Rob Wiggins: 20 Years of Mortgage–A Look Back
Rob Wiggins is Regional Vice President with Gateway First Bank, Jenks, Okla. He is a 20-year-plus veteran of the mortgage industry and has been with Gateway First since 2016. Previously, he served with Cherry Creek Mortgage, Patriot Bank Mortgage, SouthTrust Mortgage/Wachovia Mortgage and Wells Fargo Home Mortgage.
The past 20 years in the mortgage industry have been full of change, innovation and most importantly, lessons to be learned. Even in just the past few months, mortgage lenders have had to completely transform their business processes in the wake of the COVID-19 crisis. As the industry continues to prepare for what’s next, it’s important to take a look back at how far the industry has actually come.
Before the Crash
The early 2000s were an exciting time, especially in terms of production. Lenders were transitioning out of a handwritten environment to an innovative, technological environment. Mortgage applications could be quickly submitted, and lenders were able to review and approve them much faster than in the past. It was no longer a fully manual industry as computerized processes proliferated.
In addition to increasing technology, rates were going down. Lenders were becoming more inventive with their mortgage products, and underwriting standards became much more lenient. As a result, loans were accessible to everyone, and the value of real estate rapidly increased.
Independent mortgage lenders began offering new, creative loan products, like subprime, No Income/No Asset (NINA) and No Income/No Job/No Asset (NINJA) loans. Consumers seeking a mortgage could easily access their credit score online and use it to be quickly approved. These new practices forced organizations like Fannie Mae and Freddie Mac, which were traditionally more restrictive, to lower their standards in order to compete.
As a result, the industry created a vicious cycle where being approved for a mortgage loan was extremely easy. New loan products were sensationalized in the media while lending standards that had been in place for decades were being ignored in favor of a credit score.
Warning Signs
The industry took a turn in late 2004 and early 2005 when red flags started popping up with increasing delinquency rates. More and more borrowers were late on their payments, however, the mortgage industry made excuses and continued to move forward.
The warning signs all came to a head in 2008 when delinquency rates became default rates, and the euphoria in the market turned to panic. The Great Recession of 2008 had arrived and became a worldwide issue. The U.S. government stepped in, bailing out banks and lenders and creating a new regulatory force, the Consumer Financial Protection Bureau (CFPB), to improve oversight and prevent another crash in the future.
After the Crash
Following the crash, mortgage lenders had to adjust to new regulations and restrictions. The government proposed several solutions to address the concern that lending (activities were?) was not being properly regulated. The Housing and Economic Recovery Act of 2008 was passed and included six separate major acts designed to restore consumer confidence in the mortgage industry. The Federal Reserve also expanded its regulatory power and jurisdiction over financial institutions.
As a result of the new regulations, the cost of mortgage financing rose. Once again mortgage lenders implemented new technology to improve processes and ensure compliance. During this time, independent mortgage companies grew and began to take over the industry, because they were able to pivot their strategies to understand new regulations, embrace technology and make the necessary changes more quickly that the larger institutions that took longer to transform and consequently began to lag behind.
On the Other Side – the Mortgage Industry is Even Stronger Today
Today, the industry is very solid. Worldwide interest rates are at all time lows as a result of the pandemic, with no sign of rising anytime soon. Every month, the market is seeing an increase in the number of new homeowners and other homeowners that are refinancing and taking advantage of these historical lower interest rates. Individuals see this as a new opportunity to either realize the dream of homeownership or increase savings in the wake of economic uncertainty from the pandemic.
Recommendations from the government to practice social distancing have led to the broad adoption of technology across the industry. Consumers have shifted their behaviors and digital services have become the new normal, forcing lenders that had been slowly rolling out new technology such as online account opening or electronic signatures to jumpstart their online processes and implement a truly digital mortgage experience.
The industry has advanced considerably over the past two decades, and the future will bring new opportunities for both lenders and consumers. Technology will continue to be more important for mortgage lenders than ever. As experienced in the past, the state of the U.S. economy is the primary driver of the mortgage industry and, as it fluctuates, technology plays a huge part in how mortgage lenders manage change. Implementing new technology that can automate processes and reduce expenses allows lenders to more easily evolve and consequently thrive.
The mortgage industry is being standardized and centralized across the world, and mortgage lenders that are nimble and are quick to embrace technology and regulatory changes will find themselves ahead of lagging competition.
(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.)
