Challenging Times For America’s Lending Community

Challenges for America's Lending Community

Despite a booming economy, strong consumer confidence and record-breaking stock market, America’s lending community finds itself confronting a wide range of real—and potential—challenges.

The issues facing lenders nationwide present an environment that requires nimble business skills and the ability to adopt to an ever-evolving marketplace.

Near the top of the list of challenges confronting lenders is—not surprisingly—a wide array of both state and local regulations, and the related expenses of ensuring compliance with all of them. Time and again, industry experts point to what they believe to be ‘over-regulation’ as a significant contributing factor to the expense of servicing a home loan.

The statistics would appear to support that theory: according to the Mortgage Bankers Association, the cost of servicing a home loan has risen considerably in recent years; the MBA reports that the average cost of servicing a performing loan jumped from $59 in in 2008, to $181 in 2015. The increase was even sharper for non-performing loans: in 2008, the average cost of a non-performing loan was $482, rising by 500 percent by 2015 to $2,386.00

Many within the lending community point to 2010’s Dodd-Frank legislation as a prime culprit for the escalation in costs.

Of course, there are several additional factors at play that either are currently—or have the potential to—impact the American lending sector. Rising interest rates—with promises of more to come—are almost certain to impact the cost of home purchases, as well as consumers’ willingness to assume the responsibility of a large mortgage.

Some industry experts believe that declining volumes in new loan originations—down from $2 trillion last year to a likely $1.6 trillion this year, has resulted in tightening of secondary markets for loans and mortgage servicing rights—known as MSRs.

There are also multiple ongoing issues confronting the lending sector, most of which were not limited to either 2016 or this year.

Rapidly evolving technology is impacting the way consumers think—and act—when considering loan origination, as it pertains to purchasing a new home. Technology is also altering the way consumers interact with loan originators; as consumers turn in greater numbers to originating loans online, building and maintaining relationships with clients becomes a greater challenge for lenders going forward.

Controlling costs is another ongoing challenge facing the nation’s lending community.

According to the MBA, while the cost of servicing a loan has gone up three-fold in the last 9 years, concurrently, in an effort to control costs, the lending sector has also reduced the time required to close on a loan—down from over 70 days to approximately 20 days.

Simplifying the lending process has also been a change (hopefully for the better) that has occurred in recent years. With the twin goals of reducing the complexity of operations and achieving full regulatory compliance, lenders have turned to technology as a key ingredient in being able to offer their clients a simplified lending experience.

Without question, lenders have also seen a loosening of mortgage credit since the ‘Great Recession’ reached its peak in 2008/2009. The MBA’s Mortgage Credit Availability Index (MCAI), using data from Ellie Mae, recently reported that the MCAI has increased by 0.3 percent in July to 179 (the index was benchmarked to 100 in March 2012).

Industry experts believe that one of the primary drivers of the hike in the MCAI in July was the increased availability of conventional mortgages.

It’s also worth noting that this month marks the 10th anniversary of what most experts believe was the ‘official’ beginning of the meltdown of the US housing sector.

In the summer of 2007, the now defunct Bear Stearns liquidated a hedge fund subsidiary specializing in mortgage assets; when French bank BNP Paribas later froze withdrawals from three mortgage-linked funds, red flags began to fly in t he housing sector.

While most industry observers believe the chances of a repeat of the calamitous collapse of the housing sector that took place a decade ago remains slim, one could well argue that one of the key “challenges” facing the lending sector is to learn from the lessons of recent history—and thereby avoid a repeat of 2008.

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