MBA: Purchase Volume To Reach $1.1 Trillion In 2017
Mortgage originations are forecast to reach about $1.63 trillion in 2017 – and although that is down from a forecast of $1.89 trillion for this year, purchases are anticipated to take up a much greater share of total originations, the Mortgage Bankers Association (MBA) announced during its recent Annual Conference and Expo held in Boston.
In fact, the 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 billion this year. Refinances, meanwhile, are anticipated to fall by about 40% in 2017.
“We are looking at the broader macro-economic economy continuing to grow at the pace that we’ve seen during the past couple of years – somewhere in the neighborhood of two percent,” Mike Fratantoni, chief economist and senior vice president for research and industry technology for the MBA, told the crowd of mortgage bankers and vendors during a conference session. “That’s fast enough to keep the job market improving. We think we’re pretty much at full employment now; we’re at about a five percent unemployment rate. We think that will get down to about 4.6 percent and then level out.”
He added, “Inflation is picking up at this point – fast enough where the Fed is likely to hike in December. It will likely hike a few times in 2017 and 2018, and slowly raise short-term interest rates until we get to about three percent, a few years from now.”
Fratantoni said mortgage bankers, however, should “not expect long-term rates to rise nearly as quickly.”
“If you look at what’s happening in the rest of the world, it is just steadily putting downward pressure on the long end of the yield curve,” he said. “This has been an advantage for the housing and mortgage markets, which are more focused on the longer end.”
In terms of volume, 2016 “has been a very good year,” he said.
“Obviously, the purchase market has evolved pretty much as we anticipated – about 10 percent growth from last year – and we think it will be well above $900 billion in terms of volume for the year,” he said. “We think in 2017, we’re going to see very similar growth; we’re going to see the highest number of purchase originations in over a decade; we think we’ll be at $1.1 trillion in just purchase volume alone.”
Fratantoni pointed out that mortgage rates dropped significantly in the first quarter because of concerns about the Chinese currency and dropped even lower in the second quarter due to the Brexit vote – each time, resulting in several “refi boomlets” that helped boost total refinance volume significantly.
But the trend is not likely to last into 2017, he said.
“We do think that refi volume is going to melt away fairly quickly,“ Fratantoni said. “Just in the past couple of weeks, as rates have ticked up about a quarter of a point, we’ve seen 10 percent drops in refi apps just about every week.”
Although the MBA is forecasting that purchases will drive a large share of the $1.6 trillion in volume for 2017, Fratantoni said it would not come easy – it is “going to be a long uphill climb.”
FHA’s MMI Fund Sees Strong Growth, But Instability Persists In HECM Portfolio
The Federal Housing Administration’s (FHA) Mutual Mortgage Insurance (MMI) Fund grew by $3.8 billion during its fiscal year ended in October and now stands at 2.32%, up from 2.07% last year, according to the U.S. Department of Housing and Urban Development’s (HUD) annual report to Congress.
It was the fourth consecutive year that the fund grew and the second consecutive year that the FHA’s reserve ratio exceeded the congressionally required 2% threshold.
Driving the growth was a significant increase in the economic net worth of the FHA’s forward mortgage portfolio, which grew by $18.3 billion to reach an overall MMI Fund net worth of $27.6 billion.
However, the report shows that there is continued instability in the FHA’s Home Equity Conversion Mortgage (HECM) program. The value of the FHA’s HECM portfolio fell $14.5 billion this year, due mainly, the FHA says, to changes in HECM modeling assumptions. For example, the HECM model was updated to include better estimates of the expenses and sales prices of defaulted HECM loans.
As the report shows, the HECM portfolio’s value has fluctuated wildly: In 2012, it had a net worth of -$2.8 billion; in 2013, it grew to $6.5 billion; in 2014, it fell back to -$1.2 billion; in 2015, it increased to $6.8 billion; and this year, it fell back to -$7.7 billion.
Meanwhile, the FHA’s forward mortgage portfolio has grown steadily, rising from a net worth of -$13.5 billion in 2012, to -$7.9 billion in 2013, to $5.9 billion in 2014, to $17 billion in 2015, and to $35.3 billion this year.
“FHA has come a long way since our housing crisis,” says Ed Golding, principal deputy assistant secretary for housing, in a statement. “With evidence that FHA’s fundamentals are strong and improving, there is no doubt that FHA is making steady progress accumulating capital and, at the same time, improving access to credit for working families.”
David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), says although the “FHA and its leadership should be commended for the steps they have taken to improve the value of the FHA MMI Fund for single-family mortgages since the economic crisis,” the MBA is concerned about “the continued volatility in the HECM book of business, which, this year, turned negative, dragging down the overall value of the MMIF.”
“Given the importance of FHA to low- and moderate- income and first-time home buyers, the next administration may want to look at accounting for the two programs individually in order to isolate the critically important forward book from the wild swings of the HECM fund,” Stevens says.
Stevens adds that should the FHA decide to move forward with a reduction in fees, it should do so cautiously because “today’s report again shows the vulnerability to the reserve fund posed by the volatility in the HECM book.”
“Given the HECM volatility and recent concerns about liquidity in the Ginnie Mae market, these discussions should occur with an eye toward long-term stability for the FHA program,” he adds. “We look forward to working with FHA to evaluate options that balance the need to ensure affordability for FHA borrowers, maintain actuarial soundness, and preserve stability in the Ginnie Mae mortgage-backed security and mortgage servicing rights markets.”
Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association, points out that the FHA has made numerous changes to its HECM program over the years – and it is these changes that have led to the fluctuations in volume.
“The overall positive fiscal year 2016 actuarial report shows the MMI Fund continuing on its upward trajectory to protect itself and taxpayers from volatility in the marketplace,” Bell says. “However, with new modeling and calculations of FHA’s reverse mortgage portfolio, the actuaries show a decline in the HECM capital ratio from 6.4 percent in fiscal year 2015 to negative 6.9 percent in fiscal year 2016, mainly attributable to losses on loans endorsed prior to substantial program changes that were implemented in 2013, 2014 and 2015. The policies, which were introduced to make HECM loans more sustainable for borrowers and to mitigate risks to the MMI Fund, include limits on upfront draws, changes to the structure of mandatory insurance premiums and new financial underwriting requirements of borrowers.
“While it is still too early to see the results of the changes, modeling and analysis completed earlier this year by Dr. Stephanie Moulton from the Ohio State University and others shows that the combined impact of the new policies should cut the risk of HECM defaults in half,” Bell adds.
Of course, keeping up with all of the changes to the HECM program has been lots of fun for the developers of reverse mortgage loan origination software.
“As an industry, we are reaching out to HUD to better understand how their accounting methodology works and what has changed,” says Jeffrey M. Birdsell, CMB, vice president of professional services for ReverseVision. “ReverseVision has implemented all the changes HUD has made to the structure of the HECM product, including support for financial assessment and non-borrowing spouses, all of which support the preservation of the MMI Fund. Eventually, the MMI Fund will reflect more loans that were originated under the revised guidelines as loans made under the older guidelines are paid off. We fully expect the HECM impact on the MMI fund to become more and more positive over time.”
Survey Shows Mortgage Lenders Feeling More Confident Heading Into 2017
Mortgage lenders have fewer concerns about regulatory compliance compared with one year ago, and technology is a big part of the reason why, according to the results of a survey recently conducted by Wolters Kluwer, a provider of document management, compliance and risk management solutions.
The firm’s annual Regulatory and Risk Management Indicator survey of U.S. banks and credit unions shows that concerns over regulatory compliance and risk management have abated somewhat for the first time in four years, when the survey first commenced.
Specifically, organizations have less concern regarding their ability to track regulatory changes, comply with regulatory requirements and report on compliance to regulators.
This is likely due to the fact that more lenders now have compliance technology and compliance management systems in place to safeguard against regulatory actions. It’s also partly due to timing: Many lenders have now successfully dealt with the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosures (TRID) rule – at least in terms of getting it implemented – and most seem to have a high level of confidence that they can handle the upcoming expanded reporting requirements under the Home Mortgage Disclosure Act (HMDA).
“After years of steady increases, the diminution in anxiety levels this year is most encouraging, suggesting that banks and credit unions feel they are more effectively managing their risk and regulatory requirements despite a regulatory climate that has not eased,” says Timothy R. Burniston, executive vice president of U.S. Advisory Services and Regulatory Relations, in a statement. “While the survey doesn’t measure why concerns have leveled off, a strong possibility is that respondents have been arming themselves with better tools, resources and programs to help navigate through the wide range of complex challenges they face.”
About 66% of respondents say they are concerned over their organizations’ ability to maintain compliance with changing regulations – down from 73% in 2015.
About 64% say they are concerned about demonstrating compliance to regulators – down from 71%.
About 63% say they are concerned about keeping track of changing regulations – down from 72%.
About 52% say they have anxiety about managing risk across all lines of business – down from 58%.
In other findings, there was about a 5% increase in organizations that report having “an integrated or strategic risk management program” compared with last year.
In addition, a majority of respondents – 78% – cite confidence in the ability of their organizations “to manage a regulatory change, such as TRID, HMDA or URLA.”
A nearly equal percentage of respondents – 77% – say they are “confident” in their organizations’ compliance management systems.
“While these are notable, positive changes from past results, we need to interpret these findings within the larger context of overall concerns expressed by respondents in managing regulatory and risk challenges facing their organization,” Burniston says, “especially given a regulatory environment in which the number of new regulations jumped 14 percent from 2015 and a supervisory enforcement climate where the amount of fines and penalties imposed increased 56 percent.”
To further illustrate this point, overall concern levels regarding new HMDA data collection requirements have dropped from 73% two years ago to 59% today, likely due to the fact that the content of the revised HMDA regulation has been released by the CFPB since that time.
But concern about implementing the new rules still elicits a relatively high level of angst. About 64% of respondents say they still have worries over accurately capturing new HMDA data fields – unchanged from 2015. About 45% of respondents cite staff training as “a major concern,” which is a 6% increase compared with last year.
Although 72% of respondents confirmed that their chief compliance officers have the ear of executive leadership, reporting directly to either the president/CEO or the board of directors, 33% cited inadequate staffing, another 26% cited manual processes, and 21% cited competing priorities as major obstacles to effectively implementing their compliance programs.
In addition, 70% of respondents say cybersecurity is among the top risks anticipated in the coming 12 months, followed by regulatory change management (38%) and, in a tie for third, fair lending and third-party risk (both 34%).
Regarding fair lending examinations, 41% perceived “modest to significant increases in regulator scrutiny,” whereas 29% felt regulatory scrutiny was the same as in 2015.
David G. Kittle Named President Of The Mortgage Collaborative
David G. Kittle, CMB, former chairman of the Mortgage Bankers Association, has been named president of The Mortgage Collaborative (TMC), an independent mortgage lending cooperative.
“The exceptional growth of TMC dictates we have an experienced mortgage professional at the helm,” says John M. Robbins, president and chairman for TMC, in a statement. “Engaged for more than 40 years in every aspect of our industry’s leadership, [Kittle] is uniquely qualified to take the Collaborative to the next level and beyond as TMC expands its lender member services into the secondary market and technology innovation.”
Survey: 70% Of Lenders Expect Mortgage Loan Production Costs To Rise In 2017
More than four out of five mortgage lenders plan to increase spending on automation technology to reduce loan production costs next year, a recent survey shows, and implementing the right technology is their top concern.
About 70% of mortgage lenders report that they expect total loan product costs to continue to rise in 2017, according to the survey conducted by Capsilon Corp. during the Mortgage Bankers Association’s recent Annual Convention and Expo, which took place Oct. 23-26 in Boston.
Surprisingly, only 7% of respondents report that they expect total loan production costs in 2017 to be “somewhat lower” or “significantly lower” than in 2016.
The survey, which polled more than 100 mortgage executives, reveals that more than nine out of 10 are “somewhat interested” or “very interested” in technology that automates key steps along the mortgage loan process.
In addition, about 86% of respondents say they expect to spend more on technology in 2017 versus 2016 to reduce loan production costs by enabling a digital mortgage process.
About 45% of respondents say automating key steps in their companies’ loan production processes is “most important”; 37% say automating both the consumer experience and the loan production process is equally important; and 15% say automating the consumer experience during the application process is most important.
Only 3% say their companies are not planning to enable a digital mortgage process.
“The survey results clearly indicate lenders expect loan production costs to continue to rise, and they are looking to technology to reduce costs with automation,” says Sanjeev Malaney, CEO of Capsilon, in a release. “In developing their digital strategies, lenders are right to focus on automating key steps in the loan production process, as this is where technology can deliver the speed, data integrity and cost savings they need to gain a competitive advantage.”
When asked what issues their companies are most concerned with, 73% of respondents say implementing the right technology; 51% say rising loan production costs; 36% say improving customer experience/customer satisfaction; and 16% say longer loan turn times.
Risk of regulatory penalties, hiring and retaining employees, and complying with the TILA-RESPA Integrated Disclosures rule were each cited by fewer than 10% of respondents.