Oh, what a year 2016 was for the mortgage lending industry. Interestingly, two of the most disruptive events for the industry – the results of the November election and the Fed’s move to raise rates – didn’t come until the end of the year. As such, we won’t know the full impact of these events until mid-2017 or longer. Both will likely have a significant impact on mortgage lending, with rising rates having a more immediate effect. Meanwhile, any regulatory rollback will likely take years for the incoming Trump administration and Congress to complete.
After spending the first half of the year dealing with the impact of the TILA-RESPA Integrated Disclosures (TRID) rule, lenders turned their focus to the new reporting requirements under the Home Mortgage Disclosure Act (HMDA), taking effect in January 2018. Although both rules have caused major headaches for mortgage lenders – not just because of their complexity, but also because each has sections that are unclear or open to interpretation – most lenders now seem to have them well under control. However, in the case of HMDA, the industry won’t really know for sure how well that rule was handled until after the January 2018 implementation.
Helping lenders gain confidence in their ability to handle these complex regulations was the mortgage software vendor community, which made great strides in developing new tools to make mortgage origination faster, more efficient and more compliant. One such software vendor was ARMCO, which offers a risk management platform geared toward mortgage lenders known as ACES Risk Management. MortgageOrb recently interviewed Phil McCall, chief operating officer for ARMCO, to get his view on which events in 2016 were important for the industry and what factors he thinks will reshape the market this coming year. What follows are excerpts from our email interview.
Q: Reflecting on 2016, what would you say were the most important changes the mortgage industry saw and why?
McCall: TRID certainly dominated the first quarter of 2016, but looking at the year as a whole, what I find most striking from a compliance and quality control (QC) perspective is the rise in automated technology adoption and how that improved loan quality. Based on the results of ARMCO’s most recent Mortgage QC Trends report, lenders are gaining confidence that their corrective action planning is working and that the proper protocols are in place to successfully administer TRID in accordance with the comprehensive requirements.
As legal/regulatory/compliance defects are beginning to trend down, lenders are attributing at least part of this success to a deeper comfort level with the secondary market reviews/findings (e.g., the mortgage industry has a much better feel for how the TRID loans are being reviewed and how violations are being interpreted by the secondary market). As such, we expect to see lenders continuing to implement corrective action plans to maintain the downward trend in reported defects we saw in the post-closing results from the first half of the year.
Q: Looking forward to 2017, what are your predictions for home sales and origination volume? What impact do you think rising mortgage rates will have on volume and operations?
McCall: Most economic forecasts I have seen are predicting a decrease in overall origination volume, and these forecasts are attributing this decrease in volume to a substantial reduction in refinance business, mixed with a slight increase in purchase volume. From experience, this is a formula that can create unwelcomed opportunities for fraudulent activity, so this is one concern I think needs to be on the minds of all lenders.
Overall, each purchase transaction has far more participants who stand to gain financially, and the increased number of participants will place an additional burden on all lenders to properly assess each party and its interaction in the transaction. Furthermore, there will be the same number of originators vying for less business, and some of these originators will push the edge to close a deal, as both business needs and personal financial needs must be met.
On a related note, originators that have not focused their business on purchase transactions may not be adequately prepared to manage this change in business makeup. Some will attempt to incorporate workflow and internal quality assurance, along with QC processes and procedures that were not designed to manage this increased risk, so lenders will need to reassess systems, processes and people to ensure that the proper oversight is in place.
Q: What other factors do you see reshaping the mortgage market in 2017?
McCall: Along the QC and compliance front, I see continued emphasis from both lenders and servicers to implement improved systems and processes to meet the rapidly evolving regulatory oversight. TRID is behind us, but there are other changes looming, such as HMDA, and if the industry learned nothing else from the past year, it is that you can never start preparing too early for regulatory changes.