More M&A, more non-QM, and more technology expected for 2020

by Kasi Johnston07 Jan 2020

In 2019, the reduction in interest rates reignited the lending industry, and mortgage professionals are going to try to ride that wave through this year to keep that momentum going.

“Some of the momentum that fueled the industry last year ignited new technology projects and new ways of thinking, and I think that will fuel 2020 to keep it pretty much flat and keep it active,” said John Vella, chief revenue officer at Altisource. 

The big question, he says, is how will lenders maintain their volumes?

“There’s going to be M&A activity and consolidation. In the last year, lenders were able to maintain profitability thanks to the low interest rate environment and a surge in refinancing, but sustaining that through the new year will be challenging,” said Vella. Fannie Mae is predicting U.S. economic growth will slow to 1.3% by the end of 2020, compared to 1.9% in the final quarter of 2019, which Vella says will continue to push M&A further.

The Mortgage Bankers’ Association (MBA) is predicting a big slow down for refinance originations by almost 25%. They also expect a decrease in total mortgage originations to around $1.89 trillion this year compared to over $2 trillion in 2019. 

Last year, the non-QM sector really took off and Vella expects this trend to continue. “There’s a lot of good, underserved borrowers out there, who under the really stringent underwriting environment have not been given loans, but would make great borrowers,” he said. “By opening up non-QM, it will allow lenders to get access to more borrowers, approve more borrowers who will be deemed credit worthy, and be good customers going forward.”

It almost goes without saying that this year is going to be a big one for fintech, as lenders continue to improve their technology, according to Vella. Two-thirds of financial services firms plan on making significant investments in AI over a three-year period, according to a 2017 PwC report. More lenders will start integrating technology to streamline their processes, lower costs and improve the borrower experience.

“It’s a priority for both originators and servicers to lower costs, and we are going to see that through more outsourcing and the use of vendors to allow lenders to go to a more variable cost environment, rather than a fixed cost environment,” said Vella. Considering this, he said vendors will face a lot of scrutiny this year, and the bigger, stronger vendors with multiple products and clients could potentially offer to bundle some of their services. “Integrations are going to be key from a technology standpoint, where lenders and servicers can get the data they need and want to help make them more efficient and eliminate duplicate processes.”

The best way to prepare for the new year: “Focus on just two or three things you want to do, and do them well,” said Vella. While that sounds simple, he said there are so many options in today’s market that selecting the best technology and programs for an organizations’ needs can be difficult.

“It’s making decisions as a company about what I’m going to do and what I’m not going to do, and once those decisions are made, it’s setting clear expectations and a clear direction so everyone knows what’s expected of them,” said Vella. Training will play a big factor this year as well, he added. “Things are being done differently in today’s environment to maintain lower costs and to compete. Enhanced training programs are crucial.”