Panel Sees Changing Role for GSEs and Servicers
Fannie Mae and Freddie Mac are not likely to regain their former dominance over the secondary mortgage market, a blueprint for the future prepared by a blue-ribbon panel of lending industry leaders suggests.
The Council to Shape Change also believes that elimination of the mortgage interest tax deduction would have its major impact on people who already own homes but would not substantially alter the playing field for future homebuyers. "There would not be a fundamental change in the manner in which borrowers finance the purchase of a home," the committee says in a wide-ranging report entitled "Outlook for the Real Estate Industry" distributed last week to members of the Mortgage Bankers Association.
The 182-page tome is the product of six months of meetings, deliberations and free-wheeling debate among the 19 members of the council who were appointed last October by MBA chair Regina Lowrie to help prepare the association and its member-businesses for the changes they will be facing over the next five to 10 years.
"This is not a policy document. It has nothing to do with policy," said the council's leader Andrew Woodward, the retired chairman of Bank of America Mortgage and a former MBA chairman. "We are simply forecasting how things might shake out." Mortgages are no longer a standalone product but rather an important part of the financial services industry, the section in the Executive Summary called "Convergence" says.
"Borrowers increasingly will view their mortgage as one of a number of financial products they consume," it says. "Investors increasingly will view mortgages as one of a number of fixed-income investments they hold."
But because borrowers and investors both have access to a growing array of lenders and products - and "are more willing to choose innovative products and companies that match their needs" - the concept of "owning the customer" will prove to be a faulty premise, the report suggests. In addition, the council believes the private-label market for both residential and commercial mortgages will continue to grow significantly, regardless of what lies ahead for the GSEs.
Fannie and Freddie will continue to focus on long-term, fixed-rate products, and will rise to the occasion whenever there is a shock to the economy. But whenever the market drifts away from the GSEs' "sweet spot," the private-label sector's share of issuances will increase.
Going forward, the report warns that more fresh and novel products will be required to meet the needs of the well-documented influx of new borrowers - mainly immigrants but also aging baby boomers and tech-savvy young homebuyers who will not only "force the industry" to come up with new products but also to alter their processes, channels and workforce."
"The real estate finance industry is a bridge between borrowers and investors," the report says. "Real estate finance customers - both investors and borrowers - will demand increasingly specialized products."
That includes servicing, according to the 19 industry soothsayers, who note that while separate programs will be needed to service the highly customized products that will be devised, it could be a decade before loan administrators will be able to jettison their monolithic legacy systems. At the same time, the council points out that servicing is a changing business and that servicers "are undergoing a change in mindset."
"Servicing is increasingly being viewed as a profit center, not just a cost to be minimized," the report says. "There are significant opportunities for servicers to build on their relationship with the borrower, treating the servicing group as another organization to build on their relationships."
On the mortgage interest deduction, the industry prophets say that if the cherished write-off is curtailed without any other changes in the tax code, the likely impact would be a change in home values, particularly in high-cost, high-income states like New York and California.
But if the benefit were to be phased out in combination with other changes that would be favorable to the economy - a significant reduction in marginal tax rates, for example, or elimination of the Alternative Minimum Tax - the net effect "could be neutral or perhaps even beneficial for the market." (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com