Predictions for the Mortgage Industry in 2019
Over the past few years, the mortgage industry has seen a significant amount of change. From sky-high origination and refinancing volumes, to a hyper-regulated environment -- and now rising affordability costs -- every year brings new challenges. While it can be hard to predict the future; by analyzing current trends, lenders can better prepare for the year ahead.
Some trends that we expect to see in 2019 are:
- Increase in fraud
- Hyper-competitiveness for originations
- Rapid digital technology adoption
- Continued changes to regulations
It’s important to note that this article is entirely speculative in nature, so lenders should continue to adapt to the changing market as they see best.
Increase in Fraud
Fraud continues to increase quarter after quarter. In Q2 2018, fraud increased 12.4% compared to Q2 2017 according to the latest Mortgage Fraud report by CoreLogic. With home prices continuing to inflate, this trend is unlikely to decrease any time soon.
While there are many different types of mortgage fraud to be aware of, wire transfer fraud and occupancy fraud will continue to be a major threat to borrowers and lenders over the next year.
Hyper-Competitive Lending Environment
There is no dismissing the fact that 2019 will be a tough year for some lenders. Recently, the Federal Reserve projected two additional rate hikes for 2019. As interest-rates and home prices rise and inventory shrinks, lenders will be forced to compete for a smaller pool of borrowers.
These factors will increase marketing costs and cause the profit margin for loans to shrink. Lenders will need to offer innovative products, an amazing borrower experience, and grow their brand reputation if they wish to remain competitive.
The secondary market will continue to be an important source of revenue for any mortgage lender. Over the next year, lenders will seek investors that offer more favorable basis points for their loans. This may even cause investors to compete for coveted LMI loans in order to meet their Community Reinvestment Act obligations.
Fewer borrowers means mergers and acquisitions will accelerate throughout 2019 as lenders look for growth and ways to diversify their product offerings. There were 28 M&A deals announced by November of 2018 and as rates continue to climb this year, the mortgage industry will continue to consolidate.
Rapid Digital Technology Adoption
Lenders have been slowly adopting more and more digital processes into their workflows. In 2018, we saw a significant rise in the number of lenders offering digital loan applications, including big names such as Wells Fargo and Bank of America.
In 2019, B of A predicts that “50% of applications will be digital” (HousingWire). As additional fintech companies enter the mortgage space, the way people buy and sell a home is about to rapidly change. Amazon’s recent move to enter the mortgage market is a sign that borrowers will continue to expect a more streamlined digital mortgage approach.
Lenders will need to continue to adapt to changing borrower behaviors and invest in technology that better facilitates the mortgage process. Mortgage processing will continue to become more efficient as processes move online. E-docs have already significantly helped with this and automated services, such as VOEs and VOAs will allow lenders to instantly verify borrower information in seconds instead of days.
The 48 days to close a mortgage will soon be a thing of the past. In 2019, the mortgage process will continue to edge closer to the new expectation of two weeks to close.
Continued Changes to Regulations
2018 experienced a brief period of deregulation as banks received some relief via the Economic Growth, Regulatory Relief, and Consumer Protection act that was passed in May of 2018. However, state examiners continued to go after lenders, particularly in the area of fair lending.
In 2019, Democrats will once again have control of the House. With Maxine Waters as the chair of the House Financial Services Committee, banks and mortgage lenders could face additional scrutiny over the next year. Waters has publicly said “I have not forgotten that you foreclosed on our houses. I have not forgotten that you undermined our communities. I have not forgotten that you sold us those exotic products, had us sign on the line for junk and for mess that we could not afford.”
Federal regulators will continue to look for ways to modify regulations in 2019. For example, the Community Reinvestment Act will be updated — which could mean many different things for lenders.
While regulators have proposed changes to how assessment areas are defined and establishing performance benchmarks, some lawmakers have suggested expanding CRA to cover credit unions and non-banks. An updated CRA will not take effect in 2019, but we should have a better understanding of what the updated regulation might look like as we move further into the new year.
Banks Will Regain Lost Market Share
The recent uptick in private-lending will slow as these loans become less appealing in the new market. One of the biggest pros of a private mortgage is the ease of qualifying. Banks are subject to intense regulation and scrutiny, which would cause them to decline a loan that a private lender might be happy to approve.
With a slight decrease in debt-to-income requirements and regulatory relief, borrowers will have an easier time qualifying, and thus will have less reason to run to a private lender. Not to mention, private loans tend to have higher interest rates. As mortgage rates continue their upward trend in 2019 as expected, the cost of a private loan will become increasingly out of reach.
Lastly, the maximum conforming loan limit will be increasing for Fannie Mae and Freddie Mac in nearly every U.S. county. The limit previously set at $453,100 will be jumping up 6.9% to $484,350 starting in 2019 in response to rising home prices nationwide.
Thanks to increases in fraud attempts, rapidly changing regulations, and rising interest rates, we can expect 2019 to be a whirlwind year for the industry. Being prepared for these changes will be key to protecting your organization from incurring losses and other risks.