2019 MBA Annual Convention Survey Scorecard

(Tom Lamalfa is a 40-year veteran of mortgage market research, whose focus in recent years has been on federal housing policy. He is president of TSL Consulting, Cleveland Heights, Ohio. He can be reached at tom.lamalfa@gmail.com.)

If we haven’t met…Greetings, my name is Tom LaMalfa, and I do survey research in the mortgage banking space. I’ve done research in the housing and mortgage finance fields since the late 1970s.

The following report was prepared from the 28 face-to-face surveys I conducted with senior mortgage executives from 28 different firms in Austin, Texas at the MBA Annual Convention held 27-30 October. These surveys are conducted twice annually and have been for over a decade. They are designed to capture the thinking, attitudes and expectations of an industry through one-on-one interviews with execs from, in this instance, 28 different mortgage firms. My goal is to create a microcosm of the industry using the MBA’s membership as the universe.

MBA Annual Convention Survey Scorecard

1. How concerned are you about a significant economic slowdown in 2020? (1-10) 5.6 mean / 6.0 median

2. Do you expect aggregate origination volume this year to exceed 2018’s? Y-27 / N-1

3. YTD, what percent of your firm’s origination volume is purchase business? 65.6% / 63.4%

4. YTD, what percent of your firm’s origination volume is GSE conventional? 61.3% / 61.5%

5. YTD, what percent of your firm’s origination volume is government insured? 24.6%/ 22.6%

6. YTD, what percent of your firm’s origination volume is non-agency jumbo? 11.1% / 9.0%

7. YTD, what percent of your firm’s origination volume is non-QM? 2.2% / 1.0%

8. Is your firm’s 2019 production volume up, down or flat versus last year’s? U-26 / D-0 / F-2

9. Do you expect your 2019 FHA origination volume to exceed last year’s? Y-14 / N-13 / S-1

10. Is your firm doing more high LTV and high DTI lending this year than last? Y-10 / N-9 / S-9

11. What percent of your firm’s conventional production is over 80 LTV? 37% / 33%

12. Is your firm doing VA cash outs over 90% LTV? Y-6 / N-21

13. In how many production channels does your firm operate? 2.1 / 2

14. Approximately what will your firm’s origination volume total in 2019? $23.3B / 8.1 B

15. Have your firm’s origination profits improved year over year to date? Y-27 / N-1

16. Net, has your firm added staff this year? Y-19 / N-9

17. Will your firm be retaining, selling and/or buying MSRs in 2019? R-22 / S-6 / RB-8 / RS-9

18. What percent of your Ginnie Mae MSRs are sold? 51.3% / 65%

19. Do you favor lowering the GSEs’ DTI cap to 43%? Y-10 / N-18

20. Do you favor reducing the maximum LTV/CLTV to 95%? Y-13 / N-14

21. Do you favor prohibiting the GSEs from offering lender-paid MI? Y-14 / N-14

22. Do you favor eliminating g-fee pricing policies that result in cross-subsidization? Y-17 / N-10

23. Do you favor fully pricing credit risk by risk bucket? Y-22 / N-5

24. Do you favor eliminating high cost (jumbo) loan limits? Y-7 / N-21

25. Do you favor freezing conforming loan limits at current levels? Y-7 / N-20

26. Do you favor eliminating the GSEs’ acquisition of second homes? Y-16 / N-12

27. Do you favor eliminating the GSEs’ acquisition of investor properties? Y-8 / N-20

28. Do you favor eliminating the GSEs’ acquisition of cash-out refinances? Y-2 / N-26

29. Do you favor eliminating the GSEs’ acquisition of rate and term refinances? Y-1 / N-27

30. Do you favor adding additional, new GSE-like clones? Y-14 / N-14

31. Do you favor changing or eliminating Appendix Q? Y-25 / N-3

32. Do you favor the mandated use of residual income for FHA loans? Y-14 / N-13

33. Should the FHA reduce its current 57% DTI ceiling? Y-22 / N-5

34. And to what level would you set such a cap? 48.4% / 51.1%

35. Was FHA’s decision to tighten underwriting standards last March a good one? Y-26 / N-2

36. Was it a good move for FHA to adopt a “spot approval” policy for condos? Y-20 / N-5

37. Do you favor replacing the 43% DTI cap with an APOR rate ceiling? Y-10 / N-17

38. Do you prefer direct measures of ATR such as DTI or indirect such as APOR? D-15 / I-10

39. Do you favor slowing the growth of the public sector in mortgage finance? Y-12 / N-16

40. For overall performance the past year, what letter grade would you give Freddie Mac? B+

41. For overall performance the past year, what letter grade would you give Fannie Mae? B-

42. For overall performance the past year, what letter grade would you give FHA? B

43. For overall performance the past year, what letter grade would you give the FHFA? C+

44. Have GSEs’ underwriting standards tightened modestly in recent months? Y-14 / N-14

45. Should the GSEs be allowed to retain capital before legislative reforms pass? Y-23 / N-5

46. What’s most hurting purchase production today, inventories or affordability? I-12 / A-16

47. Are low-end house price increases far surpassing gains in high-end house prices? Y-22 / N-5

48. Are banks–especially small and medium size ones– leaving the mortgage business? Y-13 / N-14

49. Are banks, especially the large ones, continuing to lose interest in FHA lending? Y-25 / N-3

50. Are gov’t lending and Ginnie Mae servicing losing favor among investors? Y-20 / N-7

51. Are you seeing a notable acceleration in mortgage brokering and wholesale? Y-21 / N-6

52. Should the credit bureaus expand the use of utility and rental payments? Y-20 / N-8

53. Should the CSP be allowed to service PLSs? Y-25 / N-3

54. Have your firm’s digital tech enhancements substantially improved your business? Y-17 / N-11

55. Have these enhancements significantly reduced loan origination costs? Y-6 / N-22

56. Is automation providing measurable scalability and staff efficiencies? Y-16 / N-11

57. Do consumers care about how automated your firm’s mortgage processes are? Y-18 / N-10

58. Do you have a vendor relationship with Optimal Blue? Y-20 / N-8

59. Do you have a vendor relationship with Ellie Mae? Y-21 / N-7

60. Is the industry investing too much money on digitizing the mortgage business? Y-9 / N-19

61. How well is your firm positioned to meet the demographic challenges ahead? (1-10) 6.6

62. What percent of your mortgage operation is being outsourced offshore? 5.6% / 0

63. Does your firm price mortgages on a national, regional or local market basis? N-12 / R-5 / L-12

64. If local pricing is employed, is geographic risk an input in your firm’s pricing model? Y-4 / N-10

65. Will there be more or fewer LOs in 2023 and beyond? M-2 / F-26

66. Are the GSEs transparent and operating on a level playing field with their customers? Y-7 / N-21

67. Has Fannie Mae raised its cash window prices by 15-35bp over the past 30 days? Y-17 / N-5 / DK-6

68. Should President Trump be impeached by the House and removed by the Senate? Y-12 / N-15

Report of Survey Findings from the 2019 MBA Annual Convention

A careful reading of this report should suggest that this is not an analysis of the topics and issues addressed herein, instead, or rather, it’s a quick straight-forward regurgitation of responses to survey questions, one after another. Analysis would go deeper into the specific topic or issue. The ‘why’ question would be tacked onto the responses, and pages could be written on nearly all the 68 questions. Following the findings, an overview of the survey’s history, methodology, and participants will describe the survey process and objectives. Hint: Use the Scorecard as a guide to the questionnaire as I frequently lump questions together if they contain a single theme. The scorecard better separates the questions.

Survey Findings

Q1 asked if the executives expect a significant economic slowdown in 2020. (This is the first of several questions that sought a ranking, 1-10, with 10 being the best or highest of a ranked order.) The group’s mean was 5.6, a response showing only a modest probability. The median was 6 amid a range of 2-8. The mode was 6. Q2 asked if this year was expected to be better than last year loan production-wise. Indeed it is, said 27 of 28 executives surveyed.

Q3-7 all requested the percent of their firm’s year-to-date origination volume (production) by type of product. The group’s means and medians follow: Purchase business – 65.6% and 63.4%; GSE conventional – 61.3% and 61.5%; Government-insured – 24.6% and 22.6%; Non-agency jumbo – 11.1% and 9.0%; Non-QM – 2.2% and 1.0%.

Q8 and 9 asked if their firms’ 2019 production volume was up, down or flat vs 2018 and if they expected FHA origination volume to exceed last year’s level. Twenty-six executives reported higher volume compared to 2 who indicated no change year over year. The result was decidedly mixed regarding FHA volume, with 14 saying yes to higher volume and 13 saying their FHA business would be down this year from last.

Q10-12 inquired about whether their company was doing more high DTIs and LTVs loans this year; how much of their business was over 80 LTV; and if they originated VA cash-outs over 90 LTV. Of the 28 surveyed, 10 executives reported that their firms were doing more high-DTI and high LTV business, 9 said less, and 9 said no change year over year. As for over 80 LTVs, the group mean was 37% and the median 33%. The mode was 30 and the range of responses was from 5-85%. Only 6 of the 28 surveyed were doing VA cash-outs over 90 LTV.

Q13 asked in how many production channels their firms operate. The mean and median were 2.1 and 2.0, respectively. Ten firms originate in retail only, 9 in two channels, 6 in three and 3 in four. Q14 asked what their firm’s production volume will total in 2019. The group mean was $23 billion and the median $8.1 billion. Six of the 28 firms are under $1B in loan production, another 6 are $1B-5B, 4 are $515B; 7 are $15-50B; and 4 will originate over $50B in 2019. Q15 asked if origination profits were better this year than last. No question—27 reported improved profits with only 1 firm reporting lower net income.

Q16 asked if their firm added staff this year. Nineteen firms added compared to 9 who did not hire on net. Q17 and 18 dealt with servicing, whether their firms retained, sold or purchased MSRs this year. Twentytwo firms retain their servicing vs 6 who sell their servicing; 8 buy servicing via correspondent operations or in bulk, while 9 firms retain and sell. Q18 inquired about how much of their firm’s Ginnie servicing was sold. Ten sold 100% and 9 sold zero with the remainder somewhere in between.

Q19-34 fit somewhere into the Treasury-HUD-FHFA plan for fixing the GSEs. Q19 asked if the executives favored lowering the GSEs’ DTI cap to 43%. No, said 18 of 28 executives. Q20 asked how about reducing the maximum CLTV to 95%? A response stand-off: 13 ayes, 14 nays. Q21 asked if they favored keeping the GSEs out of the lender-paid part of the MI business. Perfect standoff: 14 for and 14 against. Q22-24 asked if they favored cross-subsidization, fully pricing risk, and eliminating high-balance loan limits. Yes, they favored eliminating cross-subsidization, 17 to 10; fully pricing credit risk garnered 22 yeses and 5 noes; but few affirmatives for eliminating high balance conventional loan limits, with 21 of 28 opposed.

Q25 inquired about the wisdom of freezing conforming loan limits at current levels. No way, said 20 of 27 executives surveyed. Q26-27 asked about eliminating second homes and investor properties. Yes, said 16 executives to removing second homes from the GSEs’ product menu, but no way answered 20 of 28 to removing investor properties. Q28 and 29 inquired if eliminating rate and term and cash-out refinances was acceptable to them. Not in favor of either elimination, answered 20 and 26 respectively out of 28. Q30 asked whether additional new GSEs were a good idea. Another tie: 14:14, with half preferring more competition than a duopoly, and the other half not wanting to deal with still another GSE.

How about Appendix Q asked Q31, do you favor changing and/or eliminating it? Twenty-five of 28 favored fixing it by simplifying it. How about mandating use of the (VA’s) residual income test for FHA loans, asked Q32. Half the executives favored the idea, while the other half didn’t. Q33 asked if FHA should lower its administratively set 57% DTI ceiling. Yes, reported 22 executives’ vs. 5 not favoring a reduction. And of the 22 who favored the reduction, Q34 asked where they themselves would set the DTI cap. The mean and median were, respectively, 48.4% and 51.1%. The mode was 50.

Q35 asked if FHA’s tightening of underwriting standards last March was viewed as a good move. It was, reported 26 of 28 executives. Q36 addressed FHA’s recent decision to allow spot approvals of condos (vs project approvals). Twenty of 25 favored FHA’s move. Q37-38 dealt with how to best cap QMs on total debt, using a direct (DTI) or indirect (APOR) method. APOR was preferred by 17 of 27, but surprisingly, a direct measure was preferred by 15 of 25 respondents.

Do you favor slowing the growth of the public sector, asked Q39? Not really, said 16 of 28 while the dozen others disagreed. Q40-43 sought traditional A to F letter grades for 4 agencies based on the executives’ assessment of each agency’s overall performance the past year. The distribution: Freddie – B+; Fannie – B-; FHA – B; and FHFA – C+. Q44 and 45 dealt with GSE-related topics, namely whether the GSEs’ underwriting standards have tightened modestly in recent months, and whether they should be allowed to retain capital before legislation is enacted. Half of those surveyed detected a modest tightening, half not, thus a14:14 tie.

As for the retaining capital question, overwhelming support was found for the GSEs being authorized to build capital beginning ASAP. Yes said 23 of 28. Q46 and 47 dealt with purchase production and house prices. As for the former, affordability edged out inventories as the biggest drag on production by 4 responses, 16:12. Are low-end house price increases outpacing higher-end house prices, asked Q47. Yes they are, reported 22 of 27 executives. Q48-49 asked about banks, namely whether small and median size ones are exiting the mortgage business and 2) if the large banks are losing interest in FHA lending. Whether smaller banks are leaving the mortgage business, opinions are decidedly mixed, with 13 yeses and 14 noes. However, as for big banks losing interest in FHA lending – it is no doubt true, with 25 of 28 answering in the affirmative. Related, Q50 asked if government lending and Ginnie servicing were seen as areas where investors were losing interest. Yes, reported 20 of 27 of those responding.

Q51 asked if the executives saw an acceleration in mortgage brokering and wholesale. Yes we have, said 21 of 27 respondents. Should the credit bureaus expand the use of utility and rental payments, asked Q52. Indeed they should, replied 20 of 28. Q53 asked if the CSP (Common Securitization Platform) should be available to PLS (Private Label Securities) issuers. It should, said 25 of 28 executives.

Q54-57 touched on different industry interfaces with digital technology, including 1) its effect on costs, 2) possible benefits from automation, and 3) mortgage consumers and automation. Seventeen of 28 executives report that digital technology enhancements have substantially improved their businesses, with 11 less sure of that conclusion. Similarly, only 6 of 28 report a significantly reduced loan origination cost, though all the others await lower costs. Meanwhile, 16 of 27 executives report measurable scalability and staff efficiencies from automation. Almost twice as many of those surveyed—18 vs. 10–think that consumers care about how automated (i.e. efficient) their firm’s mortgage processes are than those who don’t.

Q58 and 59 were included to see if the survey group could be used to measure market share. (It didn’t work.) The two questions asked about vendor relationships with Optimal Blue and Ellie Mae, respectively. Turns out 20 of 28 and 21 of 28 of the firms surveyed have vendor relationships with the 2 tech firms. Is the industry spending too much money digitizing the mortgage business, Q60 asked. No, answered 19 of 28 executives.

Q61 inquired how well their firm was positioned to meet the demographic challenges ahead. The group average was 6.6 of 10, while the median and mode were both 7. What percent of your firm’s mortgage operation is outsourced offshore, asked Q62. Very, very little, a mean of 5.6 and medians and modes of zero. Pricing was the topic in Q63 and 64. More specifically, do the firms price on a national, regional or local basis. Of the 28, 12 price nationally, another 12 price to the local market, and the remainder price regionally. (I was curious if those employing localized pricing included a geographic risk variable in their firm’s pricing models.) Only 4 of the 14 firms that price to the local market include a variable for geographic risk in their pricing models.

Q65 asked if more or fewer LOs (loan originators) would exist in 2023 and beyond. Fewer indeed, answered 26 of 28 executives. Q66 asked if those surveyed thought the GSEs were transparent and operating on a level playing field with their customers. No said 75% of the executives, 21 to 7. Q67 asked if Fannie Mae raised cash window prices by 15-35 bp in the past 30 days. Here, 17 said yes, 5 said no, and 6 said ‘I don’t know.’

The final question, Q68, asked if President Trump should be impeached then removed from office by the Senate. Of the 27 rendering an opinion, 12 said yes to impeaching and removing the president and 15 others said Trump should not be removed. (About 18 favored impeachment but not removal.) Not too surprisingly, Q5, 6, 11 and 13 were the four questions showing the biggest differences between the banks and IMBs.

So there you have it, the findings of the October survey from MBA’s Annual Convention of 2019. There was nothing too surprising in the findings. They confirm a sentiment (as Adam Smith used the term) that takes root in the industry.

Background, Method and Panel of Experts

This is the 23rd time since 2008 that this survey of senior mortgage banking executives has been conducted, distributed and published. It’s undertaken at the MBA Annual Convention every October and again each May at the MBA’s National Secondary Market Conference. The purpose of the survey is to gather the thinking of an industry about its business–performance, attitudes, ideas, opinions and expectations—along with the industry’s take on contemporary issues and topics. Many of the survey’s initial queries are business related, for example what products the firm is originating. The balance of the first page of questions focuses this time around on aspects of the recent Treasury-HUD plan to reform the GSEs.

Page 2 of the questionnaire is a potpourri of various issues and topics, including queries about the GSEs, FHA, FHFA, digital technology, automation, house prices, pricing, vendors, market trends, etc. My meeting dates and times were arranged 3-4 weeks before the event. Almost all those surveyed are longstanding former clients or business friends collected over the decades, and all are industry veterans with decades of the mortgage business behind them. Meeting lengths averaged 45 minutes.

Of the 28 firms surveyed, 14 were IMBs and 14 were bank-owned firms. The independents represent an amalgam of ownership types: private families, hedge funds, homebuilders, realtors, individuals and private equity firms. Of the depositories, 12 were owned by commercial banks and 2 by savings banks. There are small, medium and large firms in each group type. Among the 28 executives were 8 CEOs, 6 EVPs, 10 SVPs and 4 RVP/VPs. Firms’ sizes ranged from $90 million to $200B, with an average bank size of $30.8B and the average independent $16.3B. The respective medians were $8.1B and $6.9B. Six of the firms will originate less than $1B in 2019; 7 will originate $1-5B; 5 over $5-15B; 6 firms originate $15-50B; and 4 over $50B. Of the 28 firms surveyed, 10 only operate in retail, 8 in two channels, 6 in three channels; and 4 firms produce in all four channels: retail, correspondent, wholesale broker and consumer direct.

Convention Takeaways

Spirits were high among attendees of the convention on the eve before Halloween. Business has been very good for mortgage bankers thanks to solid economic growth, strong employment, low inflation, a responsive Fed, and historically low, low interest rates. The mood evidenced quite the change from last year’s convention where higher interest rates dampened originations, especially refinances. So for now, its “let the good times roll…”

There were several significant developments that surfaced during or near convention week. One was a Memorandum of Understanding between HUD and the Department of Justice covering claims under The False Claims Act. The Act was used against lenders in the wake of the Great Recession. HUD Secretary Ben Carson discussed the issue in his convention presentation, the only session that I attended. The HUD Secretary pushed for (large) banks to return to FHA lending.

The session’s other speaker was FHFA Director Mark Calabria. He was quite clear about what he expects to accomplish during his term, and his speech was something of a call to action. In it he addresses the Treasury HUD plans for reforming the GSEs. He discussed the new strategic plan and scorecard, its primary goal being to raise private capital. Matching risk to capital was a theme of his talk. The Director advocated a very level playing field for smaller players, whom he greatly encouraged to participate in mortgage lending. More surprisingly, the Director advocated affordable housing goals for the GSEs and a duty to serve.

My thanks to those surveyed. I’m most grateful for your time and friendship. Also thanks to my sponsor for underwriting this latest convention survey. Let me conclude with a commercial for my firm to those who seek solid survey research from the experts in the mortgage world. My sole ground rule for clients is anonymity for my panel of experts, and a public sharing of what’s learned on a given project’s topic, ideally telegraphed through MBA NewsLink.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)