Attendees had a lot of good things to say about the Mortgage Bankers Association's (MBA) 2014 Convention and Expo held recently in Las Vegas. Most agreed that the quality of the sessions and keynote speakers was better than in the past – and further, that the prevailing mood was one of optimism, as opposed to the gloom that overshadowed previous shows. Yes, the mortgage banking industry is still facing a lot of major challenges, but it would seem that everyone is ready to roll up their sleeves and work hard to find solutions.
To find out more about people's impressions of the show, MortgageOrb recently interviewed some attendees including Scott Stucky, chief strategy officer of DocuTech; Sanjeev Malaney, CEO of Capsilon; Steve Szpytek, president of originations for Fay Servicing; Philip Elwyn, director of sales for IMM; Leonard Ryan, president and founder of QuestSoft; and Rosie Biundo, senior director, product marketing, for Equifax. What follows are selected responses to our questions:
Q: In general, what do you think were the key takeaways from this year's MBA Annual?
Scott Stucky: This year's conference had a great energy. It was very good to see attendance way up, especially among lender executives. I also thought Federal Housing Finance Agency (FHFA) Director Mel Watt's announcement regarding the agency's changes to capital access and repurchases was the biggest industry news coming out of the show. From my perspective, these changes will be good for the industry.
Sanjeev Malaney: I think the industry as a whole is feeling the pressure of meeting the Consumer Financial Protection Bureau's (CFPB) new Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) integrated disclosure rules. Many of the sessions I attended focused on, or touched on, preparing for the Aug. 1, 2015, deadline and how the current regulatory environment is changing the mortgage industry. Our company conducted a survey of over 100 executives who attended the convention, and 80% we polled said that they were ‘very concerned’ about loan quality as the TILA-RESPA deadline looms. What's more, 39% said they plan to spend more on compliance in the coming year.
Another key takeaway is that the cost of loan production continues to rise as lenders devote more resources to ensuring loan quality. As per our survey, 80% of respondents said that their loan production costs increased in 2014 versus 2013. These results make it clear that lenders are focusing on loan quality and meeting compliance requirements, but this effort is eating into margins. Lenders who seek out technology solutions to move to a data-centric loan processing model that moves quality control (QC) to the front of the process will not only ensure better loan quality, but will reduce total production costs as well.
Steve Szpytek: One important takeaway from this year's show is understanding the importance of developing new products in order to adapt to changing industry conditions. Increasingly, lenders are seeing the need to create product that is outside agency or government loans. Non-qualified mortgage (non-QM) lending, especially, is an emerging market that deserves a significant amount of attention and one that will expand a great deal in 2015. This year has proven that many lenders need to develop a portfolio outside of loans defined as QM to stay competitive.
Philip Elwyn: Representing a technology company that enables electronic signature capture, I was immediately impressed with the number of attendees interested in electronic document management. Many expressed the challenge they have meeting the demands of today's demographic and accommodating consumers' desire for options for conducting business with their current, paper-based processing methods. We also had several discussions with attendees around the obvious challenge of managing paper files versus electronic files as well as the lack of audit controls currently in place: for instance, an automated time and date stamp of activities to prove compliance.
Leonard Ryan: The industry is now accustomed to sweeping legislative and regulatory changes. It is now time for us to learn to adapt and begin employing strategies to increase lending in an environment where the cost of doing business will not be decreasing in the foreseeable future.
Rosie Biundo: Compliance and regulatory requirements are becoming more complex, monopolizing lenders' time and squeezing consumers out of the market – we need a balance. The agencies are working together, being more collaborative and striving for the same goals – to promote responsible lending and allow credit worthy consumers to own homes. This is key in reviving the housing market.
Q: What, in your opinion, was the prevailing mood at this year's show, compared to last year? How have attitudes changed?
Scott Stucky: The mood was very positive this year. As a whole, the industry is trying to understand how the regulatory process is going to work and how to adjust to it. Getting clarity from the regulatory bodies has helped everyone from lenders to vendors focus on how to best do business instead of waiting for another shoe to drop.
Sanjeev Malaney: In my opinion, the prevailing mood was one of cautious optimism. In general, I think lenders believe that the worst is behind them, and they are focusing their efforts on remaining competitive in the new mortgage landscape – a landscape with an increased focus on loan quality that has been driven by governmental regulation. Lenders have realized that the industry's previously relaxed stance on data integrity and loan quality was a misstep, and they are accepting that an increasingly regulated environment is here to stay.
In fact, when the topic of regulation came up, several times I heard people say, and I'm paraphrasing, ‘This is how we should have been doing business all along.’ Lenders are realizing that the focus should be on quality loan data, not on documents. Ultimately, it's the data that facilitates a high-quality business transaction that meets the lender's operational and financial goals.Â
Steve Szpytek: This year, the mood seemed more upbeat. In 2013, for example, the guidelines around QM and non-QM loans were still being established, which led to an atmosphere of uncertainty. Although the rules introduced were pretty stringent, lenders are learning to work within them, and they have spent much of 2014 refining their origination teams and product offerings. While the volume of non-QM and QM ‘rebuttable presumption’ loans has quite a long way to go to catch up to the discussions and planning of said loan types, our contacts are cautiously optimistic about next year's prospects.
Philip Elwyn: IMM attended the MBA show for the first time this year; however, I was most impressed with the energy, excitement and interest that attendees had in adopting new technologies into the mortgage process. People who visited our booth included buyers, brokers, banks, credit unions and several attorneys with an interest in electronic transaction processing.
Leonard Ryan: The legislative groundswell is still settling. Attendees were focused on session content, which did not leave as much interaction with vendors as in years past. The mood was cautious; after a year that saw a less than smooth QM/ATR rollout for most companies.
Rosie Biundo: I believe it was much more positive and optimistic. There seems to be light at the end of the tunnel and stakeholders are more willing to work together to solve issues; certainly more of a ‘we’ attitude.
Q: Did you attend or participate in any of the sessions? If so, which ones do you think were the most educational or informative and why?
Sanjeev Malaney: I thought the session called ‘Survival Strategies for Declining Margins and Volumes’ held on Tuesday provided some good insight into the current state of the industry, and how forward-thinking lenders are re-evaluating their operational processes to remain competitive in the new mortgage landscape.
The panelists acknowledged that the production costs of origination have increased significantly because of the new regulatory environment. They are nervous about the Aug. 1, 2015, TILA-RESPA (integrated disclosures) deadline. Given the increased focus on data integrity, they are producing only about two to two-and-a-half loans per underwriter per day, which means margins are shrinking and, in some cases, nonexistent. The panelists agreed that they need to re-engineer their processes to decrease loan turn times so they can produce more loans per underwriter and get back into the black. Of course, technology can help automate much of the time-consuming activities lenders are currently engaged in. For example, lenders can use technology to extract critical loan data and compare it against pre-defined rules to evaluate for quality. This helps identify any data integrity issues early, so they can be addressed, and expedites QC.
Q: What was your impression of the comments from HUD Secretary Julian Castro and FHFA Director Mel Watt? Do you think the new measures being implemented by HUD and FHFA will have a significant impact on liquidity and the overall market? Why?
Scott Stucky: The Mel Watt session was one of the few I was able to attend – the changes within HUD and the FHFA are very important. I think they will be a positive change for the mortgage industry. The industry has been over-zealously regulated and held to ridiculous standards of loan quality (i.e., repurchase risk). This announcement is a good first step to common-sense business practices that make sense for lenders, borrowers and the government-sponsored enterprises.
Sanjeev Malaney: Lending practices will never revert to what they were before the housing bubble. Nonetheless, the regulatory pendulum has swung far in the other direction over the last several years, which has caused lenders to tighten credit a bit too much. During his comments, FHFA Director Melvin Watt admitted that the Representation and Warranty Framework did not provide enough clarity to lenders to understand when a repurchase of a loan might be required, and this caused lenders to impose credit overlays that further restricted lending. Watt said that the FHFA will be clearly defining reps and warranties and that he hoped the new actions would help lenders to re-evaluate their existing credit overlays and more actively make loans available to creditworthy borrowers. With better clarity on policies, I do believe lenders will lift some of their credit overlays to increase liquidity in the market.
HUD Secretary Julian Castro stated that it is in the nation's best interest to expand access to credit for responsible Americans, and that is the goal behind the new measures he announced. HUD's new Blueprint for Access initiatives, for example, give lenders clarity on policies and compliance, provide better ways to evaluate a lender's portfolio performance, streamline categories of loan defects, and initiate a Ginnie Mae pilot that gives smaller lenders greater access to the secondary market. All of these measures should serve to ease lenders' fears of repurchase and increase overall liquidity.
Q: Based on what you heard or learned at the show, what are your predictions or forecasts for the mortgage industry in 2015?
Scott Stucky: I think 2015 will be a tough volume year due to narrow margins. While I anticipate a flat to lower volume, it will also mark the beginning of a large-scale move back to a purchase market. As lenders become more comfortable with QM and its implications, it may also be the start of non-QM lending on a larger scale.
Sanjeev Malaney: My prediction is that 2015 will mark a year in which lenders work to ensure that they are meeting compliance requirements, especially TILA-RESPA, by re-engineering their processes to increase their focus on loan quality. Lenders will need to look for solutions that will help them ensure quality without increasing loan production costs and eating into margins.
There is no one-size-fits-all solution to succeed in this compliance-driven environment. Lenders need to anticipate their needs and identify their internal processes' weaknesses, so they can find the right solutions to help them comply with regulations and avoid severe penalties.
I further predict that areas that received little attention in the past will take center stage in 2015. For example, lenders will focus attention on the post-close function because it is critical in ensuring that quality loans are being delivered to investors and in identifying any quality issues that might put the lender at risk. Preparing now by adopting technology solutions that can automate much of the post-close quality control function will give lenders a leg up on compliance and on the competition.
Steve Szpytek: The industry seems to be leaning toward alternative agency development, which we expect to gain traction, in addition to the growth of non-QM loans as a greater staple in lenders' portfolios. There is also likely to be non-QM development in the jumbo space based on upcoming regulations and interest rates. Additionally, because of the recent changes to agency credit guidelines and decreasing down payment requirements, lenders are anticipating a growth in originations in 2015.
Philip Elwyn: The fact that documents can now be delivered and signed electronically is changing the way mortgage lenders and all parties associated with the mortgage process are conducting business. Soon, with an electronic notary process and municipalities accepting electronically signed documents (as of December, the FHA will accept all documents with electronic signatures) the entire loan process can be made electronic. The advantages are numerous and, as a result, e-signature technology adoption is now seen as a requirement, not an option.
Leonard Ryan: Lenders will continue to be forced to consolidate, as ‘mom and pop’ lenders become a thing of the past. This will create additional strains on the innovative small mortgage industry vendors. I am hopeful that the CFPB will listen to consumers who are already voicing concerns about access to credit and overwhelming debt. This has always been a pioneering industry and I'm confident that we can together, weather yet another regulatory storm.
Rosie Biundo: Primarily, I think there will continue to be a heavy focus on regulatory and compliance issues, as well as continued work on easing credit standards and promoting responsible lending to reach the underserved population. However, I feel most lenders will remain conservative to avoid repurchase requests and potential lawsuits down the road.