Generally, prediction posts for the mortgage market opine on the direction of interest rates and inventory availability: this is not one of those posts. In fact, this is not really a set of predictions, but rather observations of trends, which will likely progress whether rates go up or down, or the economy grows or stagnates.
Here are five trends in the mortgage origination industry with observations on why they will continue, perhaps on an accelerated path.
1. More depository lenders will enter the non-QM market, either through expanded offerings or acquisition.
2. Greater diversity in alt mortgage programs.
No one is suggesting a return to no documentation or negative amortization loans, but the growing number of programs available to a heterogenous customer base looks to grow. From creative ways to document employment and assets, to accounting for gig economy income, lenders will be looking for programs that go beyond standard income documented, 20% down payment mortgages.
3. Greater reliance on AI, Machine learning & RPA technologies
This will accelerate processes while improving underwriting standards. This one is a given. I can’t think of a case where technology has regressed. But from pre-qualification to servicing, mortgage is an industry with a disproportionate amount of unstructured content and manual reviews. Which is to say there is a lot of paperwork, and proportionally a lot of data entry required. Machine Learning and RPA are ideal technologies to accelerate document-driven processes.
4.Growing use of alternative data for mortgage credit decisioning in the mortgage market.
More and more borrowers are finding receptive lenders in the online lending solutions space. Fintechs are already used to creative ways of identifying and validating assets and income. This will port over to the mortgage industry, where lenders will need to get creative with how they underwrite borrowers and document their income and propensity for making payments.
5. Triple digit growth in non-QM lending.
The expiration of the CFPB “Debt to Income patch” will lead more borrowers to consider non-QM solutions to meet their funding needs, particularly as overall mortgage rates are staying near historic lows. The opportunity for a non-QM lending solution is a perfect storm of two forces: A growing customer base that is comfortable with supporting technology and the end of the DTI exception with GSEs.