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A recently released housing outlook report by Citibank analysts notes that return on equity in the mortgage servicing sector is expected to drop to around 15% from the high of 40% before the housing market crashed. This reality, in combination with the changes coming to the industry, caused the Citi analysts to raise the question, “Is it even worth it to be in the mortgage lending space anymore?”
Of course, we know the answer to that. There will always be money to be made by lending, but how to go about that will certainly be different, and the report noted as much. Here are the important changes the Citi Analysts forecast:

QMs are for the big boys only

Qualified mortgage lending will be a space occupied solely by the big banks, according to the Citi experts. Many factors go into prediction: More capital will be required to back up loans. Fewer people will be qualified to borrow. Legal costs will eat into profit margins. Basically: unless you are Bank of America, QM servicing isn’t really a great option for you anymore.

Refis aren’t what they used to be

Remember when you could offset a slowdown in mortgage originations by getting current borrowers to refinance? Those days are gone. Data from CoreLogic and Freddie Mac reveal only 35% of mortgages stand to benefit from refinancing in 2014. You need to be ready to land more new mortgages, because the crutch of refis is about to get kicked out from under you.

Compliance is a bigger issue

The Citi analysts estimate that the cost to originate a mortgage will rise 24% in 2014 due to, among other things, the rising cost of compliance. Additionally, they expect the cost of servicing loans to increase by nearly 100%. Their recommendation: Stop using mortgage originations as a loss leader. You won’t make that money back.
If you are a smaller lender who is still looking to stay competitive in the mortgage space, the study suggests that you begin looking at ways to outsource your servicing operations.
Have you begun to feel the impact of these changes yet? Remember: Blue Streak can help you with all your document retrieval and recording needs!


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