Low rates won’t last forever: Here’s how mortgage leaders should be preparing for what’s next
Along with the rest of the economy, the housing market has been dealing with the fallout of a global pandemic, leading to an uncertain “new norm.” In a HousingWire panel on Tuesday, Rohit Gupta, CEO and president of Genworth Mortgage Insurance, and Tom Wind, executive vice president of consumer lending at U.S. Bank, discussed adapting to sudden winds of change and how to focus on what’s next.
In a typical recession, Gupta noted, increased unemployment and lack of consumer confidence slow the market as delinquencies rise and origination volume begins to decline. But 2020’s pandemic threw that trend out the window. With record high unemployment in April and increased delinquencies that may last through 2022, low interest rates triggered solid originations for nearly six months – and companies pivoted quickly.
“We had to refocus our efforts, both from an energy perspective, and from our resources perspective. Our focus became both putting people in homes on the front end so our customers were well positioned to close loans and then also on the servicing side, to make sure that we were taking care of families that were encountering financial issues and were in forbearance or delinquency,” Gupta said.
In a boom cycle, however, Wind said it can become more tempting to fulfill every loan possible. According to Wind, staying ahead of the volume includes more than just completion – growing a powerful team, digital adoption, customer engagement and automation require management past a strong season.
“The day will come, and it’s not that far off, when things start to slow down and if you’re not thinking about the future, and investing in the future, when that next day comes, you’re going to be on the outside looking in in terms of competitive position,” Wind said. “I think as much as you want to take advantage of today, particularly for the leaders of the company, be thinking of tomorrow.”
In a period of crisis, both professionals were in agreement that a strong team will follow the data as far down the rabbit hole as possible. From rates, to applications, to secondary spread and forbearance – paying attention to trends gives companies ample time to prepare.
“So when we start taking actions on what we are thinking about risk in the market, everybody has the same view on what is the right thing to do, and what could be the risky thing to do,” Gupta said.
“We have established teams that actually go across our business using tools like machine learning, which actually look at our forbearance data and then parses that forbearance data down to attributes. What attributes are leading to higher forbearance? To lower? So then the underwriting organization is aware of it, the pricing organization is aware of it, risk organization is aware — all the way to the commercial organization from marketing and sales.”
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What can the industry expect in the remainder of the fourth quarter? To Gupta, that’s the “$1.8 trillion question” – an homage to the stimulus offer President Trump signed off on Oct. 9. The CEO said his team is “cautiously optimistic” and not yet ready to declare victory in terms of economic or COVID-19 trends, though a second stimulus may help buffer another downturn.
Gupta noted that if Biden wins the election, aside from the possible first-time homebuyer tax credit, the dialogue would shift from capital standards to affordable options alongside an expanded industry focus on increasing homeownership and greater options for lower FICO scores.
“I’d say a bright spot for lending and housing is regardless of who wins the election, from a rate-environment standpoint, the need to promote the economy and its growth will prevail. It’s hard to picture rates jumping up at this point dramatically,” Wind said.
Aside from whether the White House stays red or goes blue, Wind said since the 2008 financial crisis, the government has clearly seen how important housing is to recovery, and in turn, the industry has seen how important a government backstop is.
“I think it’ll be a lot of discussion on how big that backstop should be and how Fannie and Freddie are structured. But fundamentally making sure that there’s ongoing liquidity to housing finance, I think you’ll find broad agreement across both sides of the aisle,” Wind said.
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