Prediction H2: Signs of a Housing Bubble, Non-Agency Growth


The biggest challenges facing mortgage lenders in 2021 that will persist in the second half of the year are: lack of inventory and related rise in household values to record levels.

Both are of serious concern to Bruno Pascheri, president of Incenter, which provides services to lenders. “I hate using that word because it’s scary, but I think we Bubble status approaching by evaluating houses, “he said.

The annual rise in prices worries him because of its impact on home sales.

“We are removing young people who are moving and buying for the first time from the market because the value of the house is too high,” said Passeri. “So we eliminate two classes of normal borrowers, and that really scares me. “

However, the mortgage industry is expected to continue its migration to the buying market over the next six months. But loan officers remain focused on refinancing, said Mike Eshelman, head of consumer finance at Jornaya, a marketing technology company.

“It’s a tough transition from shooting fish in a barrel to going from business to purchasing when it’s so hard to find a home for consumers and win these offers,” Eshelman said. “How lenders can be successful in the second half is to get a clear understanding of the consumer and where they are on the road to shopping so they know how to proceed accordingly.”

Follow-up action is necessary as statistics show that consumers generally only deal with first and / or second creditor it responds to their requests for contacts, Eshelman said.

At a time when businesses become more competitive to deal with excess production capacity, creators need to “be more careful about when is the right time to turn to [consumers] and be that lender who will still be for them when they ultimately win the offer, ”Eshelman said.

While the market for new buyers will open up opportunities in the next few years, the second half of 2021 is not expected to be particularly fruitful.

Overly competitive pricing can be a problem during the rest of the year as shippers must keep all hired employees busy.

“But it ultimately comes down to who is nimble enough to grab the refinancing business when it is, but also grab the high-end purchasing market as the industry changes,” Eshelman said.

But Pasheri noted that consolidation of the industry is an inevitable step after heightened price competition.

“The midsize independent mortgage lender is going to rethink where they are and what risks they are taking on:“ Should I sell or merge at spikes? “Pasheri said. “So I think we will see it also confuse the market in the third and fourth quarters.”

In these circumstances, he is also concerned that the mortgage industry is returning to old models of credit expansion to boost business.

“I always think the mortgage industry has the shortest memory of any industry in the country. We’re just going to redo the whole thing. [that caused the housing crisis] and replay the story again, ”Pasheri said.

But counteracting this deja vu 2007 and 2008 In his opinion, this is the fact that the main indicators of mortgage lending over this period have improved significantly.

Non-Agency Lenders Benefit from a Changing Market
Ironically, the non-agent market, which was moribund due to the financial crisis a few years ago, is expected to continue its recovery.

In the early days of the pandemic, the secondary market for these lenders malfunctionbut since then, the growth trajectory, interrupted in March 2020, has resumed.

FHA restrictions on Fannie Mae and Freddie Mac’s ability to acquire riskier loans under January amendments to interagency agreements with the US Treasury, of course, helped.

Civic Financial Services, specialized in non-owner mortgage– said President William Tessar – so far it has a record year, five months in a row – record volumes both in dollars and in units. He expects this to last until 2021.

“Just looking at the pipeline and the appraisal orders, I don’t see anything to the contrary,” Tessar said. “And with that, we’re preparing to expand to more states, roll out some new products, and really double down on some of the areas we’ve been successful in.”

But, he said, the Civic business depends on optics. Tom Hutchence, executive vice president of third-party lender Angel Oak Mortgage Solutions, agreed.

The restrictions helped inform lenders about the products and prices available from non-agent wholesalers, Hutchence said.

“The creators were surprised that the difference between an agency and a non-agency was much less than they thought,” he said. “Then they close a few loans and they realize it’s pretty simple, ‘You know, maybe I should go out and sell these investor-type loans,’ and that’s what we’re seeing.”

“The appetite for the securitization market is extremely high,” Hutchence said. “The reason the difference between agency and non-agency prices is so small is the demand for them.”

Angel Oak aftermarket, Angel Oak Mortgage, recently became public due to investor interest in mortgage-backed securitization. According to Hutchence, the company’s opportunity in the second half of the year may be to move to a lower level of lending.

“One of the things we’re very confident about is that the pandemic has left a lot of people with credit scars. As the states and country fully open up, there will be many people who had credit problems during COVID back on their feet, but they are not going to apply for a mortgage, ”he added.

Civic’s Tessar expects the cost of equity for originators to remain low for the rest of the year, which should make it easier for fins to sell their property.

“Financing [end] of buyers is at the lowest level, so they receive these constant [conventional] funding the senior two, the junior three, ”Tessar said. [consumers] can afford a lot more home than you could under normal interest rate conditions. “

In addition, the increase in the supply of distressed properties on the market creates more opportunities for the fins and the Civic.

“They must go through our channel to receive [the property] to the point where they can get a standardized score and [a loan] could be bought by Fannie, a lender like Freddy, ”Tessar said.

And the increase in the number of small businesses shaping the post-pandemic creates an opportunity for non-agency lenders, especially given all the difficulties faced by the respective proponents. self-employed borrowers, said John Keratsis, President and CEO of Deephaven Mortgage

So, in addition to being able to fund new business owners, “we hope that most of these businesses will eventually employ more than one person,” Keratsis said. “And that’s where people from platforms like ours come in.”

For the next six months, “I really think there will be opportunities to consider different scenarios as the outcome of the pandemic evolves and the regrettable disruption to people’s lives or work,” he continued.

The company evaluates market temperatures when considering new product lines.

“We have certainly not specified where it will be yet, but we always take into account this market evolution and the fact that rates have remained so low for so long,” Keratsis said. “And a lot of consumers have ownership of their homes, so by watching trends, there is an opportunity to create more products around them.”

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