NMP - December 2016 - 98


Staying Flexible in a Rollercoaster
Origination Market By Timothy Moreland
orecasting mortgage
origination volume
today is about as easy
as forecasting the
weather at the beach.
In late 2015, most
major economists were forecasting
a slight downturn in origination
volume for the New Year, based
upon the belief that the primary
interest rates would rise, albeit
marginally, through 2016. Many of
the forecasters also felt fairly
strongly that 2016 would be the year
of the return of the purchase market,
as higher interest rates drove
refinance applications down. The
Federal Reserve Board helped set
the tone with a modest increase to
key interest rates in the first quarter
of the year.

F

Since then, however, the
weather has changed. By
February, the Mortgage Bankers
Association (MBA) had already
revised its 2016 forecast to $1.48
trillion (up from a January forecast
of $1.38 trillion). Of note was the
fact that, of that new $1.48 trillion
in origination volume, MBA's
revised forecast for refinance
volume would jump from its
original estimate of $454 billion to
$520 billion.
It appears, as we near the
fourth quarter of what has been,
for many, a surprisingly successful
year, the reported demise of the
refinance market was premature.
For the most diligent of
mortgage lenders and real estaterelated businesses, this was the

DECEMBER 2016 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

98

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year to buckle down and prepare
for a more competitive, purchase
market. The "fish" would not be
"jumping into the boat" as they
had during the reign of re-fi. The
most obvious play in the playbook
during times like this: Cut staffing,
reduce expenses, maintain
profitability.
Then came the decision of the
United Kingdom electorate to leave
the European Union and the
subsequently roiling of global
markets. Those world markets
continued to bubble and investors
sought increasingly safe
investment opportunities, likely
resulting in a surprisingly increased
yield on 10-year Treasury notes in
spite of the Fed's first interest hike
in years. Many now believe that,
should the 10-year Treasuries
continue on this path-and many
believe they will for at least the
foreseeable future-mortgage
origination volume will remain high.
Then again, many were confident
at this time last year that the refi
boom would soon sputter to a
close.
For the mortgage-related
business, staffed and equipped for
a market showing decreased
volume, a timeless conundrum has
arisen again: Do I remain "rampeddown" in anticipation of a market
dip in the near future (thereby
leaving money on the proverbial
table during the current spike), or
do I ramp up in the hopes that this
spike continues for a significant
period of time, raising my costs,
but increasing my ability to capture
as much business as possible?
The wrong answer, of course,
could lead to more than a few
pitfalls. And the fact is that any
number of disruptive events could
foreseeably alter, yet again, the
current course of the market.
Scalability has long been a
challenge on a grand scale for our
industry. Complex, multi-tiered and
ever-changing regulation in almost
every aspect of the business have
harnessed a businesses' ability to
adjust almost any element of its
operation without first running a
thorough compliance evaluation.
The market itself-especially over

the past 10 years-has been
historically volatile. Firms that once
forecasted one to five years ahead
have been reduced to forecasting
one to five months ahead. And the
fact that ours is now almost entirely
investor-driven means that the
decisions and needs of the
government-sponsored enterprises
(GSEs) and Wall Street can change
the market at a moment's notice as
well.
So how does a firm of any size
stay "right-sized" in the face of this
volatility? Unfortunately, there is no
silver bullet solution. But there a
number of operations-focused and
common sense tactics that can
allow a business of any size to
capture its fair share of business
without overcapitalizing.
Outsource, but do
your homework
Although some still view
"outsourcing" businesses with
skepticism, today there are a
number of reputable firms able to
provide outsourced services with
quality, accuracy and an eye to
compliance (both to investor
requirements and regulatory
mandates). For many, the mortgage
process has too many moving parts;
too many interested parties and too
many opportunities to add cost,
delay and error to manage each and
every function in-house. This is not
to say all outsourcing firms can
bring cost efficiency and optimize
your process. In fact, a failure to
thoroughly vet potential partners in
the selection process can now bring
about regulatory enforcement
action. But the choices available to
lenders and other real estate
businesses are far more appealing.
Don't forget that data, reporting and
other services traditionally within the
realm of some service providers
(e.g. abstracts coming through a title
agency) can also be directly
outsourced without the cost markup
of "the middle man." Again,
however, quality and accuracy rule
the day when it comes to using
such outsourced products. The
outsourcing market segment has,
indeed, come a long way.
Use versatile, adaptive
service providers
It's simply not enough for you to be
flexible in your strategic approach.
Your service providers-whether
title and settlement firms,


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Table of Contents for the Digital Edition of NMP - December 2016

Contents
NMP - December 2016 - Cover1
NMP - December 2016 - Cover2
NMP - December 2016 - 1
NMP - December 2016 - Contents
NMP - December 2016 - 3
NMP - December 2016 - 4
NMP - December 2016 - 5
NMP - December 2016 - 6
NMP - December 2016 - 7
NMP - December 2016 - 8
NMP - December 2016 - 9
NMP - December 2016 - 10
NMP - December 2016 - 11
NMP - December 2016 - 12
NMP - December 2016 - 13
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NMP - December 2016 - 15
NMP - December 2016 - 16
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NMP - December 2016 - Cover3
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