A level playing field and clear rules of the road are appealing ideals to mortgage professionals. However, these concepts sometimes feel purely aspirational with respect to rates, regulation, and real estate.
These “Three R’s” provided a jumping off point for an insightful discussion about the unique challenges faced by independent mortgage banks (IMBs) and other players in the lending space during a general session at NAMMBA Connect 2024, a national conference hosted by the National Association of Minority Mortgage Bankers of America.
Mitchell Sandler Partner Daniella Casseres, MeridianLink Senior Vice President of Sales Vince Furey, and Rob Chrisman, capital markets consultant at Chrisman Inc., addressed these topics head-on during the panel discussion, moderated by NAMMBA President and CEO Tony Thompson.
Addressing redlining risks
Having to constantly evolve your business model to accommodate emerging technologies and meet consumers’ expectations is an exhausting challenge for lenders who also have to remain compliant with regulators’ expectations.
Not the least of these challenges are inherent in complying with the new Community Reinvestment Act (CRA) rules set to take effect in the coming months and years.
“I think independent mortgage companies struggle to kind of understand what is applicable to them, especially from a redlining perspective,” Casseres said. “They haven’t been subject to what depository institutions have been subject to for a long time, which is the federal Community Reinvestment Act.”
She predicted there could be several headlines in the months ahead related to nonbank lenders struggling to keep up with regulatory obligations amid concerns about the state of the mortgage market.
“Sometimes the demands from the agencies are such that, in some of these proposed settlements, it could push nonbank lenders to have to litigate where they wouldn’t normally,” she continued. “So that’s why I see that temperature kind of increasing for litigation.”
Furey agreed, saying the most important thing to industry professionals is simply knowing the “speed limit” in terms of regulation.
“I think the general feeling out there is – if you’re a lender, if you’re an originator – just give me the rules and make my competitors’ rules the same,” Furey said. “Make a level playing field, and let’s get on with our jobs, because our industry is filled with people who just want to help the borrower or help their clients. But if there’s a perceived double-standard out there, that’s not a good thing. It’s like driving down the freeway. Give me the speed limit and let me go.”
Casseres and Furey also agreed that regulatory environments vary significantly depending on the outcome of presidential elections. The differences are likely to be felt at both the state and federal levels.
“I think, with a change in administration, based on what we saw when the Trump administration took over last time, the states may start to regulate a little bit more aggressively,” Casseres said. “Some states have already implemented their own CRA requirements. Illinois’ CRA rules became effective not so long ago (in 2024) and I think we’ll probably see a trend towards that.”
She noted how the Illinois CRA framework struck her as having more “clear cut” rules than the requirements crafted by the federal banking agencies.
The panelists agreed that lenders need to be proactive in addressing redlining risks, suggesting it can be beneficial to involve sales teams in monitoring and recruitment strategies to increase lending in underserved areas. The role of technology, particularly artificial intelligence, also can be valuable in identifying disparities and taking early corrective actions.
Adapting to younger market share, improving rates
Staying on the subject of the future, Thompson asked the speakers to speculate on what the industry could look like a year down the road.
Furey suggested the ongoing transfer of wealth from Boomers to Millennials and Generation Z could be the biggest and most predictable change on the horizon. These demographics require a different marketing approach than previous generations given their status as digital natives who are used to being bombarded with information constantly.
“They’re going to make up more and more of our homebuying and lending community, and they expect to be served very differently than my generation was served. You really need to shift the way you’re approaching that population,” Furey said. “I had someone tell me before they kind of function like someone walking through Times Square with blinders on, not seeing anything. Whereas you could say, in my generation, you could touch people two, three, or four times and capture, that generation, you have to touch them 12,13, or 14 times.”
He said the key to capturing business in the coming years will be to identify where there are opportunities to win business, what that community looks like, and how they expect to be served.
As younger borrowers indicate they prefer a one-stop-shop approach to homebuying, mortgage companies may have to get creative with their approaches.
“Some of the challenges we’re seeing from lenders is in trying to integrate real estate into their business models, whether that’s hiring a real estate agent to be a loan officer or some sort of one-stop shopping where real estate and mortgage are under the same roof,” Casseres said. “I think navigating that from a legal perspective can obviously give a company an advantage, but it’s also a challenge. There’s a lot being thrown at lenders right now in a challenging market with opportunity.”
Another challenge may be tied to lenders’ ability to resist the urge to become overly aggressive as the rate climate improves, she explained.
“If rates get better as predicted, companies need to figure out how to stay on top of hiring decisions and compensation decisions,” Casseres said, noting lenders sometimes take more risks in these respects, especially when the market starts to improve after being suboptimal for an extended period. Lenders need to ensure they do not get overly aggressive, as this can lead to compliance trouble.
“It’s about just keeping a long-term view on some of those risk decisions and remembering that enforcement investigations typically can span at least a period of five years and just kind of keeping an eye on the long-term strategy and viability of your company in light of potential opportunities that might come in the next 12 months,” she said.
Effects of the NAR settlement
The notion of hiring real estate agents as loan officers could come with unique hurdles as well. Furey suggested the National Association of Realtors (NAR) settlement could make borrowers leery of certain business arrangements.
“I don’t think NAR did any favors to the industry,” Furey said. “I think they could have out-litigated this for the next 50 to 75 years and not spent $410 million. I really don’t think it helps the consumer at all and it creates a lot of confusion in the marketplace. You look at the relationship that a Realtor establishes with their buyer, and now they’re forced to have them sign a piece of paper when there’s no relationship even established.”
Furey explained that, from a practical standpoint, it is important to keep in mind what makes sense for a Realtor’s time and threshold for liability.
“To expect a listing agent to have fiduciary responsibility to a buyer and the seller in the same transaction is not a good look for a consumer,” he said.
Furey mentioned he was encouraged by quick actions by Fannie Mae and Freddie Mac intended to clarify that seller contributions towards buyer commissions are not subject to seller contribution caps. This was crucial to steering consumers towards “a bad place from an affordability perspective.”
Mergers and acquisitions
Consolidation is an ever-recurring topic in the financial sector as market share in mortgage lending shifts more toward independent firms. Many traditional banks are finding the business case for merger and acquisition agreements too appealing to pass up as their lending divisions concede more and more business to fintechs and other nontraditional lenders.
Furey noted, despite suboptimal rate conditions, about 80 percent of IMBs recorded a profit in the second quarter this year, according to statistics released by the Mortgage Bankers Association. While this reflects positively on lenders’ ability to succeed on their own, he expects a fair amount of consolidation to continue for the foreseeable future.
“When you’re making money, it takes a little bit of pressure off of somebody who’s thinking about selling but the mergers and acquisitions will continue,” he said. “I think that because (a) we’ve got an aging population of owners and companies out there (b) it is a tough environment, and individuals may not have plans for their businesses if they retire or if they die, and (c) oftentimes it just makes good sense. It can be helpful for two companies to merge. If one company is doing well in this part of the state of Florida and another is doing well in that part of the state, why not merge and become more efficient?”
With these considerations in mind, Furey views these types of mergers and acquisitions as simply a natural part of the evolution of the real estate finance business.