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Kathy Burger
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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

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Byurcan
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Byurcan,
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12/23/2013 | 2:17:11 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
Very surprising the JD Power research finds that consumers are generally happier with the mortgage process, that's good news for banks facing a difficult 2014 in this line of business
KBurger
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KBurger,
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12/23/2013 | 5:16:25 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
I'm guessing there are 2 main factors -- 1, the lending process has opened up somewhat post-crisis so it probably is a bit easier to get a mortgage loan now then it was 2-4 years ago (plus consumer confidence is higher overall, which probably makes people feel better about applying for mortgages); 2, even though there is a long way to go in terms of automating mortgage origination inevitably technology has snuck in and there have been improvements in processing time and accuracy, multi-channel availability, etc.
Jonathan_Camhi
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Jonathan_Camhi,
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12/23/2013 | 6:50:11 PM
re: How Will Banks Ride Out the Latest Mortgage Industry Cycle?
The mortgage process is going to continue to change over the next few years with new CFPB regulations coming into effect later in 2014. It will be interesting to see what kind of effect that has on consumer attitudes.
IvySchmerken
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IvySchmerken,
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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.
Jonathan_Camhi
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Jonathan_Camhi,
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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.
KBurger
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KBurger,
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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
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Jonathan_Camhi,
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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.
Byurcan
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Byurcan,
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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
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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.
KBurger
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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.
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