Brokers don’t see a big immediate change if the Fed attempts to boost banking competition in mortgages
It’s unclear when the Federal Reserve intends to push ahead with looser rules aimed at enticing banks into mortgage lending – but mortgage brokers aren’t expecting a sea change in how they conduct business anytime soon.
The central bank opened the door to a bigger role for banks in the mortgage market earlier this week when vice chair for supervision Michelle Bowman indicated it would “soon” propose two new regulatory rules to address a swing of mortgage originations and servicing away from the banking space.
Bowman said the Fed would no longer require banks to deduct mortgage servicing assets from regulatory capital while maintaining current risk weights and suggested it could also amend existing mortgage capital rules to become more “risk-sensitive.”
But the Fed hasn’t suggested a likely timeline for those changes to be implemented, and brokers are taking a wait-and-see approach until more details are available.
‘It will affect the industry, but not immediately’
The changes could feasibly bring banks more prominently into the mortgage lending fold and strip away some of their reasons for caution.
Still, Yury Shraybman (pictured top) of Innovative Mortgage Brokers told Mortgage Professional America a bigger role for banks in the mortgage process wouldn’t necessarily put brokers’ business under threat.
“If banks increase their involvement in mortgages it will affect the industry, but not immediately,” he said. “Regulatory and operational changes take time. If banks ramp back up, I expect them to focus on the most straightforward borrowers: W-2 income, strong credit, and clean files.
“Where mortgage brokers will continue to be especially valuable is with self-employed clients, complex income, investors, and borrowers who need a non-QM product. A lot of banks just don’t want those deals, or they move too slow, or the guidelines are too rigid.”
Brokers’ ability to shop a deal across multiple lenders and structure it correctly will continue to be their foremost advantage over banks even if competition intensifies, Shraybman said – and he sees other ways the broker community can grow in a crowded field.
“Service matters,” he said. “In my experience, brokers can often close faster with fewer headaches because we’re not stuck with one set of rules or one underwriter’s opinion. If something changes, we can pivot.
“And pricing also matters. If a broker’s compensation is set too high, it’s going to be hard to compete with a bank on a clean deal. If you’re set up with a competitive structure and you can execute well, you can absolutely hold your own.”
‘The downside is the noise and the bad actors’
Sonoran Lending’s Jay Lessard also cast doubt on an immediate threat to brokers and nonbanks, noting that banks often tend to focus initially on the secondary market rather than bolstering their retail sales output.
Shraybman, meanwhile, said more competition for borrowers was to be welcomed, but sees bad actors causing reputational problems for lenders across the board.
“More lenders competing usually means more choices and better pressure on pricing and service. The downside is the noise and the bad actors,” he said. “Consumers get absolutely flooded with misleading calls and mailers.
“I just experienced this personally: I got three calls in one day from people trying to get me to refinance, and they flat out lied and said they were calling directly from my current lender. I’m also on a Do Not Call list, but that doesn’t seem to matter to some. That’s the stuff that gives the industry a bad name.”
Irrespective of whether banks will soon have a bigger role to play in the mortgage market, Shraybman said all lenders should be focused on keeping standards as high as possible to maintain and strengthen the mortgage industry’s reputation.
“Whether it’s a bank, a nonbank, or a broker, the focus should be the same,” he said. “Transparency, competitive rates, and a process that closes on time.”
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