Mortgage Lending In The Desert

Three days of takeaways from the ACUMA’s 2014 fall conference.


Amid the blackjack, breakfast buffets, and breakout sessions, the American Credit Union Mortgage Association held its annual fall conference last week in Las Vegas. The three-day conference covered many issues, including how to work through new CFPB regulations, what's going on with the U.S. economy, and how to talk to realtors.

Day 1: The Slog Of Mortgage Regulations

Late Monday afternoon, Kris Kully, partner of K&L Gates in Washington, DC, held a session on new CFPB rules. The takeaway from the talk: “Know before you owe.”

In order to streamline and simplify the overall mortgage process, the mechanisms of rule 1032(f) of the Dodd-Frank Act — which kicks in August 1, 2015 — integrates the Real Estate Settlement Procedures Act (RESPA) and the Truth In Lending Act (TILA) to solve the perceived problems caused by overlapping regulations and inconsistent language.

The new rule defines a mortgage application as consisting of six elements: borrower name, income, social security number, property address, estimated value of property, and the mortgage loan amount. This is down from seven elements because the “catch-all provision” for miscellaneous “deemed necessary” information was dropped.

There are several other additions, including new closing disclosure rules and new definitions of both “business day” — which is defined differently when calculating loan estimate due dates — and “tolerance” — in terms of fees paid to Settlement Service Providers. For more information, visit the CFPB's website.

Audience reaction in the breakout session was mixed, as some felt that while these changes have the potential to increase customer understanding of the process, others bemoaned the increased baseline technology and employee training needs.

Provisions that the CFPB considered but did not add to the final rule included an all-inclusive APR-proposal, which would have included almost all upfront costs of the loan, and machine-readable electronic forms. For now, though, the CFPB says it won't add either without further debate.

Although the new rule is 11 months away from taking effect, there are two positive notes already apparent for credit unions:

  1. The all-inclusive APR proposal was not implemented. This is a complicated metric from members' perspectives.
  2. Credit unions were given more than a sufficient length of time to learn and take steps to change processes to satisfy the rule. This is important because many of the technology and training improvements credit unions must make will require long-term planning and projects.

Day 2: The Economy And The Housing Industry

Mark Zandi, chief economist of Moody’s Analytics, gave attendees reason for both optimism and fear with regard to the short-term health of the United States and world economies.

His optimism is supplied by the consistent growth of the U.S. GDP. For the past five years, GDP has grown 2% per annum. However, policy decisions such as tax increases and government spending cuts have dampened growth. Had that fiscal austerity not occurred — and Zandi projects its impact as neutral going forward — GDP in 2013 would have grown at 3.5%. He projects GDP to grow at 4% in 2014.

Strides made in the housing market, too, are reason for optimism, as Zandi projects the market will soon be undersupplied. In an average economy, 1.7 million new homes are built per year, but for the past few years that figure has averaged just 1 million. That combined with the 4.5 million more young people living with their parents in 2013 versus 2007 might indicate significant potential for growth in the housing market, although even a return to previous averages would foster an economic boost.

Every new single-family home built creates 3.5 new jobs over the course of the year, and if the housing market hits its previous average — a difference of 700,000 homes — in the next three years, it could culminate in 2.1 million jobs — or 1.5% of the labor force. However, there is concern over the unwillingness and inability for young adults to move out and the supply constraints building would put on the housing market as well as the available land on which to build, but Zandi sees these as minor concerns as historically the American economy is adept at working around these constraints.

A third reason for Zandi's optimism is the current performance of the American banking system.

“Our financial standing is about as good as I’ve ever seen,” Zandi says.

He cites two metrics to support his findings. First quarter data from the FDIC shows banks have a 13% capital ratio, the highest figure in FDIC history and higher than the pre-recession norm of 10%. Second, return on assets for all commercial banks has improved to 1% as of the first quarter; nationwide, credit unions posted an ROA of 0.78% during this time frame. Before the recession, banks posted an average ROA between 1.2% and 1.4%. So although banks are doing well relative to the downturn, it’s a different level of profitability.

Zandi does identify two points of risk that could potentially stifle growth: the uncertain future of both U.S. interest rates and overseas markets. Jumps in interest rates last year around this time proved “debilitating” for the economy, Zandi says. Yet, many economists agree the Federal Reserve will raise interest rates as the economy continues to recover. The question is: by how much? Dramatic hikes could have unintended negative, potentially regressive consequences. According to Zandi, the Fed should slowly raise rates at the same pace as the economy grows, and chair Janet Yellen will need a “strong, clear, consistent voice” to be able to do this.

The economic future of overseas markets is harder to project, and therefore a significant risk to the United States considering the interconnectivity of large markets such as Europe, China, and Japan on the world economy. China, the world’s second largest economy, is an interesting case. As it continues to open its economy to the world, it might deal with latent social issues. Satisfaction with leadership is linked to economic performance, and if China sees slowing growth rates and weakening expectations about future growth, it’s possible that Chinese citizens will want to express their views and have a voice in the overall government process in ways they’ve been denied in the past.

“There will be a point in the future where it’s going to be more difficult for their economy and we need to be prepared for that,” Zandi says.

It’s all speculation at this point, but worth monitoring.

Day 3: How To Talk To Realtors

“I bet one in 10 realtors don’t know what a basis point is,” joked Steve Brown, president of the National Association of Realtors during his late morning session. “They just don’t need to know this stuff.”

That’s a key point. Realtors do and must develop a wide swath of vocational knowledge. But they can’t learn everything. In fact, it wouldn’t be a total surprise, says Brown, if local realtors we unaware of local credit unions. Potentially shocking to some, it also spells opportunity to expand footprint through realtor partner networks, but only if you can convince them not to run over to Wells Fargo or other mortgage players.

Although building a realtor network can seem like a daunting task, there are two fundamental similarities between both credit unions and realtor business propositions that can spur an initial conversation.

First, both businesses are built upon personal relationships within their communities. Credit unions are a welcoming place where local members can develop their financial lives. Realtors, too, see the importance of this community sphere. According to Brown, the No. 1 source of realtor relationships comes from referrals.

“All real estate is local,” he says.

Second, credit unions and realtors both build their businesses on customer trust. According to Brown, 88% of realtor customers pleased with their service will refer their realtor.

To a degree, credit unions and realtors have the same patriotic calling to help customers achieve the American dream of home ownership. Both operate at different levels of the process and can therefore work together symbiotically to put more customers into homes. The biggest hurdle in making this relationship a reality is, according to Brown, a lack of awareness on the part of the realtors to the workings and benefits of a credit union. In this regard, credit unions should actively market themselves to local realtors, both as business partners and financial educators; If only one in 10 realtors know what a basis point is, how many know about your credit union?


Sept. 23, 2014



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