Mortgage Industry: How It Has Evolved Since the Great Recession
From movies like the “Big Short” to today’s history lessons, the Great Recession is well documented. I’ve worked in the mortgage industry for over 20 years, and I often wonder what the last decade would have looked like without this monumental event. My colleague, Craig Crabtree, reflects on lessons learned and the continued evolution of the industry in his article, A Decade Unlike Any Other, published in the July issue of DS News.
A Look Back
Craig begins the article with a look back to the early 2000s. It was a time when interest rates were on the decline and refinance volumes were, in turn, on the incline. Lenders competed for their share of the market. They introduced new loan products like no-cost refinance loans to help win customers who want low interest rates and to take cash out of their homes. Traditional underwriting practices were abandoned. Instead of relying on the three Cs of underwriting, lenders began relying on just one C. During the pre-crisis boom, credit trumped all. “Credit scores are predicted on conditions remaining the same as they were in the past, and in this case, the past involved comprehensive underwriting” says Craig. “Without collateral and capacity, credit was no longer an accurate indicator of risk, and the result was a global catastrophe.”
Here and Now
Today, a few things are in the industry’s favor. A continuation of historically-low interest rates, a stronger overall economy and lower unemployment rates. Borrowers are benefiting from regulatory requirements that provide increased transparency. But on the flip side, these same regulations meant to protect consumers have introduced operational complications for lenders.
Fannie Mae’s Day 1 Certainty has pushed lenders to look beyond the credit score to additional data such as income, asset and employment information. This additional level of insight helps lenders better evaluate the creditworthiness of borrowers. Automation has impacted how this additional data feeds into and expedites the origination process, enabling lenders to qualify borrowers more efficiently.
Citing the latest delinquency data, Craig explains that sever delinquencies and first mortgage write-offs are at their lowest levels in almost 11 years. This indicates borrowers are better managing their debt obligations.
And lastly, as Craig points out, one of the biggest factors at play today is housing inventory. Or lack thereof. In many places, qualified borrowers are simply unable to find homes to purchase. This is especially true for first-time homebuyers.
The industry is on the cusp of achieving a true digital mortgage experience. Lenders are embracing changing consumer preferences and mobile capabilities – and by doing so, redefining the mortgage process.
Craig believes the industry will begin to shift away from its traditional, reactionary mode to a more proactive one. One in which lenders leverage data and analytics to initiate the process with qualified consumers. Going a step further, he imagines that eventually a consumer will be able to apply for a mortgage on a smartphone while viewing a house, get qualified in minutes and successfully close within weeks. But lenders will have to continue to embrace technology. Capabilities will need to be in place to secure information through automation and build that into their workflows. Those willing to do so can thrive.
The last decade has been one for the record books. The mortgage industry has seen historic highs and lows, and is rebounding toward momentous highs once again. The lessons learned over the past 10 years remain top of mind, and I, for one, can’t wait to see what the next 10 years have in store.
For more on this topic, read Craig Crabtree’s article, A Decade Unlike Any Other.
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