Tom Lamalfa: May 2021 MBA Spring Conference Survey
(Tom Lamalfa is a 44-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. His semi-annual reports on the housing and mortgage finance industries appear regularly in MBA NewsLink. He can be reached at tom.lamalfa@gmail.com.)
1. What was your firm’s total production volume in all channels last year? $36.8B mean/$10.3B med
2. Was 2020 the best year ever for profits and production at your firm? Y-28 / N-5
3. By how much did your firm exceed last year’s budgeted production goal? 77 / 40
4. In how many production channels does your firm operate? 2 med
5. Does your firm operate nationally, regionally or statewide? N-23 / R-8 / S-2
6. How many people does your firm employ? 3.3k mean / 1.2k med
7. What percent of last year’s production was purchase business? 47% / 43%
8. What percent of last year’s volume was conventional GSE business? 71% mean & med
9. What percent was FHA- insured last year? 8.4% / 7%
10. Combined, what percent was VA and USDA insured last year? 9.4% / 5%
11. What percent was non-agency jumbo last year? 9.9% / 5%
12. Finally, what percent of your volume was non-QM or non-prime last year? 1.5% / 0%
13. Is your firm originating bank statement loans? Y-4 / N-28
14. What percent of your firm’s staff are still working from home? 77% / 85%
15. What percent of your staff are expected to work remotely permanently? 40%
16. What percent of your staff will rotate in and out of the office through at least yearend? 38% / 40%
17. Will rotations into the office be weekly, monthly or less frequently? W-25 / M-4 / LF-0
18. Will most senior level employees operate remotely or be in the office 3+ days per week? R-3/ O-28
19. Is your firm comfortable recruiting remote workers? Y-30 / N-3
20. Has the pandemic changed minds about the central role/importance of a home office? Y-22 / N-11
21. Are you more bullish on technology as a result of the pandemic? Y-27 / N-5
22. Do you expect to expand or contract your firm’s sales force this year? Exp-28 / Con-0 / Same-5
23. Outside of sales, is expansion or contraction of staff expected this year? Exp-17 / Con-10 / Same 5
24. Will the 7% caps on second homes and investor properties adversely affect your firm? Y-20 / N-13
25. Scaled 1-10, how concerned are you about finding other investors for these two products? 5 / 5
26. How much higher will interest rates be on second homes without Fannie and Freddie? 70 bp / 50 bp
27. Has your firm added overlays—LLPAs– to these two products? Y-26 / N-7
28. What percent of 2020’s agency purchase volume consisted of loans with 2 layered risks? 11%/8%
29. What % of this business will be lost if the GSEs are precluded from buying these loans? 2.8%/1.5
30. Will the GSEs monitor for lenders the percent of loans with layered risks? Y-29 / N-3
31. Is your firm an issuer with direct access to the UMBS market? Y-22 / N-10
32. Does your firm have access to the cash windows of one or both GSEs? O-4 / B-27
33. Will your firm be hurt if cash window sales to the GSEs are capped at a combined $3B? Y-9 / N-22
34. Which of these 3 caps will be most disruptive to your firm? CW-5 / NPRs-12 / 2RFs -15
35. What letter grade would you give Fannie Mae for its interaction with your firm in 2020? 4 / 17 / 10
36. What letter grade would you give Freddie Mac for its interaction with your firm in 2020? 4 / 22 / 17
37. Who provided better all-around service last year, Fannie or Freddie? Fa-14 / Fr -15
38. Do you favor immediate or delayed implementation of the new QM index? I-16 / D- 17
39. Is the FHFA too insensitive to lead time demands for program changes? Y-31 / N-2
40. Has your firm already moved to the new QM index? Y-7 / N-26
41. Scaled 1-10, how bullish are you on the outlook for the residential market in 2021? 7 / 7
42. By how much do you expect aggregate origination volume to decline this year? 28% / 15%
43. By how much do you expect the refinance market to shrink this year? 38% / 35%
44. Are margins beginning to contract across the industry? Y-33 / N-0
45. Do you expect margin pressure to worsen as the year unfolds? Y-31 / N-2
46. Will reduced margins change your recruiting and/or tech investments ahead? Y-4 / N-28
47. By how much has your firm reduced its travel expense budget from 2 years ago? 80% / 90
48. By how much will your firm reduce office space from 2020’s level? 12.9% / 10%
49. By how much do you expect house prices to rise this year? 9.8% / 10%
50. Do you expect mortgage rates to remain largely under 4% this year? Y-33 / N -0
51. Will tax credits and DPA programs further increase home prices ahead? Y-20 / N-13
52. Is Fed policy a principal reason for the current rapid home price appreciation? Y-21/ N-12
53. Scaled 1-10, how concerned are you about the federal budget deficit? 7.8 / 8
54. Do you expect to see a significant increase in inflation by year end, say over 3%? Y-25/ N-8
55. With how many MIs do you currently do business? 4.5 / 5
56. On what basis do you chose your MI partners: Price-11 / CPA-2 / Relationship – 12
57. With approximately how many vendors does your firm work? 80 mean / 40 med
58. Are the large single-family rental firms a positive or a negative for mortgage lenders? P-2 / N-28
59. Do you expect more nontraditional money to flow into SF rentals this year and next? Y-30 / N-3
60. In general, what has worked best for your firm? Grow LOs -12 /Hire strong performers -21
61. What’s your best guess at the percent of MLOs that became millionaires last year? 12.4% / 10%
62. Approximately what was your firm’s servicing/subservicing recapture rate last year? 38% / 30%
63. Do you detect a shift from people to analytics & AI in many mortgage-related industries? Y-27 / N-4
64. Historically has AH policy largely focused on high leverage and high default risk? Y-30 / N-3
65. How effective has home ownership been in building wealth for low-income borrowers? (1-10) 5.7 / 5
66. How responsible are zoning and other land use regs for the shortfall in SF housing? (1-10) 5.8 / 6
67. Does your firm see opportunity in the $300B allocated for affordable housing in the AJA? Y-25/ N-7
68. Do you favor the AJA/ Infrastructure legislation and its funding mechanism? Y-9 / N-20
69. Do you agree with this general assessment: Purchase activity is strong, cash outs are stable, and rate and term refinancing is soft? Y-33 / N-0
70. Should corporations be involved in protecting democracy and voting rights? Y-8 / N-25
71. What letter grade would you give Biden Administration for its first 4 months in office? 3 / 14 / 10
72.Do you expect to attend the MBA’s Annual Convention in San Diego in October? Y-27 / N -6
May 2021 Survey Scorecard and Report of Findings
In early May I surveyed 33 senior executives from 33 separate mortgage companies about a myriad of issues and topics both germane and important to the mortgage banking industry. It was the 25th time such a survey was conducted by me since 2008. Until 2020 the surveys were conducted face to face at the MBA National Secondary Market Conference every May and again in October at the MBA’s Annual Convention. However, the pandemic has shifted both sets of contacts to the telephone last year and this.
After a review of the compiled responses to 72 questions, this survey will be discussed in some detail. Its history, purpose, participants, questionnaire, methodology and model will be presented for those unfamiliar with it. Suffice it to say for now that the panel of 33 executives surveyed is structured to provide a microcosm or model of the MBA’s lender members. Those surveyed include companies that are financial intermediaries (banks) and Independent Mortgage Banks (non-banks). The mix of companies represents the approximate distribution of market share between the two types of firms. Each type includes small (less than $5 billion of production), medium ($5-10 billion), large ($11-49 billion), and giant (over $50 billion) firms. The surveyed companies originate in from one to all three production channels, and are domiciled (headquartered) in all regions of the country. The preponderance of firms operates nationwide.
As stated, the survey questionnaire deals with an array of important issues and topics. Included are: production data, operations during the pandemic and expected future staffing plans, Fannie and Freddie assessments, QM’s new index and how many firms are already using APOR, economic issues, affordable housing, firms buying blocks of single family houses to rent, lenders’ social, political and economic expectations, and dozens of other issues and topics. The purpose of this exercise is to ascertain (as closely as possible) the industry’s collective thinking about various subjects from input from 33 senior executives representing a carefully chosen cross–section of mortgage companies.
Please keep the Scorecard nearby and available as a reference; since multiple questions are lumped into groups by topic, therefore every question isn’t matched to its response tally. And here we go…
Q1 asked the executives for last year’s production volume. The mean was $36.8 B, with a median of $10.3 B. The range was from $170 M to over $200 B. Q2 asked if 2020 was the best year ever for their firms based on profits and production. 28 of 33 executives agreed it was the best year ever based on those measures. By how much did your firm exceed its budgeted production goal, Q3 inquired. The average was by 77%, with 40% the mean. Range of answers was from flat to up 300%. Q4 asked for the number of production channels the firms operated in. The median was 2, with a range of 1 to all 3 – all 3 being retail, wholesale (broker), and correspondent. (Consumer direct is counted as part of retail.) Of the firms surveyed, there are 14 retail-only firms, 8 in retail and paired in either wholesale or correspondent, and 11 firms in all 3 channels. Of the 33 firms, 23 operate nationwide, 8 are regional and 2 operate state-wide.
Q6 asked the executives how many people were employed at their firm. The mean was 3,300 and the median was 1,200. The number of employees ranged from 10 to 25,000. Q8-12 asked for the percent of their business that fell into each of these six categories: purchase, conventional GSE, FHA-insured, VA/USDA-insured, non-agency jumbo and last non-QM or non-prime. The group means and medians were 47%/43% purchase; 71%/71% conventional GSE business; 8.4%/7% was FHA-insured; 9.4%/5% was VA/USDA combined; 9.9%/5% was non-agency jumbo; and 1.5%/0% was non-QM or non-prime. The ranges were wide but explainable knowing the firms.
Q13 asked if the executives’ firms originated bank statement loans. Only 4 of 32 firms originated these loans. Q14-19 all involved staffing arrangements in a time of pandemic. The questions were: what percent of your firm’s staff are still (as of 14 May) working from home; what percent will work remotely permanently; what percent will rotate in and out of the office through at least year end; whether rotations into the office will be weekly, monthly or less frequently; and, if senior level employees will be office bound 3 or more days a week. The means and medians were 75%/85% are still working from home; 40% /40% will likely work remotely on a permanent basis; 38%/40% will likely rotate in and out of the office at least through year end; rotations will likely be weekly– 25 firms compared to 4 with monthly rotations; and most senior level employees can look forward to being in the office most of the time. Q19 asked about their firms’ comfort level recruiting remote workers. And the comfort level was found to be quite high, with 30 of 33 being comfortable recruiting remote workers.
Q20-21 centered on the effects of the pandemic on the “centrality” of the home office, the mystique of the headquarters. Twice as any respondents said the pandemic had changed their minds about the headquarters as the be-all end-all of corporate culture. Q22-23 involved expectations: whether the firms planned to expand or contract their sales forces, and whether other non-sales employees are expected to expand or contract this year. Not a single firm is expected to not add sales people in 2021; 28 firms expect to expand sales, and 5 plan no change in staff size. As for employment outside of sales, 17 expect to expand, 10 to contract, and 5 to remain the same size.
Q24-34 focused on recent FHFA changes for Fannie Mae and Freddie Mac. Q24 wanted to know if the new 7% caps on second homes and investor properties would adversely affect their firms, and how concerned the executives were in finding other investors for these two products. 13 of 33 firms do not expect to be hurt by the caps on second homes and investor properties; the other 20 see the caps as reducing business. Overall, the executives were moderately–5/5 of 10– concerned about finding alternative investors for these two products. The range was from 1 to 10. Q26 wanted to know how much higher the interest rate would be on second homes without the GSEs’ presence. The mean was 70 bp, the median was 50 bp, amid a range of 12.5-200 bp.
Q27 asked about using LLPAs on second homes and investor properties. 26 of the 33 executives said they or their investors applied LLPAs to these products. Q28-30 addressed the new rules governing layered risks for Fannie and Freddie –defined as mortgages harboring two separate risks, say a high DTI and high LTV or a low FICO score and a high LTV — how much of their business would be lost if the GSEs are permanently precluded from buying mortgages with two layered risks; and whether their firms were informed that each GSE would monitor this production with or for the lender. Layered risks for the full group accounted for an estimated 11% / 8%, mean and median respectively. The response range was 1% to 35%. As for the amount of business that would be lost, not much, with a median of 1.5% and a mean of 2.8%. The range was zero to 15% among the 33 firms surveyed.
Q31-33 asked if the firm was a UMBS issuer, if the firm had access to one or both agencies’ cash windows, and if their firms would be hurt if cash window sales are capped at a combined $3 billion. 22 of 32 of the surveyed firms were UMBS issuers; 27 of 31 had access to the cash windows of both GSEs; and 22 of 31 firms do not expect to be (materially) harmed by the $3 B cap. As to which of the three caps will be most disruptive to the surveyed firms, Q34 found that 15 execs thought layered risk would be most disruptive; 12 said non-primary residences would be most disruptive; and 5 were most stressed over the cash window constraints.
Q35-36 sought letter grades for their firms’ interactions with Fannie and Freddie last year. Each GSE received 4 As, Freddie received 22 Bs and Fannie 17, and Freddie received 7 Cs, compared to 10 for Fannie. Best all-around GSE in 2020, asked Q37? It couldn’t have been more even than the result that put Fannie Mae up by 1 among 29 assessments.
Q38-40 focused on the QM index change and whether the executives favored an immediate or a delayed implementation of the new QM index; the seeming insensitivity lenders see at the FHFA concerning lead times for program changes; and, finally, if their firms had already switched to the APOR index. As to immediate or delayed change to the new index, a nearly identical number favor a delay versus an immediate change over. Every executive surveyed agreed that the FHFA is insensitive as to the amount of time it takes to change systems then convey the change across the firm. 26 of the 33 executives responding said their firms were ready but hadn’t already moved to the APOR-based QM index.
Q41-43 sought expectations about the outlook for the residential mortgage market this year; by how much the executives expected the origination pie to shrink overall in 2021; and how much refinance activity would decline this year over last. The consensus outlook is for a good year, not 2020, but a quite good year for production but a thin year for profits. As for aggregate origination volume, a mean drop of 28% and a median of 15% from 2020 are expected, with refinance activity down by 35/38%. Q44-46 dealt with margins, namely whether they get skinnier as the year passes, and whether reduced margins affect either recruiting or investments in technology. It is universally held among those surveyed that margins have and will shrink this year; that margin pressure will mount as the calendar passes; and that margins in a given year play little to no role in technology investments or recruiting talent.
Q47-48 concern the drop in travel expenses resulting from the pandemic, and firms’ altered spatial needs and requirements—from peak levels until the end of 2022—resulting largely from remote work. Travel expenses (big surprise) are down hugely, 80/90%, and spatial needs and requirements are down at least 10/20%. (A number of firms surveyed had signed 5 year leases two years ago for 2020-2025 and therefore couldn’t reduce leased office space.)
Q49-51 again focused on expectations, in this case for house prices, mortgage interest rates, and the effect of new programs on house prices. The mean and median house price increase projections are 9.8% and 10% respectively; no one, not one executive surveyed expects mortgage rates to pierce 4% for any amount of time in 2021; and yes, new programs providing tax credits and DPA (down payment assistance) will exert upward pressure on prices, especially in a pronounced seller’s market. A somewhat surprising 13 executives didn’t see it that way.
Q52-54 dealt with factors affecting the economy. Those surveyed were asked if monetary policy was a principal reason for rapid house price appreciation, how concerned they were about the federal budget deficit, and if they expected an increase in CPI-measured inflation to exceed 3% for an undefined “a while.” Q55-57 asked about lenders’ vendors, both MIs specifically, and in a general headcount of vendors hitting the payroll. On average, lenders work with 4.5 MIs and with a median of 5. It was found that lender-MI partnerships are based on relationships and price, first and foremost, with CPA (claims paying ability) well behind. The average lender in the survey worked with (pay rolled) 80 vendors. The median was 40.
Q58-59 asked about a relatively recent (the past decade) phenomenon: the buy single family houses to rent them out. Some of these firms own 10s of thousands of houses they rent. 28 of 30 executives see these firms as a negative since they remove supply, and limit financing opportunities, while 30 of 33 respondents expect more money to be attracted to single-family rentals ahead. Q60-61 concerned MLOs (mortgage loan officers) with the former wanting to know if their firms have had more success growing MLOs, or simply hiring strong performers with a book of business. Nearly twice as many found greater success in hiring proven performers compared to a more organic approach. Q61 asked what percent of the 147,000 licensed MLOs made incomes of $1 million or more last year. 12.4% was the average, and 10% was the mean among the 33 guesstimates. The response range was from 0.5% to 35%.
Q62 inquired about lenders servicing recapture rates last year. Not too good, if I may render an opinion, with a mean and a median of 38% and 30% respectively. The recapture range was from 7.5% to 80%. IMFs did substantially better than banks: 50% versus 30%. Q63 asked if the executives saw a shift toward moving resources from people to AI and analytics. Indeed they do, by a count of 27 to 4. Q64-65 ask about affordable Housing (AH) policy, and if the executives felt home ownership created wealth for minorities and low-income borrowers. (The MBA Spring Conference featured a speaker from the Brookings Institute who maintained that black and browns have been unable to accumulate generational wealth through home ownership.) And the executives’ responses: 27 of 31 view AH policy as built around high leverage and thus higher risk; and most executives find wealth accumulation due to home ownership to be moderately successful for minorities, not great, but certainly not ineffective, scoring a 5.7 mean from the 33 executives and a median of 5. Q66 asked what share of the blame those surveyed attributed to zoning and other land use regulations for the shortage of single family housing development. The responses indicated that zoning and land use restraints were regarded as an explanation for part of the shortfall, 5.8 mean and 5 median, but that other factors were also responsible, such as labor shortages and sky high material prices.
The American Jobs Act (AJA) was the focus of Q67-68. Does your firm see any opportunity in the $300 allocated for AH in the Act; and do the executives favor the AJA (aka Infrastructure) legislation along with its funding mechanism? Only 7 of 32 executives don’t see an opportunity to advance AH through the AJA; however, 20 of 29 executives don’t favor the legislation, or at least its funding mechanism, namely higher taxes.
Q69 asked if those surveyed agreed with this overall assessment of the mortgage market: Purchase activity is strong, cash outs are stable, and rate and term refinances are soft. All 33 agreed that this statement overviewed the business in a single sentence. Q70 inquired, given the controversies in Georgia and Texas, should corporations be involved in protecting democracy and voting rights? Corporations shouldn’t be involved, said 25 of 33 of those surveyed. Q71 sought a letter grade for the Biden Administration for its initial 4 months in office. Biden received 3 As, 14 Bs, 10 Cs, 3 Ds and 1 F. The final question, Q72, asked the executives if they expect to attend the MBA’s Annual Convention in San Diego in October. 27 of 33 executives do expect to attend and are looking forward to the get-together. The six not attending are mostly with firms that will be represented at the annual convention, though they personally won’t be in attendance.
Survey Details
This survey began 12 years ago at the urging of Phil Bracken, then an EVP at Wells Fargo Mortgage. As a longstanding client of our firm’s research into the benchmarking of production revenue and expenses by production channel, and the examination of third-party originators, namely correspondents and mortgage brokers, Phil had over the years received many informal surveys and notes from my meetings with him and other clients. Finding the surveys and notes useful, he suggested that it was time to formalize the surveying. Wells funded the project the first several years. Since, I’ve solicited an array of different sponsors over the years.
Here’s a brief overview of the survey’s purpose, participants, methodology, questionnaire, and industry model. The purpose of the survey is to gather the thinking, responses and expectations of an industry through a relatively small sample size of the universe, namely MBA’s lender members, but carefully structured to serve as a microcosm of the industry. The participants are all veteran mortgage bankers with broad knowledge of the business. Those surveyed for the May survey included 15 CEOs and/or presidents of firms, 1 COO, 5 EVPs, 10 SVPs and 2 VPs.
Among the 33 firms surveyed were 17 banks and 16 IMBs. The depositories included 2 thrifts, a savings bank, a credit union and 13 commercial banks. The IMBs represent a cross-section of ownership forms, including a realtor-owned firm, 2 homebuilder-owned firms, 2 firms owned by hedge funds, 2 owned by private equity firms, and several family-owned mortgage companies. So, type of firm, origination volume, operating channels, scope of operations, and place of domicile are the key criteria used to create a “stratified model” of the mortgage banking community.
The surveys, once conducted face to face, are for the time being completed over the phone. (Hopefully, we will revert to the original method in October.) Appointments with those surveyed are set up a week or two before the survey call. Survey questions are read to those surveyed, answered, and then it’s on to the next question. Surveys take 40 minutes on average. Most questions seek a yes or no response, a scaled ranking, or a letter grade. After the surveys are all conducted a spreadsheet is prepared and a Report of Survey Findings is drafted, distributed, and then published by MBA in NewsLink.
The surveyed firms in May include 3 of the 5 largest mortgage originators of agency loans in 2020–as sourced by the AEI Housing Center’s National Mortgage Risk Index—5 of the Top 10, 9 of the Top 20, 11 of the Top 25, and 19 of the Top 75. (Rule of thumb: The Top 10 firms generally account for about 50%+/- of total annual volume and the Top 50 account for about 75-80% of the aggregate annually.)
The questionnaire consists of queries accumulated by me between the Secondary Conference and the Annual Convention. In addition, questions are solicited and contributed from several MBA members, MBA staff and several other industry observers.
I’ll conclude this report by noting that this reports a simple reiteration of the findings, not one iota an analysis. An analysis of the major take-aways from this survey will be posted at MGIC Connects next week.
My thanks to each of the executives who participated in this survey, and to my sponsor, MGIC, who underwrote it this year; and who kindly employed me from 1976-1987.
(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.)
