Mortgage Industry Changes Have Good and Bad Effects
In the mortgage industry changes can be exciting and frightening at the same time, said Cheryl Lang, president and CEO of Houston-based Integrated Mortgage Solution.
One of Lang's main concerns for the future of the housing industry is the effect the qualified residential mortgage proposal under the Dodd-Frank Wall Street Reform and Consumer Protect Act is going to have on lender-servicers.
In April, federal regulators recommended a risk retention proposal that would pave the way for a broad exemption for securitized mortgages that have a low risk of default. The QRM definition would require a 20% downpayment on mortgages that are exempted from risk retention, which Lang said would be too restrictive.
She said that in 2010, only 30% of first-time homebuyers put down more than 10% for their mortgage, which shows that people can't afford this mandate at the time.
“This rule will have a huge impact on who gets a loan and who does not get one,” Lang told National Mortgage News. “We all want a safer portfolio of mortgages and saw what happens when we came up with these unique products which turned toxic and caused the housing crisis and resulted in the bubble bursting.”
According to Standard & Poor's, under the current QRM guidelines, only 20% of the loans originated between 1997 and 2009 would have qualified. Despite not being a presenter on a panel or being an exhibitor, Lang is attending the Mortgage Bankers Association's annual convention and said she wants to know how the QRM proposal will impact low- and medium-income borrowers.
“Even if you have 20% down, you have to have a pristine credit history to go with one of the top five lenders,” Lang said. “With QRM, the only way for the average person to get a mortgage is through the government, which is ill advised when it comes to mortgage lending.”
Lang added that the QRM rule will also affect private mortgage insurance companies because if a borrower has the ability to make a 20% downpayment, they probably don't need a PMI.
Demographics will also have an impact on the future of the housing market. According to the Census Bureau, more than 50% of the U.S. population growth over the last 10-year period was within the Hispanic and Asian populations. During this time period, the Asian population grew from 10.2 million in 2000 to 14.6 million in 2010.
“We're getting closer to an era where not a single racial or ethnic group will hold the majority percentage in the United States and the rising diversity is going to shape all the new traditions which we will have to learn to deal with,” Lang said. “The face of what traditional Americans look like is changing, and that means our industry has to change in relationship to that.”
Lang believes that the industry needs to understand the barriers for people who fit these demographics. For example, Hispanics have a natural distress to financial institutions because they don't trust the banks, Lang said. She added that they also typically don't build credit in the U.S. because they don't have car loans or credit cards.
“They don't build credit, and without doing this, how are they going to qualify for a mortgage loan,” Lang told this publication. “They do have multiple earners, where some of it is cash income, and we could be underestimating their ability to pay for a mortgage loan when indeed they might have the money.”
Lang stressed that communication is key to helping these future homeowners know what they are doing during the purchasing process so they remain in their properties for a long time.
“We have to teach them how to budget and how to read the documents that they are signing so they understand what they are signing,” Lang said. “There has to be multilingual websites and collateral materials that explain to the market that they are trying to communicate through the transcending barriers and the cultural differences. Then again, the QRM requirement is so narrow and how are they going to qualify for these products that are going to become traditional in our mortgage industry.”
Lang also expects changes in the REO industry, particularly for property preservation companies who maintain the bank-owned assets. Lang believes these companies will have to change from a business-to-business strategy to a business-to-consumer entity if REO properties became rentals and are transferred from the government to private investors.
“Property preservation companies will no longer just provide quality service, but have to go above and beyond this because renters are going to expect a little more than what lenders have been receiving,” Lang said.
“I think the sales rhetoric that preservation companies use to sell their business to a lender is going to change and they are actually going to have to ‘walk the talk.' We're going to have professional, licensed contractors and not be able to cut corners anymore. Companies now have to demonstrate to the person at the property that they have done the work, not just through pictures.”