PERSON OF THE WEEK: David Abrahamson is chief operating officer with mortgage lender Equity Loans. MortgageOrb recently interviewed Abrahamson to get his views on the impact of the Consumer Financial Protection Bureau's (CFPB) new qualified mortgage (QM) rule on the mortgage industry and where the market is headed in 2014.
Q: In January, the CFPB's long awaited QM rule finally took effect. While the overall impact is yet to be determined, how do you think this new rule will impact your lending business?
Abrahamson: As a lender that focuses mostly on government sponsored enterprise (GSE) and government loans, I feel like Equity Loans is well covered on the debt-to-income restrictions, while the temporary status stays in place. However, if the GSEs come of out of conservatorship, we will obviously have some changes in the qualification area. In most cases – especially on the higher loan values – we are restricted to a debt-to-income of 45%, so 43% is not a far stretch.Â
The major concern on these changes is the points and fees calculation. As of now, there are no opportunities for cures if we exceed the allowable limits. It would be ideal if the allowable Real Estate Settlement Procedures Act (RESPA) cure of 30 days were attached to this rule. There are also major concerns in the rural parts of the country regarding points and fees due to the lower threshold allowed. Additionally, the manufactured housing sector is particularly concerned. As CFPB Director Richard Cordary indicated, there will undoubtedly be updates moving forward.
Q: 2013 was a tough year for the mortgage industry, so how can lenders overcome the challenges that still exist in the market and continue to expand in 2014?
Abrahamson: While many challenges still exist in the mortgage market, the industry has had a nice run over the last couple of years and I think that we will continue to see some contraction in the industry in 2014. As companies move forward, expenses are the key to survival. Now is the time to cut the fat and find creative ways to grow your business.Â Whether that involves adding new business channels or marketing to a new population segment, there are new opportunities for growth, but companies must stay focused on the bottom line. For example, Equity Loans is focusing on expanding into new markets that reflect the diversity of today's borrowers. We are also investing in new talent that has the expertise and background to relate to these rich cultures.
Q: Has Equity Loans ventured into new business areas to combat the volatility in the market?
Abrahamson: We had the good fortune to continue to grow despite the volatility in the market. We have had a thriving retail business for several years, but as we saw the trend of the business shrinking, we decided that it was critical for Equity Loans to expand into new segments to grow and remain a successful operation. This has been a major focus for us and as a result, the company has started two new business channels in wholesale and mini correspondent. As some of the larger players exited this market, we saw an opportunity to fill the void and it is projected that the wholesale will double in size in the next 12 to 18 months. The mini correspondent channel is an opportunity for us to help the brokers that want to transition to correspondent while avoiding some of the risks involved.
Additionally, for the past several years, one of our main focuses has been to grow our branch infrastructure. We have also gone back to our roots and started a call center out of our corporate office, which is how the company started. We have seen a nice growth since we started this a few months back. We look forward to a successful 2014 as we grow these new channels of our business.
Q: Where do you hope to see the housing market at the end of 2014?
Abrahamson: This year appears to be showing a contraction over 2013 and I believe one of the biggest areas of strength is going to be in the new construction sector. I spent 20 years of my career only doing business with builders, and they are the backbone of our economy – if this sector comes back strong in 2014, so will our economy. New construction is so vital to our economy's success, as there are dozens upon dozens of industries affected by this sector. There is a definite shortage of supply of new homes in so many pockets of the country, which is why building new homes is so crucial. I hope that this will help level out the market and grow our economic output at the same time.