Tian Liu: Lenders Should Expect Purchase Volume To Increase In 2017

Whether it was dealing with complex regulations, such as the TILA-RESPA Integrated Disclosures rule; preparing for new regulations, such as new reporting requirements under the Home Mortgage Disclosure Act; keeping up with new technology requirements; reacting to rising interest rates; or bracing for potential changes under the incoming Trump administration, 2016 was a tumultuous year for mortgage lenders.

Despite all of this tumult, however, it was a fairly good year for originations. According to the Mortgage Bankers Association’s latest available estimates, mortgage originations for 2016 are on track to reach about $1.9 trillion, up from about $1.6 trillion in 2015, with refinances accounting for nearly half of all volume. Lenders saw a nice refinance “boomlet” in the third quarter, and on top of that, purchase volume increased about 10% during the year.

Right there beside the mortgage industry and also dealing with all of this change was the private mortgage insurance (MI) industry, which, in 2016, continued to play a crucial role in shifting risk away from the government-sponsored enterprises (GSEs) – and, thus, taxpayers – through the GSEs’ credit risk transfer programs. Private mortgage insurers also continued to make great strides technologically during the year, deploying more advanced underwriting systems and data/analytics solutions and creating stronger integrations with lenders’ loan origination systems, all in the name of speed, efficiency and compliance. Overall, it was a pretty good year for the private MI space – that is, until the very end, when the Obama administration decided to provide a “parting gift” in the form of a 0.25% Federal Housing Administration rate cut (but that’s a topic for another Q&A).

During a recent interview with MortgageOrb, Tian Liu, chief economist for Genworth Mortgage Insurance, reflected back on the major factors that reshaped the mortgage industry in 2016 and also took a look forward at the factors that will continue to reshape the industry in the coming year.

Q: Reflecting on 2016, what would you say were the most important changes the mortgage industry saw and why?

Liu: The MI industry saw the largest purchase volume on record in 2016, while maintaining responsible underwriting standards. This is significant, not just to the mortgage industry, but also to the broader housing market and the overall economy.

The MI industry serves first-time home buyers, members of underserved communities and other qualified borrowers who cannot or chose not to make a 20% down payment. The level of demand we saw from first-time home buyers tells us that homeownership remains compelling, and potential first-time home buyers are confident and secure enough to become homeowners. We believe that the return of first-time home buyers has been important to the overall housing market, reducing the available inventory in the market and boosting home prices.

Q: Looking forward to 2017, what are your predictions for home sales and origination volume? What impact do you think rising mortgage rates will have on volume and operations?

Liu: Affordability is important to both potential home buyers and lenders. There is no doubt that higher mortgage rates will increase the cost of buying a home and have some impact on affordability. But the recent rate increase came, in part, because of stronger consumer and business confidence, which is very important to major investment decisions.

For most families, their family home is their single largest investment. So, stronger confidence is a significant positive factor for home sales. In addition, we believe that the strong housing demand observed in 2016 will continue for a number of years. This is why, on balance, we are positive about home sales and purchase origination volume in 2017, provided that mortgage rates do not increase too much.

Q: What other factors do you see reshaping the mortgage market in 2017?

Liu: One of the challenges I see for the mortgage market in 2017 is helping first-time home buyers. The new homes that have been built over the past few years are more expensive than what many first-time home buyers can afford. This has forced many young families into renting, so there is a large pool of potential first-time home buyers. Home builders, Realtors and loan officers need to work together to create more affordable options for homeownership.

I also expect that lenders will continue to leverage technology to make the mortgage origination process more consumer-friendly and efficient and to lower the cost of each loan.


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