Five Questions with Mike Fratantoni, Ph.D.
Mike Fratantoni, Ph.D., is the chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association.
1) Back in April, MBA introduced its GSE reform proposal. How has the response been now that you and your colleagues have had a few months to socialize the proposal?
The conversation really has moved in the direction of MBA’s proposal to have the GSEs re-chartered as participants in a competitive, multiple-Guarantor model, with the Guarantors having access to an explicit guarantee for the mortgage-backed securities they issue. In my discussions with leaders in housing finance, the central tenets of MBA’s proposal are the benchmark right now.
2) For the MBA Risk Management, Quality Assurance & Fraud Prevention program, you spoke in a session with Fannie Mae and Freddie Mac regarding changes taking place in underwriting and QC practices. Can you provide some initial thoughts on the topic?
One of the highlights of the conference every year is when representatives from the GSEs give updates on their QC and risk-policy parameters. They’ve made a number of changes with respect to underwriting criteria, appraisals and property valuation. They are continuing to work to reduce the time and cost burden for lenders.
3) Mortgage rates seem to be falling this summer, a season that some consider a busy time for the mortgage industry. Has this made an impact on mortgage volume, and what are your predictions for rate increases/decreases the remainder of the year?
Rates have come down a bit, but overall the pace of originations is meeting our forecast of $1.6 trillion of mortgage originations, with a 40 percent decrease in refinance activity and roughly a 10 percent increase in purchase volume. We expect rates to drift higher this year and into next, with one more rate increase by the Fed this year.
4) Why are we seeing an increase in cost to produce a mortgage these days, and what can the industry do to minimize the cost?
We’ve seen origination costs almost double in the past 10 years due to lenders increasing staffing for back-office operations: largely staff for QC, QA, risk management, compliance and legal roles. In the industry, we call this “checkers checking checkers.” To reverse this trend, lenders would need to feel more confident that they are operating in a safe and compliant manner. For that to happen, our industry needs more regulatory clarity.
5) Everyone wants to tap into the millennial market. What are your thoughts on how we can convince this more risk-averse generation to take the leap into home ownership?
Millennials have achieved many of the standard mileposts in life later than previous generations: buying a car, getting married, having kids and buying their first house. But in the last year or two we’ve seen the pace of millennial purchases increase. A strong job market and the greater availability of low-down-payment programs has facilitated this trend.