Forecasting the mortgage industry is a dangerous game. The last 8 years have been a roller coaster. However, with the thrills and chills brought on by the housing crash and recovery came some pretty useful tools. Through technology and the concerted efforts of some of the brightest minds in United States, we are able to track expectations of loan performance, housing cost trends and personal income.
Independent mortgage lenders are expecting a wave of consolidation prompted by excessive compliance costs, a tepid housing recovery and the need for more capital to grow their businesses. Roughly 20% to 25% of independent companies could be eliminated or change hands in less than two years.
According to CoreLogic, the U.S. will enter an eighth consecutive year of expansion in the second half of next year. One noteworthy, negative point however is that dollar volume of single-family mortgage originations is estimated to drop.
It’s looking like next year will bring more of the same in housing, according to CoreLogic’s (CLGX) 2016 Outlook for Housing. “As we approach the start of 2016, the consensus view among economists is that economic growth will continue, and the U.S. will enter an eighth consecutive year of expansion in the second half of next year. Most forecasts place growth at 2 and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate,” said Frank Nothaft, senior vice president and chief economist at CoreLogic.
Nothaft predicts that housing can expect to see these five features next year:
- Interest rates will increase
Homeowners who have adjustable-rate mortgages or home-equity loans will most likely see a rise in their interest rate because the Federal Reserve is expected to raise short-term interest rates approximately one percentage point between now and the end of 2016.
Fixed-rate mortgages will also rise, perhaps up one-half of a percentage point between now and the end of 2016, reaching 4.5% for 30-year loans. Despite this increase in interest rates, mortgage rates will remain historically low.
- Household formations will significantly add to housing demand
More than 1.25 million new households will be formed in 2016 due to improvements in the labor market and lower unemployment rates. These new household formations will increase housing demand, specifically in the rental market.
- Rental homes will continue to be in high demand
Rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes—both apartments and houses—will likely continue in 2016, especially from new, young households.
- Home sales and home prices will likely increase
Not only is the rental market hot, but overall purchase demand may lift 2016 home sales to the best year since 2007. Nationally, home prices will likely rise at a quicker rate than inflation, but not at the same rate as last year. The CoreLogic Home Price Index showed a year-over-year increase of 6% in the last 12 months; however, 2016 is only expected to see increases of 4%-5%. This increase in home sales and home prices can be attributed to the improved economy, which has enhanced homeowners’ feelings of financial security.
- The dollar volume of single-family mortgage originations will fall around 10%
The single-family mortgage origination decline will occur even though home equity lending is expected to rise and originations of home purchase loans will likely rise about 10% in volume next year. The growth in those two areas will be offset by a 34% drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance. While single-family mortgage originations are expected to fall, multifamily originations will likely rise. This gain reflects the higher property values and new construction that adds to permanent mortgage usage.
Additionally, I would like to add my own predictions based on my personal experience this past year.
1) Most collaboration closing portals for TRID will fail, with only a handful being viable long-term solutions.
2) Current TRID requirements and the CFPB’s commitment to eClosings will drive lenders to implement a true eClosing process — sooner rather than later.
3) Because of QM, ATR and now the TRID MISMO 3.3 data requirement, many investors will push their post closing QC process to a more automated pre-closing QC process that ensures better data and document integrity, compliance and control.
4) Compliance will continue to be the most expensive and time consuming issue for both lenders and brokers.
Recently Compliance Ease, a provider of automated compliance solutions to the financial services industry, released an analysis of compliance defects for closed loans and estimated that the cost of correcting these errors is increasing the cost of origination, on average, by approximately $28 for every loan. The analysis was based on a cross-section of 700,000 audits that were performed in Compliance Analyzer and RESPA Auditor during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another 6 percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.
So, this industry clearly is struggling with compliance. I would suggest that a third party compliance monthly review of your company will provide a lot of peace of mind and will be worth the cost.