Mortgage

Two channels battle for the purchase mortgage market

Both sides showing very different strategies to success

Last week, the mortgage industry gathered in Washington D.C. for three hard-charging days of meetings, demos and general sessions at MBA Annual. Speakers dug deep into forecasted growth in purchase market and GSE conservatorship. Anthony Hsieh and Bill Emerson shared perspectives on Amazon entering the mortgage industry and some viewpoints on the wholesale market.

Overall, the tone in D.C. was cautious. Lenders appeared to be focused on two things – reducing loan production expenses and winning purchase business. Technology plays a critical role in both of these objectives.

The MBA reports that loan production expenses declined in Q2 from a study high of $8,957 per loan in the first quarter of 2018. Still close to $8,000 in production expenses per loan, expenses are 30%+ higher than decade averages. The squeeze is real.

2019 market forecasts from the Mortgage Bankers Association and iEmergent present a balanced view on what lenders can anticipate and prepare for in 2019.

Mike Fratantoni, the MBA's chief economist, projects purchase volume to grow 4.2% in 2019, while refi volume is projected to decline from $451 billion to $395 billion (12% decline). Overall, purchase growth supports a flat projection in overall production volume of $1.63 trillion.

Mark Watson, chief of forecasting at iEmergent, projects purchase to grow by 7.3% while refi recoils 5.2%. Overall, Watson projects total origination volume in dollars to grow by 3.8%. In line with conversations at MBA Annual, Watson summarizes his forecasts: “These are challenging times for mortgage lenders, and next year will be tough as well. Expect to see some significant changes in the competitive landscape as lenders struggle with profitability and growing originations in this tightened market."

While some whisper that the sky is falling, forecasts and economic analysis supports a healthy sustained purchase market. Despite rising rates — the MBA projects 5.1% rates on the 30 year mortgage through 2021 — demographic trends support continued purchase demand from first-time and millennial homebuyers. Fratantoni points to a wave of 4.7 million 25 year-olds who are approaching peak home-buying years, but student debt and delayed household formation may postpone this life step for many would-be first-time homebuyers.

But the veteran voice of mortgage lending conferences didn’t dominate the audience totally. As many industry leaders returned home after MBA Annual, over 1,000 mortgage brokers, wholesale lenders and technology partners hopped on planes and headed to Las Vegas for the inaugural AIME FUSE National Conference. While the market conditions are no different in the wholesale channel, the tone and energy couldn’t be more different.

Brokers were excited and optimistic. They were focused on winning market share from retail and consumer direct channels. They are in it to win, and are seeing the value of being mortgage experts for their local communities.

“As a young hardworking loan originator going into my 9th year of origination, I have never been more proud of my profession: independent mortgage broker,” says Christian Hernandez of Mares Mortgage, a family-owned mortgage brokerage firm based in Southern California. “With rates going up and a possible recession looming in the near future, this is when us as brokers thrive. We dominate the purchase market with our service, optionality and rates.”

While IMBs and retail bankers focus on reducing costs, Mat Ishbia at United Wholesale Mortgage takes an entirely different view. In a session at the AIME event, Ishbia shares that UWM has 120 too many underwriters and has no plans to stop hiring until they start measuring underwriting turn times in minutes, not hours or days. “You’re not playing just for profit, you’re playing to succeed and win,” says Ishbia to AIME FUSE attendees. At the same time, he emphasizes the importance of mortgage brokers injecting technology into the lending process. “What happens when you inject technology into anything? Costs go down,” says Ishbia.

According to AIME, mortgage brokers currently make up 16% of origination volume. “Our goal is for mortgage broker market share to exceed 25% of the overall mortgage market by 2020,” says AIME Chairman Anthony Casa. While this sounds like a lofty goal, AIME reports that mortgage broker market share was as high as 56% in 2006. This stat includes true brokers and non-delegated correspondents which are brokers that use a warehouse line to fund loans but do not underwrite or service loans.

Sessions at the AIME event covered non-agency products, one-time-close construction products, and other solutions in the wholesale product line. Bill Dallas gave an energetic presentation on how independent mortgage brokers can leverage technology to succeed in today’s market, and how opening a bunch a retail branches just doesn’t work. In a separate presentation, Angel Oak made a compelling argument for expanding the credit box with non-QM, and supported the security of the non-QM product line with a quote from the Fitch U.S. RMBS update, “Of the 4.3 billion and roughly 11,000 loans securitized since 2015 where loan-level performance data is publicly available, only eight loans have entered foreclosure.”

The energy in the room was building with each presentation up to the pinnacle of the day when Casa announced the launch of Arive, a complete mortgage ecosystem that enables brokers to interface with lenders, borrowers, and third-party services. Concluding with a standing ovation, the broker community had an extremely strong reaction to the potential for this platform to transform their businesses.

With ties to AIME, Arive is being launched as a separate business led by former Garden State Home Loans EVP Joseph Cicali and former Pacific Union Financial executive Katie Sweeney.

Brent Dodge a mortgage broker with Affiliated Home Loans in Idaho shared, “This is game changer for the independent mortgage professional. All of my systems are fragmented. We run a POS, LOS, CRM, accounting software, interface with our lender and a pipeline manger. This takes so much time, very difficult to manage and is expensive. The Arive system integrates all of this into one place…and at no cost to the independent mortgage professional.” The platform is expected to launch in January.

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