Welcome to 2016: Here’s What Lenders Can Expect in the New Year

The new year is sure to bring about an array of changes for lenders. Some good, some bad, and some ugly. Read on to find out how lenders can put their best foot forward in 2016 and be prepared for what's to come.

Wade Hamby, National Director of Sales and Marketing, The StoneHill Group talks regulation and the ever-popular TRID rule and advises on how lenders can seize 2016 opportunities.

MReport: What will be the biggest regulatory challenge for 2016 and how should lenders prepare for it?

Hamby: The implementation of TRID is by far the biggest regulatory challenge facing lenders, because it’s such a dramatic change. Of course, they should have been prepared by now. But most lenders were relying on enhancements to their loan origination systems to accommodate the new disclosures, and as regulators recently pointed out, not all LOS vendors were ready. Until everything is smoothed out, the implementation of TRID will be on the forefront of everyone's agenda well through the first quarter of next year, and possibly the second quarter as well.

MReport: Where is the greatest area of opportunity for lenders to make revenue and how should they go about tapping that?

Hamby: There are several areas of opportunities for lenders. Digitizing the mortgage process would make the transaction vastly more efficient and less expensive for everybody, and the technology is readily available. Consumer direct lending is another huge growth area for lenders. QuickenLoans, the fastest growing lender in the country, is a consumer direct lender, and there is plenty of room for more.

Possibly the single largest opportunity for lenders to increase revenue is by maximizing one’s client base. This seems absurdly simple, yet lenders have overlooked this opportunity for decades. Many loan officers and mortgage brokers retain a majority of their customer base, but from a historical perspective, the companies that actually service the loans have never been able to retain clients effectively. On average, lenders are able to retain less than 25 percent of their customers. This has always baffled me, but the lenders that overcome this challenge will have a strong advantage in the market.

MReport: What do you see as the biggest single threat to lenders in 2016? Why?

Hamby: The biggest threat facing lenders is and always has been complacency. Our industry has a tendency to avoid change instead of embracing it. This is nothing new or unique. With a market shifting away from refinances and toward purchase loans, and with new regulatory challenges such as TRID, being complacent is a recipe for disaster. Compliance and regulatory change in general will continue to be a major factor, and with FHA servicing guideline changes in 2016 and HMDA changes in 2017, lenders will need to adapt to new market conditions to survive.

The second biggest threat is our aging workforce. I read recently that the average mortgage professional is somewhere in his or her mid-50s, while the number of licensed professionals has been relatively flat for the past few years. Of course, part of the reason is that the market has been relatively tranquil since the housing crisis. But there’s not enough young people entering the business today. As an industry, we need better recruiting and training of young professionals.

MReport: How will lenders be able to develop and sustain a competitive advantage next year? What factors do you feel are going to be the most impactful to lenders’ businesses in 2016 and how can they handle these issues proactively?

Hamby: To stay competitive, lenders need to invest in technology through the systems they use and in people, through proper training and education. From a market standpoint, the biggest factor that will impact lenders next year Involve rising rates, which means that lenders will no longer be able to count on refi volume—they will need to orient themselves for a purchase market. The problem is the majority of people in our industry have never been through a rising rate environment. It’s been many years since we’ve seen substantial rate increases. While it will create opportunities for some, the elimination of marketing service agreements, or MSAs, will also force lenders to adjust. The bottom line is that lenders will need to rely heavily on the systems they use and the people they have to realign themselves to a different market. The more successfully lenders can do this, the more competitive they will be.

Chris Backe, Business Development Director, Financial Services, Velocify provided his predictions for lenders to have a prosperous 2016.

MReport: Where is the greatest area of opportunity for lenders to make revenue and how should they go about tapping that?

Backe: Millennials will continue to be a great opportunity for lenders to build market share. However, it’s big challenge for lenders to be able respond to buying signs from this group and then use the appropriate communication medium to engage them. To overcome this challenge, lenders will need to invest in tools that help them manage an effective contact strategy, and they will need to leverage mobile apps, texting and video to engage millennials in ways they are accustomed.

MReport: How will lenders be able to develop and sustain a competitive advantage next year?

Backe: With interest rates going up and less volume forecasted, 2016 could be a tough year for some lenders. However, there is huge upside for lenders who can successfully combine and improve their sales and marketing efforts. That includes augmenting traditional realtor and builder channels with online and offline marketing activities. Sales teams must also leverage automation to improve efficiency in the sales and marketing process without losing the personal touch with customers. Lenders that can manage this balance will see their market share increase.

MReport: Name an issue that you feel the industry should pay more attention to but hasn’t been focused on? Why is the issue important and why do you think it has not been an area of focus?

Backe: Lenders have been hyper focused on the modernization of their production platforms for years, and they have invested heavily in their LOS and other operations systems for good reason—to manage compliance and efficiency. It’s now time for lenders to modernize how they identify, connect, engage and nurture their customers and prospects. Historically, the sales and marketing activities that take place prior to the customer completing the loan application have been disjointed and inefficient. Lenders measure success based on loan volume, but they have little understanding of how loans get (or don’t get) into their loan pipeline.  Those who fail to modernize their sales and marketing efforts and give them the same level of attention as their production platforms will lose market share. That being said, there’s plenty of time to turn things around before the spring home buying season arrives.

Mark Lyons, SVP of The William Fall Group shares his thoughts on the 2016 housing market for lenders and what should be their focus for the rest of the year.

MReport: What factors do you feel are going to be the most impactful to lenders’ businesses in 2016 and how can they handle these issues proactively?

Lyons: Clearly purchase volumes will be a much larger component in the market than in previous years.  This sets up an ideal environment for service-oriented independent mortgage bankers, who can usually adapt more quickly to local market influences.  We have a large core of independent mortgage banking clients, and most are optimistic about their success in 2016.

MReport: Name an issue that you feel the industry should pay more attention to but hasn’t been focused on?   Why is the issue important and why do you think it has not been an area of focus?

Lyons: The barriers to entry in the appraisal profession is a serious issue, yet it has remained below the radar. Most feel it has been ignored due to the relatively low levels of mortgage activity we’ve seen since 2008.  However, given the projections for significant household growth in the upcoming decade, we can expect much longer appraisal service times unless we change access to the profession soon.  The potential shortage of appraisers combined with a rising demand for homes will create a real disservice to the consumer and damage the overall real estate market.

Becky Walzak, president of rjbWalzak shares her list of major changes to expect in 2016:

1. Interest rates will go up, but not too high. The economy will continue to recover, and with it, consumer optimism will grow.

2. There will be fewer all cash foreign investors as foreign currency drops against the dollar. As a result, inventory will increase in many areas, particularly in the “sand” states.

3. Products which we thought were gone will continue to re-emerge. These non-agency products, such as Super Jumbo’s with no MI and loans for borrowers with low FICOs, will expand.

4. Documentation types will also expand. Doc types like Bank Statement and/or cash flows to verify income will become more popular as small business growth continues.

5. With the upcoming election we will see both more and less emphasis on regulatory issues. This is dependent on which side of the fence appears to have the advantage.

6. The mortgage industry can expect to see more exams by the CFPB, as well as fines. The CFPB will focus more on the examination side in 2016 as their major regulatory issues- fees and costs- have been addressed with ATR/QRM and TRID.