Quick takes from industry leaders

In this challenging and rapidly changing mortgage market, everyone is searching for the best path forward. The Mortgage Bankers Association of New Jersey recently assembled a panel of industry experts to tackle some of the big questions. Regina M. Lowrie, president and CEO at RML Advisors, moderated the discussion at MBA New Jersey’s regional conference in Atlantic City. She sat down with four major players in the business: Stanley C. Middleman, president and CEO at Freedom Mortgage Corporation; J. David Motley, president of Colonial Companies and MBA chairman; Peter Norden, CEO at HomeBridge Financial Services and Richard Thornberry, CEO at Radian Group.

On market conditions…

Middleman: “You can either shrink or you can grow into this and say, ‘I understand where we are.’ Probably the way to go is to consolidate so you can cover your fixed costs. The problem is how do you manage that core fixed costs, the non-variable expenses. You have to have accounting and finance and your secretary. The size of your staff can be challenging at times. You only have two ways: you get bigger or you get smaller. If you stay the same, you’re out of business.”

Norden: “I think the times are very challenging. I have been in the business for 42 years, so I have been around through a lot of cycles. Consolidation of this industry is going to be dramatic. I like these markets because I see an opportunity. But the reality is there is no question that the consolidation is moving forward. I do think we will see an inverted yield curve by the end of the year – that’s where short-term rates are higher than long-term rates.”

On low inventory…

Thornberry: “There is a lack of inventory and some part of that is picked up demand. We have people sitting on the sidelines getting properties as soon as they are on the market, and builders can’t find new land where they are comfortable making the investment. There is strong demand, especially for the first- and second-time homebuyer. At the top end of the market, there are plenty of properties around. If you want to buy an expensive home, you have your choice. If you want to buy a $250,000 home, you’ll have to pay $260,000 for it.”

On non-QM…

Norden: “I have a lot of concerns. The non-QM stuff that is out there is dropping hard on the credit, which definitely concerns me. Are we going right back?”

Middleman: “Can I take the other side on that? I see the world of real estate finances as cyclical. In this cycle, property values are rising, wages are improving, interest rates are rising. For the next three years, we should be in pretty good shape. Like wine, there are good vintages and bad vintages. Today’s vintage is pretty good. The problem is that the closer you get to midnight, and the drunker you are, the prettier the girls and guys look. Everyone wants the band to go on. That’s when we get in trouble, when we start lowering out standards even further. Then we have shifted from operational risk to managing credit risk. We are not at that part of the journey yet, but once we start seeing property values go up by 15 or 20% from where they are today because of the inventory problems, there is risk.”

Thornberry: “The reality is nobody is going to care about mortgage bankers losing money. When we put consumers in homes that they can’t sustain, we put our industry at risk and our livelihoods at risk. In this environment, think about the publicity that everything gets. This industry will not get a second chance. We need to self-govern.”

On educating buyers…

Thornberry: “We have a lack of knowledge. There have been a number of studies that have shown people don’t understand that you can put down less than 20%. Part of it is going back to the education of realtors and consumers and possibly loan officers and creating knowledge that people who can responsibly own a home can come in with less than 20% down.”

On millennials…

Motley: “We have a great runway of future business if you just look at the demographics. Twenty-five-year-olds dominate the millennial group, and the peak buying age for anybody is about 31 years old. Over the next six years, we’ve got a great track of future business. The question is, how do we expand and penetrate that millennials market? It’s really a very positive market right now and for the foreseeable future, even with high rates.

On digital mortgages…

Norden: That is going to effectively force down margins and force down LO comps. One of the things we tell people all the time is that we are not going to build a model that makes them extinct. We want to make a better experience for the consumer, but we are not willing to kill the salesperson.