It was expected to be a watershed year for the mortgage industry in 2018, as lenders faced an environment of increased expenses and diminished returns.
Add into that the uncertainty regarding the November midterm elections and decisions by the Trump administration regarding key officials in positions that regulate housing finance, mortgage lenders needed to expand their horizons when crafting their business plans for this past year.
A year ago, National Mortgage News made five predictions regarding how the mortgage industry would fare in 2018 — and we got four of them right.
From what happened in originations to servicing and everything in between, here is a recap of how 2018 predictions played out for the mortgage industry.
Prediction: Origination — Lending outside of the qualified mortgage rule may help lenders replace lost refis
Before 2018, it was expected lenders would replace a portion of their lost refinance volume by offering a greater variety non-qualified mortgage products on the purchase side. That happened, as new products, including subprime mortgages, came to market. Another lender, Angel Oak, had a 90% increase in non-QM volume in the second quarter.
Prediction: Secondary — Fannie Mae and Freddie Mac tech helps lenders expand credit box
Prediction: Servicing — Mortgage servicing landscape being reshaped by market consolidation
There were a number of merger and acquisition deals announced or closed during 2018. New Residential's purchase of Shellpoint Partners, announced in 2017, was consummated, but a second company with ties to Lewis Ranieri, Selene Finance, was acquired by Pretium Partners. Citizens Bank acquired $41 billion servicer Franklin American Mortgage.
Nationstar was acquired in August by a remnant of former mortgage powerhouse Washington Mutual, with the new parent company known as Mr. Cooper Group. In November, Mr. Cooper agreed to buy Pacific Union Financial in a deal that would increase its $514 billion servicing portfolio by $25 billion.
But the most noteworthy servicing-related M&A was Ocwen's purchase of PHH, which was driven by the former's need to switch platforms in order to comply with its regulatory settlements.
Prediction: Technology — Machine learning, automation will power digital mortgage advances
There was much progress made on the digital mortgage front in 2018, as lenders began adding more automated activities to their origination processes and that helped improved customer satisfaction, according to J.D. Power.
However, e-mortgage adoption remains lagging as few warehouse lenders will fund these originations. Texas Capital, which already provides financing to lenders for conforming e-mortgages, recently started a program where it will purchase those loans off of warehouse lines in order to provide liquidity to the market.
Prediction: Compliance & Regulation — Fannie Mae and Freddie Mac come out of conservatorship in 2018?
There was a 50% chance that housing finance reform could finally be enacted going into 2018. The cards were lining up among the players in Washington that gave the industry hope something could happen during the year.
However, odds for a legislative solution, already diminishing as the year went on, got further muddled as the Democrats won control of the House of Representatives in the November elections.
The nomination of Mark Calabria to head the Federal Housing Finance Agency could advance reform in 2019. Calabria previously advocated putting both companies into receivership, but it is considered by some to be unlikely once confirmed as FHFA head.
The Financial Stability Oversight Council said the mortgage giants may need a bigger capital cushion than their regulator has proposed, but stopped short of designating them as “systemically important financial institutions.”