As we head into the end of the year, there is always much discussion around what the next year will bring for the mortgage industry. Will lending slow or tick upwards, will home prices decline or rise, will interest rates increase, and so on. To make these types of predictions, you must look at what the mortgage industry can expect for the rest of this year, then delve into how that may impact the following months.
First, TRID will grow in its impact on the loan cycle, as lenders' pipelines become more populated with TRID-eligible loans and those LE’s move toward CD’s. Process delays will trigger criticisms, especially from those who were not well prepared for the change — including lenders, Realtors and title agents. We believe that will be, albeit vocal, a minority of the industry, though, as most have invested considerable time and resources over many months to prepare their employees and their business partners, getting processes and operating systems redesigned.
The challenge, however, may be the industry’s perception of itself. Historically, the mortgage industry has prided itself on being able to “turn on a dime” or “make miracles happen” at the very last minute. Those are going to be the greatest challenges in terms of lenders’ culture, selling strategies and how they define themselves with customers and Realtors. But for those who have done their due diligence, there will be much less disruption.
If there is any lesson to be learned, it’s that there is no substitute for Day-One thoroughness. You simply cannot make it up after the fact. TRID demands that the lending industry be more efficient. Lenders need to be more proactive and attentive at the beginning in terms of their communication with borrowers, Realtors and vendors. As a result, the borrower is not thrown into a whirlwind and has the proper time to understand and make a sound decision. This benefits the entire industry.
Beyond TRID, the industry continues to predict and prepare for slightly higher interest rates in 2016; however, we don’t see that having a material slowing on home buying. We believe the improving economy and pent-up demand will more than offset modestly higher interest rates.
The recent regulatory attention being paid to marketing service agreements and other types of referral arrangements will be very interesting to watch, as many used these to align themselves with referral partners. We welcomed the clarity from the CFPB and look forward to an environment where lenders differentiate themselves by their service and solutions, and not their checkbook.
The rising complexities and heightened risk exposure will likely lead to continued retreat from smaller financial institutions and probably consolidation in the marketplace among independent lenders. Community banks and credit unions are continuing to be pushed out because they view the risk and cost as not being warranted. This is likely to be more visible in 2016.
We believe there is opportunity for growth. The National Association of Realtors reported that home sales have risen year-over-year for 12 consecutive months. Additionally, the cost to rent is at an all-time high, making home buying an attractive alternative for many consumers. The economy is stabilizing and incomes are growing; therefore, growth – albeit slow – is inevitable.
While there is good support for lenders to concentrate on Millennials, that segment will continue to face struggles, such as tremendous student loan debt. Therefore we are not ignoring traditional segments, like Baby Boomers and Generation X, which make up two-thirds of the market. Baby Boomers are downsizing, while Gen X has emerged as a demographic with growing wealth. There is much there to capitalize on.
We believe the future for our industry – these last months of this year and into 2016 – is bright, despite the reality of greater regulation and the prospect of rising interest rates. Embrace is very optimistic about the future. We are aggressively expanding and recently recruited several key executives to help push us forward. We join those in our industry that have prepared for these challenges and are therefore well positioned to optimize them.