Who is going to win the battle for control of the mortgage industry, the tighteners (Consumer Financial Protection Board) or the looseners (the Fed)? That was the question for a panel that was chaired by National Mortgage News editorial director Mark Fogarty at the Mortgage Bankers Association convention in Washington.
Consensus? The tighteners, at least at first. And some industry players may not be ready for the new landscape.
During the roundtable there was a colorful expression new to most of the panel: “human spackle.” Though it sounds uncomfortable it actually means no disrespect to people. It refers to stretching humans too thin by asking them to patch too many holes at once in the company infrastructure. Automation may help redirect human efforts as the Jan. 10 QM implementation approaches.
The participants included Cecil Bowman, senior vice president of National Credit Reporting Systems; Amy Brandt, chief operating officer of Prospect Mortgage; Bill Cary, executive vice president of Lender Processing Services; Jonathan Corr, president of Ellie Mae; Dan Hastings, executive vice president of Envoy Mortgage’s correspondent lending division; Phil Huff, CEO of Platinum Data Solutions; and Daniel Jacobs, president of Pro Mortgage Branching Solutions.
CORR: I think it’s going to get tighter before it gets looser. Dave Stevens (MBA president and CEO) came out and spoke at our user conference in Las Vegas. And the point that he was making, especially on the compliance side and the CFPB side, is that until we have data to prove that this is going to cause tightening, there’s not going to be any backing off. And so even with let’s call it interest rates or easing or whatever in place, things are going to tighten.
BRANDT: It would be imprudent to expect otherwise, so even if that should happen, I think as lenders we can’t expect that or plan for that or organize in the companies around with that expectation. We have to put in all the compliance that we think is necessary to comply with all the rules, especially the changes in January, and that cost now is literally almost the same cost as the entire operations division.
BOWMAN: Amy, how are you going to pass those additional costs on? To the consumer or absorb (them), how’s that going to work out?
BRANDT: I think right now it’s a combination of both, mostly absorb because of competitive pressures with the volatile rate environment and everybody looking to sustain volume levels.
CORR: The costs are going to be borne through a combination and really, the only way you can attack that is bringing automation to the table. And I know you guys do the same thing at Platinum Data and LPS as well, but you have to do the heavy lifting for lenders by putting automation where up to this point, in many areas, human spackle has been the answer. Fill in the holes where everything is coming through. You look at the MBA cost study, mortgage loan production expense has gone from $3,500 in 2009 to $5,700 last month. And that’s before QM and ability to repay. So we’ve got to figure out a way to be more productive, and it’s got to be through automation.
HUFF: I’ve been around 25 years and it’s just typical to see companies not adopt technology to reduce costs until they absolutely have to. So I think this is going to get tighter before it gets looser, I agree with that wholeheartedly. There’s going to be an awakening, I think, in the use of technologies to streamline costs and improve margins. I think you’re still seeing a lot of people push paper in a lot of areas that don’t need to be scrutinizing paper, human eyes on paper. I think technology will play a much tighter, better role when that tightening does occur and those margins expand.
JACOBS: I think as it pertains to regulation, we’re going to continue to see tightening, but private enterprise I think is going to start loosening and a lot of that is just driven by the need to drive profits. As volumes are going down and margins are being compressed, there’s got to be a way to make more money. So a lot of lenders are starting to focus on lifting certain overlays that they’ve had. We’ve seen the mortgage insurance companies starting to get a little bit more aggressive and competitive. So we’re already beginning to see some areas of loosening, but it’s not the same type we have seen in the past.
BRANDT: Well, our industry tends to go too far one direction and too far the other direction. We tend to be extremists on either side and we arguably might be on the extreme tight credit side right now.
CARY: The lenders we’re talking to are going into the January changes very cautious, making sure they got everything buttoned up. I think they’ll wait to see how the changes take effect in the industry, what type of enforcement action start to happen as a result of that, and hopefully over the course of the year, we see people start to open up a little bit.
HASTINGS: I’ve met with several customers and everybody is still kind of waiting to see when the next shoe falls, how it’s all going to shake out with QM and ATR and CFPB. And surprisingly enough, a lot of people really haven’t really put in place or started putting in place (the things needed) to be ready for that.
