Mortgage lenders call construction loans their most promising product

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In a slow mortgage market, construction loans are considered the most likely source of growth for lenders, according to Altisource's latest annual originations survey.

One-quarter of more than 200 decision-makers in the origination market identified construction lending as the most promising sector of the market, according to the "The State of the Originations Industry" report for 2018.

"Construction activity should increase over the next year due to the robust demand in the overall housing market and the historical shortage of existing housing supply," Altisource noted in a press release.

One-fifth or respondents called loans that are below the jumbo mortgage threshold, and that fall outside of the qualified mortgage safe harbor from ability-to-repay rule liability, the most-promising category of loans.

Renovation loans were considered the most promising loan product by 19% of respondents, followed by Federal Housing Administration loans (18%) and jumbo loans (17%). The survey was completed before the government shutdown that has constrained some FHA production.

Competition for home-purchase loans is the biggest challenge in the origination market, according to 29% of respondents to the survey. One-fourth of respondents called margin compression related to regulatory requirements their largest business hurdle, and 24% identified higher mortgage rates as their biggest concern.

More than three-fourths of respondents are paying $7,000 or more to produce a loan, and 78% fear production expenses will continue to rise and volumes will continue to fall.

The most common step mortgage lenders have taken to adjust production costs is to add automation to their operations. More than 60% of lenders do this, according to the survey conducted independent analytics firm Echo Research.

Another 56% of mortgage lenders have changed and diversified their loan products in an effort to adjust production costs. More than half have consolidated staffing, and another 45% have outsourced some of their work.

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Purchase Housing inventory Qualified Mortgages ATR Jumbo mortgages Government shutdown FHA