwhile, are anticipated to fall by about 40%.
The other major factor that will impact originations in 2017 is, of course, the job market and, more specifically, whether incomes will continue to rise along with the rest of the economy. In an update during the MBA’s annual Convention and Expo in Boston, Mike Fratantoni, chief economist and senior vice president of research and industry technology for the MBA, told the crowd of mortgage bankers and vendors that the MBA expects the “broader macroeconomic economy continuing to grow at the pace that we’ve seen during the past couple of years – somewhere in the neighborhood of two percent,” which, he said, is “fast enough to keep the job market improving.” Should Trump succeed in enacting policies to help stimulate job growth, the economy – and personal incomes – could improve rapidly, helping to fuel the purchase market.
Another factor that will continue to shape up the mortgage market in 2017 is the rise of the fintechs – the non-banks that have a strong focus on technology and on innovating the mortgage process – and whether those innovations have any impact in terms of stimulating the market. Now that non-banks have more than 50% of the market share, there is a question as to whether future regulatory changes will work for them or against them in terms of retaining or growing that share.
Sure, one can argue that the winds of change have always been upon the mortgage industry – it’s just that now, it’s going to get a little more gusty. Will the winds of change under a Trump administration blow the industry back to where it was in the pre-crisis days? Not a chance. It is far more likely that the industry will find itself sailing on a completely new ocean.