US Mortgage Industry: 2021 so far...

The US Mortgage industry after an unprecedented 2020 is looking at some consolidation. The external macro-economic factors continue to shape the industry direction while some interesting moves from industry players can also potentially impact the market structure in the coming years. In this article, we look at some major events so far this year and how they are impacting the industry

?1. Major headwinds in FHFA

?On 23rd June 2021, following a US Supreme Court ruling, President Joe Biden removed FHFA director, Mark Calabria. This marks a major policy shift of FHFA and the future direction of Fannie and Freddie remaining under its conservatorship. With the earlier government intent of privatizing the 2 bodies no longer on the table, the Biden administration is expected to push the following in the market:

• ?Rise in affordable housing financing and multifamily lending with ramped up loan production
• Surge in large ticket commercial loans from large mortgage originators
• Increased focus on prime lending
• Rise of green mortgages for both new build home and renovated homes with a sustainability rating that adds a ‘green value’ and more resilient to any ‘brown discount’ in markets.

?2. Rapidly increasing house prices:?

S&P NSA index has been reflecting a continuous uptrend in house prices. This partly stems from

• Demand for bigger/new homes as the Work-from-home trend sustains and historically low mortgage rates
• Shortage of new houses in the markets as the builders are playing catch up.
• Lack of infrastructure and workforce due to pandemic, & rising lumber prices further contributing to the demand-supply gap.

?As per Urban Institute report, if USA continues down the same road, over the next two decades the US homeownership rate is set to decline to 62.1 percent with younger millennials and racial homeowners being affected the most.

?This has also resulted in comeback of the 40-year Mortgage for new borrowers.

?On the positive side, existing homeowners are exploring/leveraging higher Home Equity benefits, the Reverse Mortgages market is witnessing increased activity, and this is contributing to declining loans in foreclosure.

?3. Foreclosures in spotlight as COVID bailout nears its end:

?Since March 2020, millions of homeowners have received forbearance under the CARES Act, allowing them to temporarily pause or reduce their mortgage payments. The uncertainty around when the COVID bailouts will end (31st July with latest extension) and how it will impact the loans in foreclosure persists.

Mortgage Bankers Association reported?that approximately 2 million homeowners are currently in forbearance plans. In total, a 4.04% share of all mortgage volume is in a state of forbearance.

The US Government has offered -

• Foreclosure moratorium for homeowners.
• Extended the mortgage payment forbearance enrollment
• Provide up to 6 months of additional mortgage payment forbearance, in three-month increments, for borrowers who entered forbearance on or before June 30, 2020.

These coordinated actions cover 70% of existing single-family home mortgages. Also –

• FHFA is trying to avert this crisis with interest rate loan modifications and interviewing of borrowers
• CFPB has come up with new rule on Early intervention and loss mitigation requirements for mortgage servicers which will take effect on Aug. 31, 2021.

Mortgage servicers are also pro-actively working with borrowers on resolution options, and coming quarters should see resolutions on a large percentage of these loans and net reduction on loans in moratorium. ?

4. Mortgage Servicing Market rises: Mortgage servicing rights (MSR) market has been improving in recent months owing to - ?

• Recent origination volumes at lower interest rates which provides risk mitigation against MSR asset devaluation
• Rising interest?rates have reduced?Refinance activity and boost MSR valuations
• Borrowers who were in forbearance plans will begin to recover post the plans expire?independent bankers were servicing more than?$4 trillion of agency loans at the end of 2020, which was up 8.1%?over a three-month period.

The Mortgage Servicers are aggressively looking to expand Mortgage servicing portfolio and offset revenue loss due to expected drop in Purchase & Refi volumes from last year. MSR market will further improve?with high-quality?(sub)servicing partners having a technology platform that offers real-time visibility into loan status and performance through a secure lender portal and are able to leverage?exception-based processing to identify data anomalies during loan boarding and over the life of the loan.

5. Reshaping the Broker Community

During the pandemic, the broker community was also being reshaped with digital offerings like -

• Broker directory like Rocket PRO TPO by Rocket Mortgage
• LOS like BLINK+ by UWM offering POS, CRM, capabilities like pricing e-signing etc. along with tools like Brand 360 and virtual success track.
• PathFinder by Rocket - a conversational AI/ML tool for loan related guidelines

This largely indicates differentiation through a consolidated and dedicated broker channel, that provides the smoothest digital experience possible for borrowers.

While these efforts take place to reshape the broker community, an interesting battle between UWM & Rocket Mortgages & Fairway is also brewing on the sidelines with an exclusivity announcement from UWM for the broker network.