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June 27, 2016

The Familiar - and Unfamiliar - Next Era of Mortgage Lending

Leaders in the mortgage industry have an obligation to shape this new era of mortgage lending with a clear focus on long-term, manageable growth and stability.

By: Trevor Gauthier, "The Familiar - and Unfamiliar - Next Era of Mortgage Lending," for MBA Newslink

My team and I just had the pleasure of spending an entire week with hundreds of the most energized and enthusiastic post-TRID lenders and industry suppliers you'd find anywhere. It's our favorite time of year, though this year's annual user conference was particularly special. There's a new, bright mood blossoming in the mortgage industry--something we should all take a moment to acknowledge and learn from.

My own reason for optimism is easy to explain. We stand at the cusp of the next era of mortgage lending. Hyperbole? Exaggeration? Not at all. This is the first time in more than eight years that we are collectively looking ahead rather than over our shoulder. Looking ahead is good, though not enough. We have a bigger responsibility.

By most measures, the housing and mortgage markets are "healed," and the economy is on good footing. Despite this, the housing market and those who should be buying are not connecting as they should. Leaders in the mortgage industry have an obligation to shape this new era of mortgage lending with a clear focus on long-term, manageable growth and stability.

Some things in the new era look pretty familiar. Ever notice fashions return again and again? For example, the bohemian look of the ‘60s is back. There's a parallel in lending that was popular in the ‘60s, too: simple, fixed rate loans are more popular today than ever.

In a recently completed survey we participated in, more than 80 percent of lenders agreed that conventional conforming loans meet the needs of the majority of their borrowers. Likely because they are durable. They last as long as 30 years, and they are easy to understand. Just like a car loan, only much bigger. Lenders ought to like them because they are the easiest to manufacture, or at least as easy as any loan is to create these days. That's why many people like jeans, I suppose. Because they are durable. Buy them once, where them a lot. Take out a 30-year fixed, keep it forever.

My takeaway from what looks familiar is this: we'd be wise, in this new era, to shape a simpler, smarter future. One built on the fundamentals. That's one of the things that got us into trouble. While focusing on simple, we forgot the things that make a good loan durable.

Then there's the familiar, yet different elements of the new era. Today's wave of first-time homebuyers, described as the biggest in history so far, are familiar because we have seen them before: in the late 1940s through the early 1960s. This generation started the mortgage process knowing it would be hard. They had low expectations, and they were often met.

Similarly, today's first-timers feel the same. They saw firsthand what can happen from poor lending practices, and as a result, think getting a mortgage is more trouble than it's worth. Of course, the difference lies in the fact that today's first-time buyers have something called liquid expectations. Buying a home and financing it should be as easy as one-click online purchases they're used to. Why not a 30-second mortgage? Borrowers originate their own loans online today, after all. What takes so long?

Here, too, is where the borrowers of yesteryear and the borrowers of today converge. They have no idea what it takes to manufacture a mortgage. Likely most of them don't much care, either. Like anything you'll do only a few times in your life, it's not important enough to them to invest a lot of time learning. It's true: there are plenty of things more interesting than a 30-year fixed-rate mortgage.

It is unlikely we can do much to change our borrowers' non-interest in the vagaries of manufacturing mortgage loans. What we can do, though, and this is my takeaway from the familiar/not familiar aspect of the future, is give today's borrowers the chance to look deep into the origination cycle, and let them participate as much as they desire. These borrowers, unlike their mortgagor ancestors, have great expectations, and we can meet them. We simply have to let them participate.

Then there's the less unfamiliar, though very exciting work we'll do on the future of our business, and that's the technologies we'll apply to manufacturing loans. We plan to spend our days shaping the future in pursuit of the truly electronic, paperless digital mortgage that, quite frankly, is possible today, though elusive for most lenders and most borrowers.

Pioneering lending technologies over the past 17 years has been very rewarding. We're looking forward with even more earnest enthusiasm than we had in the late 1990s. This new era will be the best and most interesting in the history of mortgage lending. A time when real, positive change will yield the best times the mortgage industry and homebuyers have ever experienced.