Will 2016 be the year our industry drives, rather than reacts to, change?
The U.S. economy is clearly doing better: Employment and confidence are up; housing prices in most parts of the country are back (or nearly back) to their 2007 peaks; and defaults and foreclosures are continuing to trend down.
Also, Oct. 3 has come and gone, and the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule (TRID), like Y2K, turned out to be a scary, expensive and disruptive event--but not cataclysmic. (At least I hope not, as this column is being written in early September.)
Most importantly, with more certainty and understanding on TRID, I believe that our industry may finally be on the downhill slope of outside, regulatory-imposed change and beginning a new era of industry-generated change. Whether this starts in three months or a year from now, I believe that it could usher in an expansive, new phase for our industry in which we again control our own destiny--a new era in which technology and creativity again shape our future.
Getting accustomed to good news and new rules
In recent months, we have seen a steady stream of good news for the housing and mortgage industries. Forecasts for 2015 and 2016 originations have been increased several times (although a drop-off is still expected for next year). A new analysis of the 2014 Home Mortgage Disclosure Act (HMDA) data even showed that last year wasn't quite as bad as we all thought; in fact, 2014 originations were roughly $1.3 trillion, which was significantly better than what was forecast.
Housing-price appreciation, along with job and income growth, are all driving down defaults. This, in turn, has created stability within the servicing sector and given overstressed servicers an opportunity to not only catch their breath, but also catch up with the plethora of new rules and standards set by the National Mortgage Settlement, the Consumer Financial Protection Bureau (CFPB), the government-sponsored enterprises (GSEs) and the states.
Compliance, on both the servicing and origination fronts, has been the overarching concern for lenders and their vendor partners for the past seven years.
While no one is suggesting that compliance is going away anytime soon, I'd argue that at least we, as an industry, are finally used to the new rules. Qualified Mortgages (QMs) are now the norm, and an increasing number of lenders and investors are getting comfortable with non-QM products and are even beginning to explore securitizing them.
TRID required lenders and vendors to significantly revamp their technology and workflows, and has added a great deal of angst and cost. Earlier this year, lenders interviewed for STRATMOR Group's TILA-RESPA Readiness Survey said they expected TRID compliance to add about $160 to the cost of every loan.
Ready or not, however, TRID is here. Some lenders and settlement services companies are probably dealing with it manually--throwing bodies at the problem and "staring and comparing" to catch discrepancies between loan estimates and closing documents. However, most are relying on systems and technology to support their compliance framework and reduce risk.
The TRID experience, I believe, will accelerate our industry's adoption of compliance automation. Also, it seems to be one of the last big pieces of the government's plan to redesign the mortgage process.
Applying ingenuity and technology in a transformative way
If this is the case, then perhaps our industry will finally be able to devote resources and energy to applying automation and new tools to transforming real estate and mortgage transactions. Yes, there have been a few evangelists who for years have been preaching the gospel of the paperless mortgage. As an industry, though, we are still swamped in paper and aren't using available technology to anywhere near its fullest potential.
Here's just one small example. To buy real estate where I live in Utah, every offer must be in writing using an addendum to the prescribed Real Estate Purchase Contract. That addendum gets printed out and hand-delivered, faxed or scanned and emailed by the buyer's Realtor[R] to his or her counterpart. Almost inevitably it isn't accepted and a counteroffer is generated, and this requires another addendum. The back-and-forth process can take between 48 hours and a week.
However, this could all be done online and in a lot less time. In fact, our Red Bell subsidiary has developed an "offer" system that already does it for real estate-owned (REO) sales, using online templates, time stamps and e-signatures.
Within the real estate world, companies like Seattle-based Zillow have been acquiring startups and component players to build platforms that will automate some or all of the real estate acquisition process. For the most part, however, they are trying to build it around--rather than with--real estate agents, which may or may not be a viable strategy.
As we've discussed, much of the automation within the mortgage industry, for obvious reasons, has been focused very narrowly on compliance in recent years. True, some vendors, notably loan origination systems (LOS) providers, document-management companies and pricing engines, have moved the needle somewhat by taking paper and friction out of the origination process and integrating key services, like mortgage insurance.
Recently some new players such as Lenda, SoFi and Sindeo, all based in San Francisco, have come on the scene with the stated goal of using technology to disrupt the mortgage market, as is being done in other industries.
It's too early to tell whether this will happen, how quickly and who the new winners and losers will be. However, the very fact that new companies are springing up again and that large investors like New York-based Blackstone Group are investing in the mortgage market are positive signs for our industry.
Whether new technology and transformative ideas come from the new entrants or from traditional industry developers, the mortgage and real estate processes are ripe for reinvention, if not disruption.
The early adopters of new technology won't be just the new entrants. They'll undoubtedly include forward-looking lenders, like Detroit-based Quicken Loans, which is always testing new ideas and challenging long-held perceptions.
That's why this past year, our company, with the support of our parent, Philadelphia-based Radian, has begun making investments in new tech companies, like Red Bell, which is in the real estate/valuation space.
As our industry broadens its focus beyond compliance to encompass opportunities, profitability and improved customer experience, we're betting that the mortgage industry will find these answers in technology and ingenuity.
Joseph D'Urso is president of Clayton Holdings LLC, Shelton, Connecticut, a leading provider of loan due diligence, surveillance, REO management, pricing and consulting services to the mortgage industry. He can be reached at firstname.lastname@example.org.
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|Title Annotation:||COLUMNS: EXECUTIVE SUITE|
|Comment:||Will 2016 be the year our industry drives, rather than reacts to, change?(COLUMNS: EXECUTIVE SUITE)|
|Date:||Oct 1, 2015|
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