The companies that provide mortgage lenders with title agents, appraisals and other ancillary services could be more busy than ever in the coming months as both originations and defaults increase.
According to Doug Duncan, chief economist at Fannie Mae, interest rates are likely to continue to fall. In Fannie Mae's real estate forecast for July, he predicted that fixed mortgage rates for 20 years would average 2.9% in the fourth quarter, then decrease further over the next three quarters and reach 2.6% in the third quarter of 2021.
While these low interest rates attract buyers to the market, they should continue to boost funding demand. Fannie Mae forecasts $ 1.9 trillion in refis this year and $ 1.1 trillion next year.
But purchases are not lost either: Duncan is forecasting $ 1.26 trillion this year, after $ 1.29 trillion in 2019. For 2021, his current estimate is $ 1.28 trillion.
And while most borrowers are expected to borrow again after the end of COVID-19 leniency, a significant number are likely to fail.
As a result of these conditions, the ancillary services listed below may start up more than ever.
With interest rates not expected to rise significantly next year, "as they emerge, products will continue to grow," said Mike Rawls, CEO of Xome, a mortgage and valuation provider, title insurer, listing portal, and auction house.
Xome has over 200 customers, although its largest parent company remains Mr. Cooper. 51% of Xome's sales currently come from origins, Rawls said.
Given the increase in originations and possible locks in the fall, Xome has invested in hybrid valuation products, he added.
"On the valuation side, the pandemic has only helped turn the industry away from traditional assessments," said Rawls.
Other companies are also expanding into the valuation business. In June, Stewart Information Services, whose main business is property insurance, acquired United States Appraisals, a valuation management company.
Before the merger, Stewart had its own valuation business. But there is little overlap between this and the US rating, said Aaron Fowler, co-founder and former CEO of US Rating, who is now Senior Vice President of Rating Services at Stewart. The assessment units remain separate operations for the time being.
"Your consumers are primarily home lenders, so the combination is a more comprehensive and scalable solution for Stewart's customers," said Fowler.
Due to the pandemic and a relaxation of the secondary market's valuation rules, the US valuation launched a mobile application called Valuguard Home Inspection.
"It enables our borrowers to use their smartphones to perform a [and] self-service inspection that guides them through the process," said Fowler.
The consumer can get the job done in about 15 to 20 minutes, he said. "It is very important that the data be validated using geolocation technology and that the photos are time stamped," he added.
Even if the default is not the primary focus of US appraisal, Fowler expects an inflow of bad debt – and the company's tools can be useful there as well.
"I think some of the innovative solutions, such as the Valuguard app, that we developed for the flexibility of GSE assessment, have applications that go far beyond that, including maintenance," he added.
Assistance with damage reduction
With many unknowns regarding regulatory enhancements regarding forbearance and other measures, service technicians are preparing for a wave of outages that could occur at any time.
"What we see [in residential areas] is that it is really important to stay nimble. The rules are constantly changing and they have changed fairly clearly and fairly quickly," said Michael Franco, CEO of SitusAMC. The real estate consultancy is active on both the residential and the commercial market. in the latter category it is also a credit service provider.
While some service technicians may use automated tools to support customers, others may choose to hire more staff to expand their own staff.
Mortgage providers have recently turned to business process outsourcing companies such as MetaSource and LenderLive, which are being renamed to reflect their ownership through Computershare Loan Services to eliminate bottlenecks in times of heavy traffic.
SitusAMC spoke to its customers about their vulnerabilities and worked with them to determine the impact of COVID-19 on their business, added Tom Britt, general manager and head of residential property.
"Certain servicers had offshore operations that were suspended due to the blockage in India and other countries. And then many of our servicer customers, whether they were banks or non-banks or smaller servicers, found it difficult to move away from facilities "Said Britt. "We worked with them to either outsource certain functions or, as Michael mentioned, the piece to expand the staff."
The lack of response from service providers during the real estate crisis, which was largely due to the lack of staff, left a negative impression on many observers and consumers.
"The banking communities in particular have great appreciation for the political setback they suffered in the Great Recession," said Franco. "Nobody is in favor of a repetition of this. So we see institutions that are really trying to assert themselves, are looking for personnel solutions and [and] are trying to be seen as very accommodating to the consumer."
Automation is increasingly used when it comes to the title business and can be useful when it comes to a rush of origins.
Xome has a proprietary decision-making engine that allows lenders to complete over 40% of their orders almost instantly.
"This essentially means that 40% of our work is dropped and we can focus on things that we really need to delve into to clear the title," said Rawls.
However, since the originations remain at a high level, the standard business will also increase, which is a unique situation.
"If both work at the same time, I think it will be a real burden for many mortgage companies as they will have difficulty moving resources from one side to the other," said Rawls.
SitusAMC owns a title company called String Real Estate Information Services that talks to service providers and has various products for standard situations in front of them, Britt said. AMC [then known as American Mortgage Consultants] acquired String in March 2019 before merging with Situs in June this year.
Valuations including broker price reports were submitted via the Collateral and Asset Management department.
Nevertheless, it is a bit like a political football if the leniency ends. As a result, "everyone is waiting for the log to break," added Franco.