Between rising interest rates and waiting to see how the new administration continues to shape up, credit union mortgage professionals could be forgiven for staying mum on predictions on the mortgage outlook for this year, but a few brave souls agreed to offer their insight.
Tim Mislansky wears two hats as SVP and chief lending officer for $3.4 billion Wright-Patt Credit Union, plus president of the myCUmortgage CUSO, both based in Beavercreek, Ohio. Asked if he was positive, negative or neutral looking at the year ahead, Mislansky replied, "I am using the words cautiously optimistic."
"We are confident of our ability to help members in our service area obtain homeownership, and we have built up our origination force," he said.
Mislansky said he and his team are wondering what compliance will look like under the new presidential administration. They also are wondering if millennials will enter the housing market. "It looks as if they are, but we do not know for sure. There are factors outside our control, so that is the cautious side, but we are confident of our abilities. We have almost 30 full-time originators, and are entering the Columbus market for the first time. We are expanding originations, and we continue to take care of legacy members."
Mike Jennings, director of mortgage lending for $1.3 billion Advantis Credit Union, Clackamas, Ore., said his outlook for the CU's mortgage lending market is "quite positive for 2017." Advantis saw growth of 9.2% in first mortgages from 2015 to 2016, and Jennings is predicting similar growth for 2017.
Vince Salinas, VP of home loans for $5.3 billion Patelco Credit Union, Pleasanton, Calif., which serves three of the highest-priced real estate markets in the U.S. (San Francisco, Sacramento and San Jose) is bullish on mortgages this year. "We expect to expand in 2017 and increase our market share with a combination of mortgage and equity lending," he told Credit Union Journal. "We are in the process of growing our sales force in a significant way."
Regulatory Compliance Picture Murky
Though credit unions and banks are pleased to see President Trump and Republicans in Congress working to pare back on regulations, they are still having to move forward with existing regulations, including TILA/RESPA integrated disclosures.
Wright-Patt's Mislansky said, for the most part, lenders have gotten used to TRID, but he argued there are "some areas" where the Consumer Financial Protection Bureau could help with more guidance.
"Different people have different opinions on some one-off happenings," he said. "People need to know how to fix little mistakes. If they forget one number, do they need to start over with a whole new disclosure and a whole new waiting period?"
Next on the horizon are new reporting requirements under the Home Mortgage Disclosure Act. Lenders do not have to begin gathering the required additional data until January 2018, and reporting begins in 2019, but most lenders are already preparing due to the size of the task.
"HMDA will be a big deal for the next two years," assessed Mislansky. "So this year we are getting the systems up and running to collect more data."
Advantis CU's Jennings agreed, noting that his credit union has been actively engaging with its third-party loan origination system provider on this. "We want to ensure that all 110 fields of data will be collected, properly formatted and ready to report in 2018. Currently there are only 39 data fields," he said.
Though most financial institutions complain about these new requirements, Patelco's Salinas said his credit union is approaching it as an opportunity to demonstrate the credit union difference. "We need to make sure the software is going to collect all that information. What it will do is help show how we lend and how we are improving the financial lives of our members. At the end of the day it is a good story how credit unions are lending in our communities and to our members."
Still, one of the biggest challenges is that even though the financial services industry is pleased to see Trump-led efforts to pare back existing regulations and slow down the creation of new regulations, the potential changes — at least for the moment — represent a moving target.
At the same time, Mislansky said it seems not a week goes by without some financial institution getting fined by the CFPB for alleged unfair lending.
"When I read some of the fines I see direct competitors. The types of things being fined for are very specific, and there might not be an intent to discriminate, so credit unions need to look at their denial rates and pricings between male and female applicants, and between ethnic groups," he warned. "It is imperative for credit unions to evaluate their lending practices, and have the people who interact with members to go through fair lending training."
What Stayed Down for Many Years Must Come Up, Right?
Another legacy of the financial crisis — and, in most areas of the country, a slow and weak recovery — is historically low interest rates. The Federal Reserve repeatedly warned it soon would begin raising rates over the past five years, but has only made two small hikes in the last two Decembers. However, the December 2016 rate increase of 25 basis points immediately was followed by a rise in mortgage rates, and the Fed has signaled the possibility of multiple interest rate increases in 2017. So how are credit unions planning for this new rate environment?
"First, we do not try to predict interest rates," said Wright-Patt's Mislansky. "Members have a need to buy homes for various reasons, regardless of rates. What interest rates affect is refinances. With rates rising, refinances will be somewhat nonexistent, so we will be looking at our purchase mortgage strategy."
Mislansky said credit unions need to be focused on driving purchase mortgage money. He suggested they have Realtor-outreach programs and programs for first-time homebuyers.
"At our credit union, we are proud of the fact we do so much first-time homebuyer lending," Mislansky said. "We offer Realtors continuing education. Credit unions should look into grant programs to help consumers overcome the challenge of saving for a down payment. Depending on the size of the credit union, pick something you can be really good at and focus on that, rather than eight different parts of a purchase strategy."
Three of Patelco's markets are among the least-affordable markets in the country, so Salinas said many members are looking to improve their homes rather than buying a new one. "We have a rise in home values, consumer confidence is up, and job growth and wage growth is good, so we are here to help members tap that equity and borrow responsibly."
Patelco has placed its marketing focus on home equity lending. Salinas said this means there will be "renewed attention" to making sure members know the capabilities the CU offers. "We are expanding our sales force: internally so members can apply by phone or internet, and externally so we have more loan officers and mortgage officers in branches. We are doubling the number of home loan consultants from nine to 18. Some of those work in branches and others work in the field."
Jennings of Advantis noted it is 10-year Treasury bond yields that most closely influence 30-year fixed mortgage rates, because investors who want a safe-haven investment compare interest rates of all fixed-income products, including U.S. Treasuries, certificates of deposits and home loans.
"All bond yields are affected by Treasury yields since they compete for the same type of investor. Ultimately, this creates an inverse relationship between demand and yield. When there is not much demand, then bond prices drop and the yields increase to compensate. I believe the long-term demand outlook for the 10-year U.S. Treasury will continue weakening, pushing the yields higher and thus 30-year, fixed-rate mortgages higher. Having said that, I would not be surprised to see 30-year, fixed mortgage rates at or near 5.125% by July 31."
Jennings noted such a rate would be higher than what the market saw in early 2016, but it still would be lower than where 30-year, fixed-rate mortgages stood in July of 1970, when the rate was 6%.