Cover story: Lending experts on what to expect in home financing

by Deanna Kane

October 08, 2018

With technology integration becoming the norm throughout all aspects of the homebuying process, there is still no replacement for the hands-on expertise of a mortgage professional.

Between navigating the rising interest rates and guiding first-time buyers through the borrowing process, it’s more important than ever to have a trusted lender on your real estate team. As the mortgage industry continues to evolve, high standards of client service and a deep knowledge of the industry are two vital traits that can’t be ignored.

Houston Agent magazine shares the insight of three lending professionals, to learn their perception of the existing industry, where they foresee it heading and how a personalized experience can create an all-encompassing, positive homebuying experience.

How do you see the current status of the mortgage industry?

Carol Desenberg, senior mortgage banker, Bank of Texas: Extreme changes are happening in the mortgage industry. There is a contraction in the overall market place as the baby boomers are aging and scaling back. Millennials are in the market to purchase for the first time. Inventory is low, rates are rising, home prices have increased and taxes have escalated, all impacting how much home a consumer can qualify for when purchasing. Many boomers are staying in their existing homes, as they have low rates, others are looking to downsized as they face retirement. Other empty nesters want an entire new lifestyle with a different home setting. Millennials who were previously renting or living at home are ready for their first home.

Kathy Tautenhahn, branch sales manager and residential mortgage loan originator, Fairway Mortgage – The Wood Group: Consumer confidence is the highest it has been in 18 years. As a result, we anticipate seeing higher mortgage rates. The Houston market has rebounded since Harvey, and is one of the healthiest housing markets in the country; the economy is strong and employment is high. Because of this, there will continue to be a steady demand for homes in most housing markets. A slight rise in mortgage rates probably wouldn’t do much to diminish this.

Jordan Gerard, division sales manager, Nations Lending: We currently have a weird environment because interest rates are rising, the economy is not only doing well but it is the best its been in a long time, and yet you still see the most turbulent markets that we’ve seen in years. We haven’t seen this many company closures and mergers in a long time. You have some companies trying to increase market share, and a lot of other companies struggling to stay open. It is by far the most unstable time our industry has experienced since the housing bubble.

Mortgage interest rates remain relatively low, but some experts warn of an upcoming rise. What are you projecting?

Desenberg: In 2008, the Federal Reserve, as a response to the recession, intentionally held down interest rates for almost a decade to stimulate and improve the economy. The stimulus worked. Our economy has turned the corner, unemployment is at all-time lows, consumer confidence has returned and wages are starting to increase. This trifecta has impacted the rising current rate environment. Current interest rates in the upper 4 percent and lower fives are still below the norm; yet there is a generation of homebuyers who not seen rates above the 3 percent range, giving them some concern and hesitancy regarding purchasing. Current data suggests a continuance of increasing rates for the remainder of 2018 through 2019.

Tautenhahn: Rates are rising right now, and it appears they will slowly keep rising. We are projecting rates to increase to 5.25 percent the first quarter of 2019. With the government stepping back from purchasing mortgage-backed securities, the demand will be lower and will raise the yields for investors. Higher yields result in higher interest rates. We can expect to see rates in the low five’s, within the next six months.

Read more from our Lending issue

Gerard: I have learned one thing as I’ve been in this industry: No matter what I think, I’ll probably be wrong. There’s no doubt that the Fed has maintained a position of rates rising and there is no reason to believe that it is going to stop rising right now. It wouldn’t be surprising to see the average rate rise to the sixes in the next couple of years. If the economy stays this way, I don’t see the upward trend stopping. A rising rate market is predicted for the next few years. I could see 5 percent and 6 percent interest rates being the new normal.

What are some of the major challenges that you’re facing in your business today?

Desenberg: Current challenges for the local mortgage banker today is competition with Internet lenders. Consumers are attracted to online mortgage offers instead of contacting a local lender. As the market sees a contraction from the lack of refinances due to higher rates, there is a greater competition with local lenders who may be facing financial difficulties, pricing loans at any rate to “get the deal”, making it difficult to compete.

Tautenhahn: The major challenges we face center around the need to continue to simplify the mortgage loan process with technology, yet maintain the personal touch and expertise the people need. With the rise of online lenders, it’s crucial to set the right expectations with today’s homebuyers. It’s more important now than ever to educate homebuyers on the importance of overall service.

It’s also important to offer multiple platforms for clients to choose how they want to complete the mortgage loan process. Some people love technology and want to complete the process with very little personal interaction. Some folks love the personal interaction and feel most comfortable with at least one face-to-face meeting.

Gerard: The biggest challenge is, as the market shifts, a lot of companies are trying to streamline the process and put more emphasis on technology. They’re trying to improve the profit margins; the margins are down across the board industrywide. The amount of originations isn’t necessarily down, but the profit margin per origination is down. Margin compression is a real struggle for every mortgage company. Companies that are behind on adjusting to this shift and haven’t streamlined their processes are getting destroyed. So figuring out how to business in that environment is important.

How do you expect to overcome these challenges?

Desenberg: I see service to the consumer as the way to compete. There is a distinct advantage to working with a local provider. The consumer and client can meet face-to-face if necessary for upfront explanations and decisions. A lender at the closing table can review all loan documents with the consumer and answer questions. Remember, the purchase of a home is typically the largest financing investment most of us ever make!

Tautenhahn: By embracing change. The inability to embrace change and the evolution of consumer behavior has been the death of some companies. It’s important to provide value and listen to what consumers want and need. There is also no substitute for expertise in a complex service process.

Gerard: Companies have to roll back their sleeves and you have to be introspective on the budget. Take a look at your company and how your business is trending. As interest rates are rising, less people are qualifying for homes, offices are closing, industry workers are having to do more work some while taking pay cuts. It’s a very similar to when the bubble burst and the economy was flat, but the economy is growing. It leads to a little bit of confusion.

Overall, it’s cyclical. Like any market, you get used to the changes and they become the new normal. You have to streamline your operations and you have to learn how to leverage the efficiencies of today. You have to be honest with yourself about where you are as a business and make changes, some very hard ones.

Where do you feel there are opportunities for the mortgage industry, and for your business in particular, to improve?

Desenberg: There is an aging mortgage banker problem in the U.S., and as a result, there’s a shortage of qualified, trained entry-level mortgage professionals.

Tautenhahn: The rise of social media and smartphones has made instant gratification the new normal. Improving response speed, yet keeping it all personal, is something we will always try to improve.

Gerard: The mortgage industry is a very unique industry in a lot of regards. It’s great industry, but it can get very cutthroat. We don’t lobby together well. Compared to the real estate associations, our lobby is very weak. Our industry has a reputation for being one for one, not one for all. We could use more cooperation, working together to improve our industry as opposed to being dog eat dog. But overall the mortgage industry is adapting fast to the market shifts and has made huge strides over the last 10 years.

How has technology changed the way you do business? What possibilities do you see for the future?

Desenberg: Technology makes the process go quicker, and allows borrowers to complete the loan application online. Tech provides 24-hour access to rate information, allows us to process applications faster, and helps lenders attain additional information as needed, such as clarifying the spelling of an applicant’s place of employment, without bothering the applicant. In the future, I believe eventually we will be able to do e-signatures. Once this happens, there is the possibility of doing closings in your own home, 24 hours a day.

Tautenhahn: Technology has provided us the ability to be faster, more competitive and razor sharp on our processes. For example, the FairwayNow App is a game changer and allows us to close loans faster and provide a truly paperless process from start to finish. The app lets consumers search for homes inside the MLS, apply for a loan online, track the mortgage process, upload necessary loan documents and calculate payment details. These advancements have been a huge benefit for consumers who want to be more hands-on in the process.

Gerard: I feel like the mortgage industry is really complex in that you can leverage tech to make the process more pleasurable, but you can never replace the loan officer/client interaction. You need real people and relationships. However, if you don’t have an online app or mobile friendly website, then you can’t be as efficient as the competition. Process jobs and behind the curtain jobs are getting streamlined by technology, so technology will impact us behind the scenes more than on the sales level, I feel. There’s a fine line between being efficient as a company and trying to replace the people who have made your company go. People are here to stay and I am proud to work for a company that understands we are an industry powered by the people.