2017 in Review: Mortgage Edition
What we’ve all been talking about this year
It’s been a fascinating year for mortgages and real estate. There was more political turmoil than you could shake a stick at, developments in cyberwarfare and cryptocurrency that made science fiction sound like real life, and a wave of innovation gaining momentum despite everything else.
1. EQUIFAX HACK
Equifax was hacked over the summer, uncovering the Social Security numbers and other personal information of over 143 million Americans (basically the entirety of credit-worthy adults in the country) and causing a national security crisis of epic proportions that, well…should have never happened.
It was later revealed that Equifax knew about the attack a month prior to releasing details about it to the public. Causing even further outrage, several executives sold over $8M worth of stock after the breach, but before the announcement. Internal investigations cleared them of any wrongdoing.
In the weeks that followed, Equifax was exposed for having rudimentary security protocols in place for decades, a fact made evident even as it tried to help consumers freeze their credit after the attack. This was embarrassing.
The story was a stark blend of corporate carelessness and criminal mischief, a bleak milestone of the evaporation of privacy and security in the digital age, and a story that will have a massive ripple effect on mortgages in 2018.
2. TAX REFORM
After several failed attempts to pass major legislation under the new administration, a highly contested tax reform bill was able to get some momentum this year. It’s still a work in progress as we publish this piece.
Most of the contention revolves around the scale of cuts earmarked for corporations by increasing taxes for private citizens, but other provisions have caused sizable concern in the real estate and mortgage industries at large.
The mortgage interest deduction could virtually disappear. Property tax deductions are on the table. The length of time needed to occupy a primary residence in order to gain tax-free exclusion of capital gains might increase from 2 of 5 years to 5 of 8 years. There are a few other items up for debate.
The NAR is arguing that proposed changes could send the housing market in into a tailspin. Other experts don’t think the changes will affect things at all.
3. FASTER TRANSACTIONS
It’s no secret that selling a home is a hassle. And while the last ten years of real estate innovation was mostly focused on the homebuyer experience, the next ten years will surely bring major changes to how owners get their homes sold.
The popularization of an old, yet modernized model where investors make offers to purchase homes quickly, make repairs, and then list the house for sale is led by Opendoor, but they’re not the only game in town anymore.
Zillow and Redfin just launched similar offerings to a range of skepticism and fear from real estate insiders, but were greeted with optimism by the public.
The transaction volume between all of these offerings combined isn’t very impressive on its own, but as the mechanics of a streamlined selling experience finally reach maturity, we think this space could accelerate.
4. TURMOIL AT THE CFPB
Richard Cordray, the first and only director of the CFPB since its inception, resigned in November of this year, but not before appointing Leandra English as the agency’s deputy director in a move to protect the office short term.
But President Trump quickly named Mike Mulvaney to the post, a decision upheld in federal court after a day in which both he and Ms. English reported to work to assume the leading role at now, the country’s most vexed agency.
The CFPB was created in response to the last economic crisis to oversee financial laws that protect consumers by ensuring that banks are playing by the rules.
Republicans have long criticized the agency for being too autonomous from constitutional controls and felt that too many regulations have been passed. A new director will be appointed in 2018 to shape a different future for CFPB.
5. THE DIGITAL MORTGAGE EXPERIENCE
While e-mortgages and remote online notary services have existed for quite some time, the first closing where every document (including the note) was signed on a computer and notarized electronically happened in July of 2017.
The average time to close a loan hovered at just over 40 days for most of the year in an environment where companies like Opendoor can close a deal in as little as 3. This timeline has to shrink so that typical homebuyers can compete.
Reducing the cost of originations will require technology solutions for lenders which allow them to automate menial tasks and smoothly process exceptions, yet 90% of lenders don’t have a solution in place. We’re hoping to change that.
Borrowers want a better mortgage experience too; combining speed, convenience, and security with the personal touch of a trusted lender.
6. CRYPTOCURRENCY EXPLODES
This year Bitcoin overtook Trump as the topic of Thanksgiving dinner, crossing the $10,000 threshold after starting the year just under $1,000. Cryptocurrency drew scrutiny by many, but the power of blockchain is real.
7. TECH FUELED REAL ESTATE BROKERAGES EXPAND
The Redfin IPO in July marked the beginning of transparency in the real estate brokerage environment unlike anything we’ve seen before, while Compass raised a whopping $450M at the end of the year to fuel its growth.
8. EASING CREDIT STANDARDS AND DTI RATIOS
Credit reporting agencies will drop tax liens and civil judgments from some consumers’ profiles and Freddie and Fannie agreed to change debt to income ratios from 45% to 50%, targeting buyers with excessive student loan debt.
9. LOW RATES AND LOW INVENTORY
Mortgage rates have stayed historically low, hovering just below 4% for most of the year, but did so during one of the most widespread housing shortages in recent history, a time when prices are accelerating at breakneck speed.
10. THE FUTURE OF HUD
Former presidential candidate/neurosurgeon Ben Carson was confirmed as the Secretary of HUD despite many questioning his qualifications for the job. Carson has been tasked to cut $6 Billion dollars from the budget this term.
This year provided some much-needed clarity about what is most important in the housing space headed into 2018. The new administration will pass legislation that not only affects mortgage rates and tax liabilities, but will form a new paradigm around what it means to regulate the industry.
Real estate models will shift and evolve in response to new consumer dispositions while also navigating policy changes that continue to develop.
2017 was also a year in which natural disasters ravaged the homes of countless people. Our hearts goes out to everyone affected by these tragedies. Donate here.
At Approved, we’re most excited about innovations and policy that benefit the consumer and make it easier and more transparent to make housing moves. Not only is it the right thing for lenders to do, it’s good for the bottom line too.
Our software helps lenders & borrowers streamline the homebuying process.
