What events matter most now that conference “season” is year-round?
Last week’s Mortgage Bankers Association Independent Mortgage Bankers (IMB) Conference certainly qualifies. Participants control a majority of America’s mortgage market, and here are the top 10 things you need to know from last week’s summit in New Orleans.
1. IMBs Control America’s Mortgage Market
This is a good thing.
America’s 900 licensed independent mortgage banks are only 18% of total mortgage lenders, but originated 55% of America’s mortgages on 1-4 unit properties per 2018’s latest full-year Home Mortgage Disclosure Act data. Remaining compliant with federal and state regulations requires scale and long-term investment from all mortgage companies.
Since the majority of IMBs are closely held private companies, IMBs founders’ own capital is invested long-term. So these IMB owners are properly incentivized to manage sustainable businesses that serve their communities throughout full market cycles.
2. IMBs Lend Most To Minorities & Low-Income Borrowers
This is also a good thing.
Per the latest full-year 2018 HMDA, today’s 55% mortgage bank market share was only 24% in 2008. Mortgage banks took up the slack as banks lent less since the crisis, especially in supporting low-to-middle income and minority borrowers.
In 2018, IMBs made 60% of all home purchase loans to low- and moderate-income borrowers, and more than 64% of minority homebuyers obtained their financing from an IMB.
3. “Shadow Bank” Criticism of IMBs Is Uninformed
The lazy moniker for IMBs is shadow banks. “Shadow Banks Increasingly Control U.S. Mortgages” has been a common tone for headlines as IMB market share rose from 24% to 55% since 2008. This pejorative positioning rarely mentions key regulatory facts.
IMBs must comply with the same federal Consumer Financial Protection Bureau examination, investigative and enforcement regulations as depository institutions.
IMBs must also comply with licensing, supervision, and enforcement in each state they do business. And the Conference of State Bank Supervisors (CSBS) continues to increase its state-level requirements for IMBs, and coordinates with the CFPB and the GSEs on IMB supervisory activities.
IMBs are highly regulated to protect consumers, and it shows in mortgage performance for the current market cycle.
4. Mortgage System Risk Super Low Right Now
How’s systemic safety looking in the context of IMBs having 55% market share?
In total, America’s mortgage industry funded $2.38 trillion first-lien mortgages in 2019, up 45.7% from 2018, according to Inside Mortgage Finance. The most current New York Federal Reserve data show serious mortgage delinquencies at 0.99%, the lowest in the 17-year dataset they provide.
This is the result of rigorous federal and state regulations and responsible industry compliance in the post-crisis era.
5. Rates & Unemployment Also Super Low
The MBA economics team noted how 30-year fixed rates and unemployment are both below 4%.
It’s a Goldilocks scenario indeed. Combine this with the highly-regulated environment that’s led to strong mortgage performance (see low delinquency rates above), and 2020 is off to a healthy start.
The MBA team predicts $1.9 trillion in U.S. mortgage fundings for 2020, of which $1.3 billion are home purchase mortgages and $600 million are refinance mortgages.
6. Huge Mortgage Fintech Threat & Opportunity
In my the 2020 state of fintech segment at MBA IMB, I highlighted CB Insights research showing how 25 leading consumer-direct fintechs have acquired 257 million customers in the current cycle.
Most focus on deposits and non-mortgage lending, but the threat to IMBs (and depositories doing mortgages) is real as consumer-direct fintech players like Figure, Wealthfront and Varo ramp mortgage ambitions in 2020. These and other customer acquisition masters will make a dent in IMB mortgage market share in the coming years.
The good news for IMBs is that they’ve mastered the extremely difficult ordeal of scale mortgage lending. And maturing B2B fintechs now power the IMBs so they can offer customers the “cool, do-this-on-my phone” simplicity plus give the smart local advice customers still expect.
Big shout to Qualia, Sales Boomerang, Nomis, ComeHome by HouseCanary, Total Expert, Loanscorecard, Cloudvirga and FormFree who did real-time demos of how they’re transforming customer acquisition and engagement, the loan process for consumers and loan officers, closing and automated underwriting.
Also, big shout to the rest of the fintechs at IMB who are also modernizing IMBs.
7. Mortgage Fintech Isn’t Helping Lender Productivity Yet
How’s that modernization going?
The current B2B fintech cycle heated up in 2012, but Stratmor/MBA research shows monthly retail loans closed per LO is down from 5.4 then to 3.6 today.
Why? No single fintech tool is a customer experience panacea, and lending organizations must slow down to re-learn new tech infrastructure before they speed up. This is change management 101. It takes time. But it’s fully necessary to rewire customer experience to keep up with modern consumer expectations.
Likewise, all consumer-direct fintechs eyeing mortgage will soon learn their own slow-down-to-speed up lessons as they try to scale mortgage products, fundings, and compliance.
It remains a long-term race to see if incumbents (including the IMBs) can become powered by B2B fintechs before the consumer-direct fintechs can become real market share contenders.
8. Management Wisdom From Ben Franklin
Renowned biographer Walter Isaacson’s MBA IMB keynote went deep into his books on Ben Franklin, Albert Einstein, Leonardo Da Vinci and Steve Jobs. He said Franklin was legendary for being a great listener at ground-level even while being a high-level statesman.
This quote makes the point: “I was good at the pretense of humility which is just as good as the reality.”
Meaning Franklin was good at listening to people and finding common ground even if he was operating at a higher level. Eternal good advice for serving customers and managing companies.
9. Life Wisdom From Einstein & Da Vinci
Isaacson said Albert Einstein wrote five pages of equations the night he died. Likewise, Da Vinci’s final notebook pages were about “squaring the circle.”
In mathematical terms, this means constructing a square within the same area as a circle using only a compass and ruler. In plain talk, it means accomplishing the impossible by marrying two seemingly unrelated concepts like art and science. May we all be so lucky as to go out pushing to unify the world around us.
10. Mortgage Wisdom From Steve Jobs
The day after Steve Jobs was diagnosed with cancer, he asked Isaacson to write his biography next. Isaacson agreed when he realized there’s hardly an industry Jobs didn’t disrupt – computing, mobile phones, TV, music, movies, retail, manufacturing…etc.
Isaacson said Jobs truly believed in humanity and its connection to technology. So whether we make music players or mortgages, we all must push to unify the human element with technology.
Those that master this will win the market share race.