#MBARMQA22: ‘Holding the Line to Protect Your Companies’

(MBA President & CEO Bob Broeksmit, CMB, opens the MBA Risk Management QA and Fraud Prevention Forum Monday in Nashville.)

NASHVILLE, TENN.—Mortgage Bankers Association President & CEO Bob Broeksmit, CMB, said sound risk management practices make the difference in an evolving mortgage market.

“Companies are being challenged like they haven’t been since 2008, and you’re right in the middle of it,” Broeksmit said here at the MBA Risk Management, QA and Fraud Prevention Forum. “Yet, when companies look to reduce their workforce, do they look to cut sales? No, they look to the back office. But we know you are needed now more than ever.”

Broeksmit noted mortgage volumes are down. “Every loan is precious, and the incentives to take shortcuts to make non-prudent loans are high,” he said. “The inclination is to stretch the credit box to goose volumes; or take shortcuts to push more loans through, more quickly. But that’s where you come in—holding the line to protect your companies.”

Broeksmit also observed the real estate finance industry—and lenders—are making better loans than ever before. “No more stated income loans; no more no-doc loans; no more negative amortization; no more subprime exploding ARMs, prepayment penalties,” he said. “Most of this is due to Dodd-Frank, QM, Ability to Repay after the last crisis, but we now face the first real test of the post-Dodd-Frank era. Your job is to keep the eye on the ball and endure your companies aren’t taking shortcuts and giving ground on loan quality or falling prey to other bad actors.”

And don’t outsource the risk function to your competitors, Broeksmit added. “I view your role as balancing market share against loan quality, and it’s a very fine line. If you dial the number too far, you put the entire company at risk; but if you don’t dial it enough, you do the same thing. It’s up to you to play a constructive role, but also a firm role.”

At the same time, Broeksmit said, risk managers are being asked to evaluate new and expanded business lines. “Borrowers have record levels of home equity, but nobody is refinancing at today’s rates unless it’s cash-out,” he said. “We have HELOCs, but how do you verify cash flow analysis?

The good news, Broeksmit said, is the industry is working off a solid base. “Credit quality is great right now,” he said. “And mortgage delinquencies and foreclosures are at record lows dating back to 1979, when we began our National Delinquency Survey. That is a testament to the great credit quality we’ve had over the past couple of years.”

“We’ve shifted to a purchase market,” Broeksmit noted. “Rates, inflation and purchase price factors continue to be on our radar daily; and home price appreciation is starting to slow down—which is great. If home price appreciation doesn’t get back to wage increases and inflation, then things are going to remain out of whack and slow the velocity of home purchases.”

And the headlines for the industry have not been good; MBA anticipates a nearly 50 percent reduction in 2022 loan origination volumes (to $2.3 trillion), including a 72 percent drop in refinance volumes and a 12 percent decline in purchase originations; rates have continued to be volatile; and a number of lenders have ceased operations or dramatically reduced their lending footprint.

“As an industry, however, this has not been about loan or credit quality,” Broeksmit said. “All of this is to say that we as an industry have the tools to weather this storm—and this conference is about sharpening those tools, sharing your stories and learning from each other. MBA is here for you each step of the way, not just this week in Nashville, but 52 weeks a year—in D.C. and around the country.”

Broeksmit emphasized MBA’s strong relationships with Fannie Mae, Freddie Mac, HUD, Ginni Mae and the Federal Housing Finance Agency. For example, MBA has worked with FHFA Director Sandra Thompson in eliminating the GSE Adverse Market Refinance Fee; suspended limits on second homes and investor properties; suspended limits on use of the GSE cash window; improved desktop appraisals; and supporting the Agency’s upcoming review of the Federal Home Loan System, including involvement of independent mortgage banks.

“Many of us at MBA have pre-existing relationships with these agencies, and this experience and knowledge is an asset to the industry,” Broeksmit said.

MBA also continues to cultivate a relationship with the Consumer Financial Protection Bureau. “We want to ensure the CFPB provides clear guidance on policy changes, rather than reverting to ‘regulation by enforcement,’” Broeksmit said. “CFPB Director Rohit Chopra is focused on mortgage servicing, particularly on how borrowers have been/are treated coming out of COVID forbearance. We have spent a significant amount of time reminding him about all that your companies have done to help borrowers through the pandemic. I’ve asked him to focus enforcement on cases of actual harm, and not get bogged down in technical/foot-fault violations.”