The market share of adjustable rate mortgages reached 9.2 percent—a high watermark for 2018.

This percentage is up from 8.9 percent the month prior and from the 2018 low of 5.5 percent, according to the December “Origination Insight Report” from Ellie Mae. Also, the share was the highest since Ellie Mae began tracking the data in 2011.

[caption id="attachment_9349" align="alignright" width="198"] Jonathan Corr[/caption]

“With the strong demand for housing and the rapid increase in property value appreciation, more consumers are turning to adjustable rate mortgages to gain additional flexibility when competing for a home,” said Jonathan Corr, president and CEO of Ellie Mae. “This is another key indication of how demand has outpaced supply in the housing market as consumers pursue their dream of homeownership.”

The popularity of ARMs can be correlated to the 30-year rate, which rose to 5.17 percent for all loans closed in December, up from 5.15 percent in the same period one month earlier. For Federal Housing Administration loans, the 30-year rate increased to 5.2 percent, conventional rates increased to 5.19 percent and Veterans Affairs rates increased to 5.01percent.

Other statistics from the report are as follows:

• The time to close all loan types increased to 47 days in December, up from 46 days in November. Time to close a purchase loan decreased to 47 days, while time to close a refinance increased to 44 days.
• The percentage of purchase loans rose to 71 percent of total loans in December, up from 70 percent the month prior.
• Overall FICO scores dropped one point to 726. Loan-to-value remained at 79 for the fifth month and debt-to-income held at 26/39.

The report is based on data from around 80 percent of mortgage applications that were initiated on the Encompass solution.

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By Chris Roberts, Bryan Caffrey and Paul Gigliotti

The digital mortgage might be good for the mortgage industry, but some predict it will cause the demise of originators, realtors, appraisers and others.

That is far, however, from a foregone conclusion.

To be sure, the digital mortgage is on the front of everyone’s mind. Digitizing the origination process, replaces employees with technology--and efficiency gains will be dramatic. Bottle necks will be removed, processes will be faster, and costs will be reduced.

Those are worthwhile objectives, but it’s not clear that borrowers are willing to use, much less embrace automation, at the expense of having professionals to work with.

While they might be willing to fill out an online application, borrowers overwhelmingly express a desire to have access to a human, someone who can guide them through the often-confusing origination process. In fact, 70 percent of borrowers said they wanted access to a professional who could answer questions, or resolve problems, according to a report from Accenture.

[caption id="attachment_9319" align="alignright" width="300"] Bryan Caffrey[/caption]

So, the demise of originators, realtors, and appraisers it seems, is exaggerated; though what the optimal balance between automation and humanity will be hasn’t been determined. There is little disagreement that borrowers want access to a human, someone to provide some hand holding, to educate them on the process.

Rather than being a threat, automation is a tool designed to support originators, one that frees them to have more meaningful relationships with borrowers; it enables them to sell more loans. Agents will be able to sell more homes and appraisers will be able to complete more appraisals.

Technology ensures loan officers can focus on building relationships, and leaves collecting and copying a pay stub to operations staff. The deployment of technology, moreover, is an efficiency play, that frees originators and other professionals to devote more time to serve as advisors and develop sustainable relationships with business partners.

It isn’t necessarily a ploy to replace professionals with automation.

They need to drive the use of technology, not the other way around. Few will argue that automation and process changes have to occur because the mortgage business is archaic and lags other financial-service sectors. But it will support them, not disintermediate them.

That’s because technology frees professionals to perform high-value tasks: Loan originators can go with realtors to open houses and discuss finance options for the homes they see. They can focus on relationships and closing sales. Or if they meet with a borrower, documents don’t have to be picked up and brought back to the office. Instead, the documents can be uploaded to a loan origination software, and the loan originator can take the client or the realtor out to dinner.

The aim is to replace time-consuming, manual tasks like picking up documents with more meaningful interactions that build a relationship based on personal relationships. The expertise of professionals, and the quality of their service, is why the consumer selected them--not because they had the lowest rate.

Staying relevant requires showing personal relationships are more powerful than an automated experience. Quality human interaction will enable a higher level of customer service than automation can ever hope to provide. But the assumption is technology has to be embraced at the exclusion of human relationships, but that’s not the case.

The aim is for professionals to expand their skill set and broaden capabilities of teams as well as maintain excellent relationships. If they do that, they won’t have to fear the adoption of automation, because they would have improved the lending experience for consumers, and in the process, preserved their careers.

About the Authors: Bryan Caffrey, the CEO of Arivs, a national appraisal management company with local branches strategically located in over 20 mortgage markets across the U.S. Email Bryan atThis email address is being protected from spambots. You need JavaScript enabled to view it.. Chris Roberts, national sales and support director of Arivs, implemented the company’s national-local strategy, recruited and trained staff for local offices and expanded the services the company offers. Email him at This email address is being protected from spambots. You need JavaScript enabled to view it.. Paul Gigliotti is the executive vice president of operations for the West Coast Mortgage Group. He ensures that the operations team operates at optimal efficiency, trains and mentors new sales people, and negotiates with investors. Email Paul at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

 

 

 

 

 

 

 

 

 

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Although the supply of homes for sale is up in many markets, both the number and share of homes that are affordable to a typical household has decreased from a year ago, according to a new report from Redfin, a real estate brokerage firm.

The report considers all homes that were active on the market in 2018 or 2017 and calculates the share of homes in each metro area that were affordable during each year to a household making the median income in that metro area.

Just 14 percent of homes that were on the market in 2018 in the San Jose metro area were affordable on the median household income in the area of $117,000. This is a big drop from 2017, when 26 percent of homes that were for sale were affordable. In Los Angeles, 16 percent of homes for sale were affordable in 2018, down from 20 percent in 2017. In Seattle the share of affordable homes for sale dropped to 46 percent in 2018, from 58 percent in 2017.

Home price gains and interest rate increases through 2018 combined to considerably reduce home affordability. Although the number of homes for sale is increasing, the number of affordable homes on the market has decreased in most metro areas.

"Homeownership is increasingly out of reach for the typical American," said Daryl Fairweather, chief economist at Redfin. "Over the last few years builders have focused on luxury homes, and there hasn't been enough construction of affordable starter homes."

In many metro areas, even as the number of homes for sale has increased, the number of affordable homes for sale has shrunk over the past year. In the San Diego area, there were 10 percent more homes for sale during 2018 than 2017, but the number of affordable homes for sale fell 16 percent. In the Seattle metro, there were 4 percent more homes for sale, but the number of affordable homes for sale fell 17 percent.

Although the share of homes for sale that were affordable on a median income fell from 2017 to 2018 in all 49 of the metro areas included in the report, there were a few metro areas where the number of affordable homes for sale increased, including Hartford, Conn. (+19%), Jacksonville, Fla. (+9%) and Nashville, Tenn. (+4%).

Homebuyers looking for affordable options still have plenty of choices in metro areas like St. Louis (84%), Minneapolis (82%) and Pittsburgh (82%). Strong growth in jobs and wages may also help buyers make up some lost ground as well.

"We expect builders to shift their attention to more affordable homes during 2019," added Fairweather, "which along with rezoning efforts by local governments should reduce this pressure to some degree over time."

 

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