Compliance

11:10 AM
Kathy Burger
Kathy Burger
Commentary
Connect Directly
Google+
Twitter
RSS
E-Mail
50%
50%

How Will Banks Ride Out the Latest Mortgage Industry Cycle?

Amid lingering fallout from the mortgage crisis, there are signs that customers are regaining faith in lenders. But there's still a long way to go.

Lending, the foundation of banking, is a cyclical business. In the early 1980s, I interviewed mortgage bankers about market trends, and the response of one executive stuck with me as a cautionary tale about predictions. At the time, interest rates were hovering around 20% and this banker declared, "We'll never see single-digit mortgage rates again." As we know, history proved him wrong.

[Banks continue to face challenges in growing their mortgage businesses: Tough Hill To Climb For Mortgage Industry In 2014]

However, the fact that rates did, in fact, drop into single digits -- and have stayed there for many years -- helped create the business with which banks are dealing today. Low mortgage rates helped fuel the real estate boom of the 2000s, as well as the subprime market and resulting financial crisis. The entire lending business, including mortgage, is in flux right now, putting new pressures on banks to find innovative ways to find and engage with customers, better manage credit risk, improve efficiency and cut costs -- the themes of our recent according to SNL Financial, which says commercial and industrial loans and consumer loans have been "bright spots for the industry, while real estate loans have fallen."

Perhaps even more important, customers are happier with the mortgage experience than they have been in years, according to new J.D. Power research. The firm's 2013 U.S. Primary Mortgage Origination Satisfaction Study measures customer satisfaction in four factors: application/approval process; loan representative; closing; and contact. Overall customer satisfaction improved for the third year in a row, according to J.D. Power, averaging 771 (on a 1,000-point scale) in 2013, up from 761 in 2012 and 747 in 2011. Five lenders ranked above the industry average: Quicken Loans (841), BB&T (798), U.S. Bank (783), PNC Mortgage (778) and Chase (773).

The fact that JPMorgan Chase is in the top five is reassuring or eyebrow-raising, depending on your perspective. After all, the bank recent agreed to a $5.1 billion settlement with the Federal Housing Finance Agency regarding claims it misled the agency over the quality of mortgage securities and home loans it sold during the boom. It's part of $13 billion the bank is expected to pay to resolve a variety of government claims relating to the mortgage crisis.

JPMorgan will pay for the mortgage crisis for a long time -- not just in settlements, but in reputation. As one tweeter commented during a recent -- and quickly aborted -- online forum, "Can I have my house back?" There will have to be a big mortgage rebound before the industry no longer has to field those kinds of questions.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Page 1 / 2   >   >>
KBurger
50%
50%
KBurger,
User Rank: Author
1/6/2014 | 5:17:22 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
I hope you are not talking about yourself!
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
1/3/2014 | 6:40:39 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
The interest rates are so low on savings and CD's right now that it doesn't really encourage people to save. Of course that's part of the idea, we're keeping interest rates low to get the economy going. But it might also encourage bad behaviors among young consumers who are starting to develop their spending/saving habits right now.
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
1/2/2014 | 11:32:03 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
Not only do CDs provide value, (or used to), they provided security. CDs provide a fixed rate of return and they are guaranteed by the FDIC up to $100k. Contrast that with stocks and bonds. Today's low rates have made CDs unattractive, but that could change as rates rise.
KBurger
50%
50%
KBurger,
User Rank: Author
1/2/2014 | 5:29:49 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
Well, back in the day you actually could earn meaningful interest on a CD or even a savings account. So they had actual investment value. It does seem like educating younger consumers about the value of savings (and combining that with convenience/experience) is a great opportunity for banks. Those younger customers are going to be geezers one day.
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
1/2/2014 | 2:49:49 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
I don't think I know anyone who buys them, but apparently they were big back in the day.
Byurcan
50%
50%
Byurcan,
User Rank: Author
12/31/2013 | 4:07:32 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
My 91-year old great aunt is the only person I know that buys CDs. She goes down to the bank branch to get them. No omnichannel for her!
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
12/31/2013 | 3:06:56 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
I've seen some research - related to savings accounts and CD's, not mortgages - that rates are more important to older demographics but younger customers are more easily swayed by convenience and experience.
KBurger
50%
50%
KBurger,
User Rank: Author
12/30/2013 | 9:00:45 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
It will be interesting to see if prices/rates trump convenience/experience. The process is improving, more automated, more mobile, more transparent -- will that be more important than $$?
Jonathan_Camhi
50%
50%
Jonathan_Camhi,
User Rank: Author
12/27/2013 | 4:22:42 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
Depends on the consumer. If you're someone who is saving a lot then the higher interest rates will benefit your savings account, but if you're in debt it certainly won't help. And anyone who is planning on refinancing their mortgage any time soon better jump on that opportunity now before those interest rates go up.
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
12/25/2013 | 4:26:14 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
Banks have improved the tools they offer consumers to apply for mortgages and to figure out their payments based on how much they put down as a downpayment. But interest rates are expected to rise in 2014 as the Fed curtails its mortgage buying program. I wonder if high rates will influence how consumers feel about banks.
Page 1 / 2   >   >>
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology - August 2014
Modern core systems are emerging as the foundations of effective channel integration and customer engagement initiatives.
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
New IT Models for New Financial Services Challenges