So Much For Retirement?
Advisor Perspectives published some interesting data about the demographic trends in the Labor Force Participation Rate.
While the overall participation rate has declined since the early 2000s, this chart highlights that is certainly not the case for seniors.
In every cohort from age 55 and higher, seniors are clearly returning to work. There is significant growth in the 75-and-over category, where there has been a 72 percent increase in labor force participation since 2000.
Mortgage Media wonders what is behind this. Are seniors bored in retirement and just preferring work over free time? Or is there an economic motive to this? We fear economics is the core driver of this change.
CNBC recently took a look at savings statistics – and the results paint a worrisome picture about whether Americans are prepared for retirement. Or does this data point to a new trend in American work life, that demands we all work far longer than our parents did? What was in our past, with our parents having a steady job followed by a pension for retirement has been replaced with retirement plans like 401k and IRA’s that require contributions from the employee in order to establish enough of an asset base to be able to afford the end of ones career. In a consumer survey from BankRate they found that, “The average American has less than $5,000 in a financial account, a quarter to a fifth of what you should have, and those aged 55 to 64 who have retirement savings only carry $120,000 — which won’t last long in the absence of paychecks”.
The implications for US Seniors could be staggering and depressing for those that spent their primary earning years working with a gap in focus on retirement preparedness. Financial literacy perhaps needs to become mandatory curriculum for our youth if this trend has any hope of being reversed.
Defending Your Value
We have been spending a lot of time in a variety of interviews on our site talking to industry experts about how the mortgage business model may evolve over time. One item that comes up frequently is whether the traditional loan officer model might be at risk of being “Uber’d” or “Amazon’d”. The question is whether technology and standardized rules around products and disclosure might raise questions around the compensation paid to loan officers for their role in the process.
Clearly Quicken Loans has proven that not only do a large number of Americans prefer to do their loan online and avoid the traditional process, but they became one of America’s largest lenders and have garnished multiple JD Power awards for customer service along the way.
This week we took note of a class action lawsuit being filed against realtors for the dual commission being charged for the buyer and sellers representation in a home sale. As the complaint states, more consumers today do not “need” a buyer representative as they do the majority of the shopping online before choosing which house to look at. Regardless of the outcome of this suit, it is interesting to us that a lawsuit is challenging sales compensation in a technology driven world and might be a sign of future challenges to come. Watch the Mortgage Media website for a soon-to-be released podcast with Barry Habib, where we take aim at the need for traditional loan officers to improve their value in a transaction and the risks of not doing so.
Business models have been shaken across the entire economic footprint due to technology and new efficiencies. Blockbuster was replaced with online music streaming. Paper companies had to convert to making boxes for shipping goods via amazon versus paper for printing books. In fact,storefronts across the nation are in decline. Just look at this Axios chart showing the massive contraction in storefronts since 1990 across everything except services that cannot be as easily replaced with online connectivity.
We continue to look towards the evolving nature of both real estate sales and mortgage lending amidst a rapidly expanding universe of new technology and artificial intelligence
Speaking of Technology
Mortgage Media will be onsite at the upcoming Mortgage Bankers Association’s Technology Solutions Conference. We will be interviewing a variety of attendees and looking to see what comes next for this ever-evolving industry. Look for the Mortgage Media team there and come say hello.
How Deep Is That Well?
Both democrats and republicans took aim again at Wells Fargo this week in a four hour heated testimony by it’s CEO, Tim Sloan with Committee Chairwoman Maxine Waters calling for his removal. We look back at the days when Wells Fargo was heralded as an example of strength and good customer service. This reminds us how it can take decades to build a solid reputation in financial services but how that can be lost in an instant. No matter what happens next, we look forward to a quiet time without reading about this unfortunate bank and its unique popularity in this tumultuous time.
There has been a series of stories focused on the role of private balance sheets and non-agency RMBS eating into the share of market that Fannie and Freddie have traditionally enjoyed without competition since before the Great Recession. As a recent Wall Street Journal article pointed out, “More mortgages that meet the standards for Fannie and Freddie to buy are instead flowing into the private market, where banks and other financial institutions pool them into bonds and sell them to investors without government backing. Firms that have recently issued these so-called private-label securities with a significant amount of such loans in them—some up to 100%—include Chimera Investment Corp. and Redwood Trust Inc., both real-estate investment trusts, as well as JPMorgan Chase & Co. and Flagstar Bancorp Inc.”
We have wondered what happens to the relative distribution of mortgages flow between the GNMA programs, the GSEs, and private capital. If private capital from bank balance sheets, REIT holdings, and PLS continues to expand its often better execution for low LTV/high credit score GSE-eligible fixed rate product, it could begin to sandwich the enterprises between these offerings and those of FHA. We already know that for high LTV borrowers with credit scores below 720 that FHA may be a less expensive option than a GSE mortgage with LLPAs and mortgage insurance. If the high credit quality begins to trade away to private sector players and the lower end trades away to GNMA programs, where will that leave the GSEs? Since the Great Recession there has been no real competition for that high quality slice of the Mortgage market and has allowed the GSEs to have sole advantage of that product leaving the rest to FHA/VA/USDA. Now with the increased appetite from the private sector, this could be an interesting time for Freddie and Fannie. With the topic of GSE reform or release from conservatorship on the table we wonder what this might mean going forward. All plans call for these entities to hold even more capital than before which may only increase the rates on their mortgages. If released without an explicit, legislated, guaranty, would their MBS pricing worsen thus moving even more volume to either the GNMA side or the private market?
Whatever happens, we applaud increased competition and watch with interest as public policy steps to deal with the GSEs unfold as this will impact this trend one way or another.
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