There are a number of court cases currently working their way through the system that have grabbed headlines and could radically change the way the mortgage business operates, but there is another kind of precedent that lenders should be wary of as they enter 2011.
That precedent has to do with competition for new business.
Mortgage loan originators will be competing for $967 billion in new business this year, according to the Mortgage Bankers Association
. That's down from nearly $2 trillion in 2009 and an estimated $1.5 trillion in 2010. Not good. Not carved in stone, but not something that will make most originators overly optimistic.
What will lenders be willing to do to get that business in 2011? The legislative and regulatory environment is way too risky to get anywhere near the predatory lending line, so I don't expect to see any extremely confusing loan programs or bait-and-switch tactics.
What's left but concessions?
I don't know if it will be lender-paid closing costs, the disappearance of application fees or some other concession some hungry mortgage originator makes to a borrower, but whatever they do it will have long-lasting impacts on the business. I say that because it's already happened on the banking side.
Earlier this decade when the battle for share-of-wallet by depository institutions really heated up, banks were doing anything to get new checking and savings accounts. One of the more popular tactics was to offer a “free” checking account with the knowledge that the bank would make up any lost revenue in miscellaneous fees. The Dodd-Frank Act (and more specifically the Durbin Amendment) did away with that, which is causing many in the banking world to refer to the new law as the “Death of Free Checking” Act, according to Penny Crosman, a reporter for Bank Technology News.
Consequently, banks are gearing up to start charging consumers for their checking accounts again. But the precedent has already been set. People don't want to pay for checking accounts. They didn't have to pay for them before and while bankers are likely to cry that it's the government's fault, that won't get them off the hook.
According to a study cited by Crosman and performed by the Bank Administration Institute
a banking solution provided by InfoSys
, 85% of consumers surveyed don't expect to pay fees for a checking account. So there.
We all have to do things we don't want to do to be part of this society and plenty of the things the federal government asks us to do are unexpected, because who in their right mind would think they would ever require such things? But we don't like it. This will be one more hurdle banks will struggle to overcome this year and it's their own fault. They came up with the idea of luring in consumers with the promise of something too good to be true and now they'll have to straighten it all out.
Currently, the mortgage business is sitting on a fairly even keel. Underwriting standards are extremely strict, new RESPA rules are shutting down the variance between the good faith estimate and the HUD-1 used at the closing table, and the loan programs are pretty much whatever the government is in the mood to offer.
But that will change and probably this year.
New investors are going to come in to provide liquidity. Some will come from outside our industry where financing deals are structured somewhat differently. Others will be super smart ex-Wall Street guys who have discovered the latest way to play the game. Most will be looking to innovative marketing to get their programs sold into the marketplace.
I expect to see some serious competitive pressure in the marketplace this year as these new players go after a significantly smaller market like Hungry, Hungry Hippos.
They will be wise to consider carefully what they promise consumers.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant