Roundtable Sees Some Light at End of the Mortgage Tunnel
A strong sign that the housing market is improving was seen just looking at the attendance figures from the Mortgage Bankers Association’s annual convention in Chicago.
According to the organization, registered attendees were in the 3,500 range. But the halls of the Hyatt Regency were packed with plenty of unofficial convention participants. Plenty of new products and services were introduced at the meeting and a fair amount of them were on the origination side of the ledger, not just the servicing/real estate owned part of the business.
But behind this backdrop was plenty of uncertainty. The election was a centerpiece to the conference. And, of course, there is the expected rush of rulemaking to come from the Consumer Financial Protection Bureau.
National Mortgage News invited a panel from various segments of the mortgage industry to discuss where they see the future of the business going.
Joining moderators Mark Fogarty, editorial director, and Brad Finkelstein, associate editor, were Jeff Taylor, co-founder and managing partner, Digital Risk; Dan Thoms, executive vice president, AllRegs; Bob Simpson, president, IMARC; Mary Kladde, CEO, Titan Lenders Corp.; Ruth Lee, executive vice president, Titan Lenders Corp.; Kevin Stitt, president and CEO, Gateway Mortgage; Daniel Jacobs, president, retail branching for Residential Finance Corp; Garth Graham, partner, Stratmor Group; Jennifer Creech, CEO, InHouse Inc.; and Brian Coester, CEO, Coester VMS.
FOGARTY: The health of the mortgage business depends so much on the purchase market, rather than the refinance market. When does anybody think that there’ll be a robust purchase market again? How soon?
SIMPSON: I looked at the MBA statistics recently and I think (chief economist) Jay Brinkmann has the numbers going from $400 billion to a little over $600 billion in 2013. That’s a 50% increase. Contrast that with Jay’s projections for refis that are supposed to go from a trillion to a little over $400 billion. So you’ve got this swing, a 60% decrease versus a 50% increase. Now home building is up, some of the other sales are up, but I’d be interested to know from the group where’s that 50% increase in business coming from? I’m not quite sure where a 50% in purchases is—what’s the genesis of that?
JACOBS: I think there’s a lot of pent-up demand, particularly for first-time homebuyers who haven’t been participating in the homebuying process over the last several years. In many markets we’re seeing inventory decrease and so we actually are expanding our market share of purchase business because we believe that that is going to be the source of the majority of our business for the next five years. So in our company, we’re moving from a refi model to a purchase model, specifically because of the significant decrease in refis. But I think there’s going to be even a healthier purchase market than what the MBA has been predicting over the next couple years.
THOMS: To me the answer, Bob, is the small independent bankers. The MBA application statistics said 83% refi as of the last month. But when I look at customers and I bring them in and we’re talking to them about what they’re doing and what they’re not doing and what’s working and what’s not working—I was with (an AllRegs customer) last night. They have 43 loan officers and they’re just very focused on the purchase business. It’s they’re just very focused on getting new customers and walking the streets and going and visiting, bringing in customers the old way that folks did by with meeting with Realtors. And they’re doing all the things that we all think we should do in those sales meetings when we’re teaching sales people how to garner new business.
FOGARTY: The new home sector has been the worst hit of the bunch. Obviously new home purchase involves construction and it involves trips to the retailers and stuff like that, as opposed to a refi. It generates a lot more economy. So you’re saying that new homes are—you think they’re coming back? I mean they’re recovering some?
JACOBS: I wasn’t necessarily referencing new home building. I think there’s also a lot of shadow inventory of existing homes that we haven’t really seen come to the market. That as we see more demand for home purchases, and we start to see more sustained increases in prices, I think a lot of homeowners will go ahead and put their homes on the market. But at the same time, we have seen housing starts increasing and anytime there’s a need for inventory, the builders are certainly going to take advantage of that opportunity. And so I think we will see a balanced delivery to the market of existing homes and new home starts.
COESTER: About 70% of the appraisals we do are purchase because we really focus on that purchase market. And it’s really something where it is very regionalized. I’ll give you an example—Silicon Valley. About 70% of the homes purchased in Silicon Valley are under contract within 14 days with multiple offers. You live in Las Vegas, where about two years ago there was a 24-month supply of homes on the market in Vegas. Now there’s a one-month supply, and that’s a tremendous decrease over two years. Not everywhere is like that though, so you’ve got regional markets where you see in the D.C. area, things are fairly well, you see a pickup, there’s a lot less inventory. In Los Angeles, there’s a lot less on the market, but then also in other areas like the supporting cities, you’ve got a lot of inventory. Just thinking about the shadow inventory. Banks I think have done a decent job of releasing these slowly versus just flooding the market with them all at once, which has helped. But at the same time, new construction, they’re not building that much. So it’s hit or miss. The national trend stuff’s great, but it’s very regional as far as purchase, refi and where there is demand.
KLADDE: I think job growth is going to have to need to be established in order for people to feel comfortable diving back into the market. And while we’ve seen—we’re out of the Denver area and we do services nationally—we see the prices of homes are starting to inch up, but people are still reluctant to dive in and purchase a home. Now I think keeping interest rates lower is also going to contribute to the continued maybe optimism. Bernanke came out and said that he wasn’t going to do anything until 2015. So I think that excites the mortgage industry.
TAYLOR: I think you hit on a great point, interest rates. If I can now buy a $400,000 house at 3.5% interest, that’s pretty much the same as I’m going to pay in rent right now. We’ve got a lot of first-time homebuyers coming out and saying, “You know what? If I’m going to pay the same thing, I’ve 800, 750 FICO score, I haven’t made the mistakes in the past and the cash flow is the same, I’m going to go ahead and take advantage of this one-time, this one-time economy, this one-time opportunity and really get into the purchase market.” So I think that’s going to drive a big part of the 2013 purchase market.
FOGARTY: That obviously would be a conforming product?
FOGARTY: So the other part of a healthy business, people don’t like to hear this is the nonconforming, which obviously is going away, jumbos have gone away. Barely, this is, one guy who securitizes them, right? But when is that market going to come back?
FINKELSTEIN: As it happens, our two participants from Titan Lenders Corp. just announced they were starting a jumbo purchase business.
LEE: Yes, we’ll be buying jumbo. And I think that overall, if you look at any of those markets, one of the things that Mary said that I think is really important is consumer confidence. It’s an entirely subjective idea. It’s really predicated on a perception, rather than—and sometimes it’s based on reality and sometimes it’s not. I think that everybody was really tired of being the last rat on a sinking ship. And I mean as the market kept diving down, you didn’t want to buy a house that in three weeks was going to be worth even a half a percent less. And so if you’re looking a new house, you wanted it to be right size, I mean it’s one of your largest investments. You want to make sure that the value is there for the house that you’re buying. And even in the jumbo market, as we’re looking and there’s an enormous appetite, small banks and community banks have an enormous appetite for that in terms of portfolioing those loans and there’s a huge need. And they’re very high-quality, high-credit loans. And there’s nothing that’s going to be weird about them. I mean nobody’s interested in the interest only. You don’t even have to go there and the appetite will be there. And we see a place in the market that’s going to be there, but to your point, I mean I think consumer confidence is really going to drive the purchase market into the next couple of years. If it’s there, you’re going to see purchase business go up. If it’s not there, you’re going to see it stay around right where it is. And interest rates and all of the rest of it will support that sense, but nobody wants to buy a house that’s going to deflate in value. That investment is bad investment.
(First of two parts.)