For too long, the mortgage industry has used “the money gun” to deal with problems. And that has consequences. Nowhere is that more evident than in the cost to manufacture a mortgage, which was more than $11,600 in the second quarter.
In a panel at HousingWire’s IMB Summit in Dallas on Tuesday, Community Home Lenders of America leaders Taylor Stork of Developers Mortgage and Republic State Mortgage President Paulina McGrath tackled some of the thornier affordability issues plaguing the industry.
And there are big structural changes occurring, Stork noted: We’re going to see declining interest rates, new capital rules for nonbanks, new open banking rules under Section 1033, huge technology changes, a new tax bill, tens of billions in damage from hurricanes, new loan limits, and artificial intelligence “storming into our business,” he said.
What keeps McGrath up at night?
“It’s the fear of the unknown,” said McGrath, whose lending company is based in Florida. “While it’s exciting that we’ve got business finally coming back in the door, how are we going to adjust as business owners to benefit from that, to be able to grow our business while at the same time controlling our costs? How much technology can we take on, can we absorb, can we use responsibly in order to grow our business without expanding our payments?”
She added that there is the specter of increased regulation as well over the next four years, and that would likely result in additional costs.
Stork and McGrath also touched on the promise—and potential threat of—generative AI.
“We need to know how any third-party companies we work with are using Gen AI and how it can potentially impact our customers,” she said.
While rates are coming down and there will be more refi activity, it won’t be a full-fledged boom like 2020-2021. Key for both of them is helping low-balance borrowers who were left out of the last boom (a priority for CFPB Director Rohit Chopra). It’s a challenge for the industry because of the high fixed-costs in manufacturing a mortgage, they said.
“I’m in Houston and Dallas predominantly and lend a bit in Kentucky and Ohio, where we have low-balance loans, and it’s a legitimate struggle. There are real hurdles because the cost to originate is so high and there are so many flat costs you can’t absorb in those smaller balance loans. I think the focus on trying to reduce…certain costs ‘junk fees’ as they call it, are important. We need to get a handle on some of the costs. Just seeing the crazy increases in technology costs have skyrocketed. I don’t have an answer.”
Stork said there were proposals out of Washington that attempt to address the rising cost of the mortgage loan, including legislative action to change LO Comp rules.
“There are thoughts and ideas about creating greater incentives for IMBs to participate in those lower-end loan cost structures. When you look at what FHFA is driving through the enterprises, through the scorecard system to create additional incentives for low ball loan amounts, those can create some some profit opportunities, but it’s a distinct challenge. It’s but it’s also simultaneously a distinct opportunity, because there are a good number of people who didn’t get the 3% refi and will be potentially able to refinance it at 5% and 6%.”
The exploding cost of homeowners insurance—which is largely regulated by states—also likely requires federal action, Stork said. Remarkably, insurance agencies have blown off attempts from Federal Housing Finance Agency Sandra Thompson to meet.
“It’s keeping people on the sidelines… Insurance is doubling for some customers from one year to the next,” McGrath said. “Something needs to be done.”