Mortgage lending will not return until firms figure out how to better automate an underwriting process overloaded with new rules but still being done by hand, according to entrepreneur Bill Dallas.
Dallas founded First Franklin, a large mortgage operation, and his newest venture is Skyline Mortgage located on the West Coast. Dallas is building out a system that will allow his network of brokers to underwrite mortgages by checking off various compliance issues from new Dodd-Frank provisions to Real Estate Settlement Procedures Act requirements.
"Mortgage lending is not hard any more. There's one product. Here's your 30-year fixed. Here's your rate. When do you want to lock?" Dallas said at the HousingWire REthink Symposium Thursday.
The difference now is the compliance. Regulators are no longer satisfied with examining a completed loan, Dallas said. They want to look at every step of the process. Large banks, such as Bank of America (BAC) and Ally Financial are on their way out. And smaller lenders, usually those most adverse to investing in the technology needed to comply, will have to take their place.
"Whoever has a 70% market share dies," Dallas said. Nervous laughter ensued in the audience.
There will be plenty of opportunity for growth, he expects. In 2012, he expects $531 billion in purchase mortgages with $400 billion more in refinances. Next year, as interest rates are expected to increase, purchase mortgages could rise to $859 billion with roughly $287 billion in refis, according to his models.
Compliance is key. For him, the housing bottom is right now, and he said he is getting back into the space. Convincing borrowers that a mortgage isn't a terrible thing will be the main turning point.
"We're like the airlines," he said about the mortgage baking industry. "We just don't want to die, and we're happy if our luggage comes out at the end."