bankingciooutlook

Key Challenges Facing the Mortgage Industry

James Robertson, Banking CIO Outlook | Tuesday, February 23, 2021

Homebuilders are facing the challenge of closing the inventory gap, along with increasing labor, land, lumber, compliance, and regulatory costs.

Fremont, CA: The mortgage industry is at a crucial stage, and traditional institutions and legacy systems that defined the mortgage finance model for years are now becoming obsolete. Today, real estate loans have become more expensive to produce, there is an increasing single-family inventory crisis, and millions of customers cannot gain credit scores. Here are three key concerns facing the mortgage sector:

Expensive Mortgage Loan Production Costs

Today, it costs over $10,000 for mortgage lenders to produce a home loan. The costs carried by the lender are passed on to the borrower, acting as another obstacle for potential home buyers and a problem for homeownership growth. One reason for the expensive cost is the added labor cost in manually processing mortgage applications for unscorable or un-scored consumers using traditional scoring models.

Single-Family Inventory Crisis

There is a lack of affordable single-family homes for owner-occupants. At the year-end of 2020, homebuilders were restricted to build new homes because of the oversupply of homes after the great recession and the rigid government policy and lending guidelines in the U.S. even after a decade, most of these restrictions still exist, discouraging builders from increasing production to meet the demand. Existing houses are not entering the marketplace as much because they are refinancing large numbers instead of selling to benefit from historically low-interest rates.

Additionally, homebuilders are facing the challenge of closing the inventory gap, along with increasing labor, land, lumber, compliance, and regulatory costs.

Fast-Changing Homeowner Demographics

The traditional mortgage credit scoring models are still in use and unchanged since the 1990s. These models are insufficient and fail to properly account for the significant shifts in credit behavior among rising diverse millennial borrowers. Although most of these credit behaviors are fiscally responsible, credit-conscious borrowers may harshly penalize or show these customers unscorable under the current models.

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