Some industry watchers are anticipating a potential downturn in the market that would impact the mortgage space. The outlook reflects growing skepticism among economists and investors that the U.S. economy will be able to withstand a protracted trade war with China without serious harm amid a weakening global outlook. And while it’s not expected to be as dramatic or devastating as the recession of 2008, it’s always good to be prepared – just in case.
We asked some mortgage industry veterans, who have survived past recessions, for their opinions and best tips to weather any potential storm.
Here’s what they had to say:
Brian Madocks, CEO, eOriginal
It’s not a matter of if, it’s only a matter of when. Personally, right now I think the economy is still incredibly strong and defies expectations. The trading challenge is probably number one in everybody’s mind. The good news is that it’s fixable overnight. We can just say, “We’re done. Back to business as usual.” Maybe that’ll happen. Maybe there’ll be a nice resolution. But it’s highly fixable.
The geopolitical risk is a bit of a challenge, because you never know what is going to happen. There’s the unintended consequences of a Brexit, and what that means for everybody. And then of course, geopolitical risk in terms of what is going on in the Middle East. Although, that seems to always not happen, or be as bad as people think. And I keep my fingers crossed that continues to be the case.
I think the consumer remains incredibly strong, and all signs point to that happening. Personally, I hope the Federal Reserve does not lower interest rates any further. I’m old enough to have seen 18 plus percent Treasury rates. My first mortgage was 11 and five eighths, but not everybody has that same history and perspective. What you do to get ready, is really continue to watch underwriting standards.
Digital enables people to be in a better place. Although that’s not the only answer, because it allows lenders to move loans, sell into the secondary market and realize the benefits much more quickly. But I would say, if I could give one piece of advice it’s that we don’t know when it’s going to happen, so why wait? We just had our mortgage client advisory council meeting, and a lot of people are waiting for one, two or three other things to happen, where there’s plenty of opportunities to start the digital journey today. Whether it’s just with an e-note, because that can be executed in all 50 States, or if you want to have a full digital close-in, from the application close-in, and then moving into the secondary market. There’s plenty of places where that could be executed today.
Faith Schwartz, Owner and President, Housing Finance Strategies
I will say, and again, we both know this, the originations of the past five years have been remarkably without with high defects. They’ve been good to excellent credit borrowers. So, I do not see the same world that we saw when we hit the crisis and having a big portfolio of low to moderate credit risk borrowers. I also think we have missed many borrowers over time due to that tight credit outlook. And so, I would say the downturn doesn’t scare me as much, but I do think the access to credit and the high cost of origination has to change.
So, part of my interest in this is to blow up the $10,000 per loan origination cost. It’s ridiculous and it’s going to keep people from our market. We already have a low home ownership rate now, and that just adds to why people can’t get credit if the cost is truly $10,000 a loan or $9,000 a loan. So, we have to start reordering our business. And I do think picking a strong vendor is important for your main system, and there are many of them out there.
Vendors in this day and age must have clear ability to connect with third parties, other vendors such as FormFree, to keep being current with the moving parts in technology. Then understand their roadmaps, who do they communicate with, what’s the real cost of that, transparency, authentic data source, and make sure that you’re working with counterparties that can keep you at the tip of the spear instead of kind of stuck in the mud and getting information 30 days into an application. Because that’s the only way they built their modules and their workflow.
I think it’s transparency, calling good APIs, getting on the program of data standardization, and really rethinking your business process flows. And people who aren’t thinking that way will get really stuck in the high cost of originations and there will be entrants that surpass them and they will be at a competitive disadvantage.
Phil Bracken, Managing Director, VantageScore
Well it’s not a secret sauce, but it’s part of the answer for I would say, I just mentioned that about the Harvard Joint Center for Housing’s demographics studies. We, VantageScore have a great relationship with the diverse segment real estate groups in America and it isn’t secret sauce, but if lenders aren’t involved and engaged in the diverse segments, and being able to meet the needs of that constituency that is growing and emerging. And by the way, there’ve been so many research reports, people have asked that question after this credit crisis that we had. How many people still want to be a homeowner? Well, there are so many consumer surveys out there that tell us that every 10-year age segment in America, 25 to 35, 35 to 45 and up, that if you’re not a homeowner today, 90% of those people say that they have an incredible passion to be a homeowner.
If you’re not meeting that need in the diverse segments, you’re probably not going to be meeting the need for the constituency. So, that’s really important. And I would also say, it’s incredibly important for the lenders of America to be aligned with home builders for new construction. That’s a constant domain of opportunity and need for America, the new construction stuff. So, marrying those two together, diverse segments and new construction, is the ticket to success.
And I know for a fact, we can open the door at VantageScore to 10 million people that may be mortgage eligible in the near future. That is an immense amount of opportunity that I don’t know where we’d find more opportunity than flipping that switch. So, that’s why we’re working really hard to get into the mortgage domain.
Michael Dresden, President, Dart Appraisal
There was a lesson that we learned this year that I think could help others. It would be to take a look at work process and see if there are ways to break off some of that process. Maybe there’s someone in the past that was a generalist, that did many things; maybe there’s certain segments that you can break off. So, in times when you’re busy, you could ramp up additional resources quickly, because they’re just learning one task. And I think that could help out.
The other thing I would say is make sure you have a warm bench of candidates. You should always be talking to talent, always be talking to candidates because when you need to look at adding, then you already have those people in the hiring pipeline.
Hassan Rashid, CRO – Tavant
I’ve been in this industry for almost 30 years now and I’ve looked at it from many different points of view, whether it’d be investor or lender, or consumer. It’s a cyclical industry. We all know there are peaks and valleys. It’s going to happen. It’s to be expected.
We see that lenders invest in technology to help ease some of the peaks and valleys. And this is where we hit at the heart of the issues, right? Where you got a paper-intensive industry with a reliance on manual work. So, leveraging technology is crucial. I think the industry will, and it’s adopting the technology. The adoption is happening.
It’s only going to pick up. We see it. We do this with our lenders all day, because again, we’re a products and services company. Remember that we’re not just a product company. We work with a lot of lenders that have custom systems. We help them digitize their custom systems as well as the commercial systems they may be leveraging, or products that we layer on top of it. I think technology is going to be key to help address some of the peaks and valleys. But I really believe that, I, personally, am invested in American home ownership. It’s a very, very important cause enabling Americans to get into a home. And I make a big distinction between a house and a home, right? When you get a loan, you have a house. It takes a lot to make it a home.
The bottom line is that being prepared for volatile market conditions just makes good sense for the sustained viability of your business.