If at the beginning of 2020 someone predicted that mortgage originators would experience the best year ever in the middle of a pandemic, chances are that would have been considered outrageous. But did it or did it not happen?
Towards the end of 2020, the National Mortgage News reached out to industry watchers and experts who made their wildest predictions more or less about developments the real estate industry and more specifically the mortgage industry is likely to experience in through 2021.
- The bubble pop.
“Banks realize that real estate is in an artificial bubble and rates are artificially low,” said Michael Chadwick of Chadwick Financial Advisors. “They realize that values are likely to go down from here and they’re going to be saddled with fixed rate mortgages that are upside down and [will] crush their balance sheets. They pull back on lending and increase standards to what they used to be: 20% down, only top credit with financial reserves and claw back provisions. This is what it always should have been.”
- Mortgage loans and cryptocurrency.
Twenty-five percent of all mortgages (mainly in cities like Austin, San Francisco and Denver) will be made in Bitcoin (BTC). “The mortgage will be ‘tokenized’ on a blockchain,” said Harsha Naidu, Tavant’s head of artificial intelligence. “Tranches of a loan will be sold as BTC addresses, packaged together on the secondary market, linked to a BTC Exchange Trade Fund.”
Naidu also predicted a change in the way lenders assess borrowers due to the pandemic. “The loan underwriting process will drastically change to include ‘health points’ like, ‘you have got the vaccine, you are in good physical and mental health, more points to you;’ the rationale is as you will be alive, you will keep a job and pay back the loan.”
- Tesla gets into prefab housing, while Amazon offers title insurance
According to Abhinav Asthana, head of product at Tavant, Tesla/Elon Musk will get into the prefabricated housing business. Their homes will be powered with solar cells, rechargeable batteries and have native intelligent home capabilities.
On the other hand, Manish Arya, chief technology officer at the company, said, “Amazon [a company rumored to be interested in getting into mortgage] enters the title insurance market, and undercuts incumbents by 50%.”
- Regulatory invasiveness.
“The mortgage industry needs to get ready for regulatory scrutiny. It is like a colonoscopy — no one likes it but you have to face it to determine if you need to address any issues that could prevent future more damaging problems,” said Sanjeev Dahiwadkar, founder of IndiSoft. “You will see many lenders, servicers and other mortgage-related stakeholders receiving scrutiny from various regulatory agencies including the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, state agencies and many others.”
- Expiry of the QM patch won’t lead to more non-QM.
“In spite of what I’m hearing, 2021 will not be the year for heavy non-qualified mortgage volume,” said Jim Paolino, CEO of LodeStar Software Solutions. “A likely slow start for the overall economy; the adverse market fee; and a possible rise in the interest rate will prove to be the headwinds that prevent a big year for that product. It will have its place soon, but not in 2021.”
- Servicing liquidity to increase with low rates
“We expect rates to continue to trend low to slightly higher through 2021,” said Michael Dubeck, Planet Financial Group CEO and president. “We also expect valuations and liquidity in mortgage servicing rights to climb as we come out of the pandemic, based on improved delinquency profiles as borrowers work their way out of forbearance and investor confidence improves.”
- Government program to compete with PMI.
“The Federal Housing Administration will reduce its upfront mortgage insurance premium and regain market share,” said Daniel Jacobs, Tru Loan Mortgage’s managing direct. “The FHA also will reinstate the sunset of monthly MI to reduce prepayments.”
“Depository aggregators will start a price war for correspondent jumbo mortgages. By the fourth quarter, home equity lines of credit will be back in fashion like a runway model,” Jacobs added.
- Public nonbank lenders’ stock to decline.
“Values of publicly traded mortgage companies will fall by 50% as investors fear a decade of weak refinance activity and its negative impacts on independent mortgage bankers’ net income,” Jacobs said.
Folks, let’s brace ourselves for an interesting year in 2021.