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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
Lending

Can technology help safely expand mortgage credit?

Lenders are easing standards, after all

March 20, 2014
KEYWORDS Credit / MBA / Mortgage / Technology
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The mood on the opening day of the Mortgage Bankers Association Mortgage Technology Conference in Los Angeles was closer to the weather forecast — sunny and high 70’s — than to the relatively chilly forecast for originations in 2014.

Or more likely it’s because lenders had already acted decisively, adjusting their staffing and cost structures, during the downturn in Q3 and Q4 of last year. In which case, the MBA’s forecast of $1.1 trillion for 2014 was simply an annualized projection of Q4’s numbers, and the industry was ready for it.

Being ready and realistic seems to be our industry’s watchwords for 2014. By now, we’ve all accepted that the market and the way we will do business have fundamentally changed. QM is “live” and here to stay.  

After lots of work and anxiety, QM loans are being originated and lenders are getting used to the new steps and verifications that have to be followed. We’re even hearing from a growing number of companies that they are cautiously making (or considering) non-QM jumbo loans.

Technology, in the form of automated compliance, is one of the main reasons why we, as an industry, have been able to deal with the challenges of relentless regulation. 

It’s what enables lenders to comply with QM, as well as more than 300 other federal and state regulations that can apply to a single loan.  

No wonder one of the more popular sessions this morning dealt with the “Impact of Recent Regulations and What’s To Come”. The session covered some of the pitfalls of QM and ATR that could still ensnare lenders and lead to high fines and legal fees. It also previewed the challenges that RESPA/TILA will bring in 2015.

This afternoon I’m participating in a panel that is debating the other big question facing our industry: How fast –and what’s the best way—to grow purchase business? And what’s technology’s role? (I’ll report on this in greater detail tomorrow)

Meanwhile, we’re clearly seeing signs that the shift to purchase is already happening. Just this morning, our company’s new Origination Insight Report, showed purchase volume for our clients in February was up by 4 percentage points to 57% of all closed loans.

Our report also suggested that looser credit and underwriting standards may be one way that lenders are trying to make up for the decline in refi volume.

While the credit requirements remained relatively steady month over month, the report found that there has been significant loosening compared to where we were a year ago. In February, the average FICO score on all closed loans was 724 compared to 745 in February 2013, or a 21-point decrease. Last month, a third of all closed loans had an average FICO score under 700 compared to 24% in February 2013.

As we enter the all-important spring selling season, it appears that lenders are willing to do what’s in their control to gradually expand the credit box and with it the pool of potential home buyers.