Dodd-frank is prompting a shift in industry philosophy. Mortgage brokers and originators
should pay attention to where the industry is headed as new regulations likely will affect
the specialty products and services that companies can offer. although niches won’t
disappear, they will change, and mortgage professionals need to know where to find them.
Prior to Dodd-frank, the mortgage industry became what many other industries are: a culture
of niches. Companies had many options and stood out from their competitors by these
specialties. Lenders offered their own unique products and cultivated expertise in them.
The new ability-to-repay rule (a Tr) established the regulation for lenders to refuse qualified mortgages (QM) to borrowers with a debt-to-income ratio exceeding 43 percent. as a
result, mortgage brokers and originators can no longer afford to cater to specific customers.
The new guidelines simply burden lenders with too much risk. So, companies are no
longer offering as many specialized products and are trying to separate themselves from their competitors in a more nebulous way: by promoting their
superior customer service and responsiveness.
Mortgage companies will need time to adjust as they navigate these new regulatory waters. Some large companies have announced they will originate non-QM
loans, but it is unlikely they will buy non-QM
loans from other institutions. Most lenders,
therefore, will be confined to QM loans, at
least until they learn more about the effects
of the a Tr rule and understand what risks investors are willing to take.
Larger banks can afford to take risks by funding their own non-QM
loans. Smaller banks have certain exemptions. These companies at the two extremes
should come closest to maintaining business as usual. Mortgage professionals in the middle
have to compete with more limitations and they will generally offer the same products as
their competitors. That means that these midsized companies could lose their main tool for
standing out — their niches.
With the new regulations governing QM loans, companies can no longer separate
themselves from the competition with price and unique products. They now have to focus
on marketing and sales. This is more difficult to do. Instead of unique terms, pricing and
products, companies must sell borrowers on a message that their service is superior to
that of a competitor. Superior customer service is more difficult to define and market.
What is considered excellent customer service and the ideal sales experience differs
greatly from consumer to consumer, making this niche harder to pin down.
In addition, with the restrictions on QM loans, eligible borrowers will be harder to find for
companies that do not originate non-QM loans. The main priority for a company will be to
find qualified buyers, rather than a specialty niche.
Competition is good for the market. It is good for consumers because lenders competing for business create consumer advantages. It is good for lenders because it keeps them
sharp. furthermore, any rules or trends that limit competition generally draw criticism from
midsized and small lenders, who rely on such competition to fuel their business.
because competition is a necessity, the industry must find ways to continue to foster
it despite challenging new regulations. Nonbank mortgage companies typically look for
niches and specialties to do just that. So now it’s just a matter of these companies finding
their place in the market.
Most niches were closed out largely because of new regulatory constraints. One might
assume, then, that new niches will forever be closed out of the market. but if “necessity is
the mother of invention,” new ones will appear over the next year. Niches are the only way
for mortgage companies to distinguish themselves from competitors and drive business.
Niches will not cease to exist. They will evolve and take new shapes that allow mortgage
professionals to foster business and drive competition while respecting the new regulations
— all without imposing undue risk on lenders.
for the last six months of this past year, mortgage professionals were told that lending
will be defined by uncertainty in the first half of this year after the new Dodd-frank regulations went into effect in January. Nowhere is that more true than with specialty services
and products. because these were eliminated in their previous forms, institutions must
recast significant aspects of their businesses.
although it is unclear how mortgage professionals will respond to this challenge, institutions will be forced to be creative. Mortgage professionals will carve out niches. Competition has not been totally regulated out of the market and there is still room for mortgage
companies to find a new forte. •
« NICHES continued from page 43
patti White is vice president, correspondent lending, at Norcom Mortgage. She joined
the company in 2008 after 20 years in the legal industry. She serves on the Membership Committee for the Mortgage bankers association. She is a member of the florida
association of Mortgage Professionals and the Connecticut Mortgage bankers association. She was assigned previously to build Norcom’s Wholesale channel from the
ground up. reach White at email@example.com or (860) 899-3793.
are no longer offering
as many specialized products and
are trying to separate themselves from their
competitors in a more nebulous way: by promoting
their superior customer service and responsiveness.”