As 2022 drew to a close, we brought together a group of First American Data & Analytics leading subject matter experts to share what they see as challenges and opportunities in the coming year.
Here is what they are predicting for 2023:
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“Housing market potential in 2023 will remain largely dependent on the path of mortgage rates, which will be heavily influenced by inflation. But there is reason to be hopeful that mortgage rates, and thereby the housing market, will stabilize in 2023.
“The popular 30-year, fixed mortgage rate is loosely benchmarked to the 10-year Treasury bond. As the Federal Reserve continues tightening monetary policy to combat inflation, we can expect more upward pressure on Treasury bonds and, therefore, mortgage rates. But the Fed will slow the pace of monetary tightening when there is sustained evidence that inflation is receding, and there is good reason to believe that inflation may slow in 2023. Core goods inflation is already cooling, shelter inflation is expected to do the same in the coming months and, in theory, tighter monetary policy should cool services demand.
“If inflation decelerates toward the Fed’s target range in the second half of 2023 as is currently expected, then it’s possible that mortgage rates may decline modestly in the latter half of the year. While mortgage rates will remain high compared with pandemic-era lows, stable and potentially modestly lower mortgage rates will elevate housing market potential in 2023.”
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“It seems like every client we’re meeting with is tightening their belts and looking for ways to cut costs and speed up decisions. In 2023, competition for what little business is out there is going to be fierce. They're looking for faster, cheaper ways of doing things, and that’s where new and expanded ways to use AVMs come in to play.
“Home equity will continue to be the go-to-product in 2023, and you’re going to see HELOC originators moving to AVMs, at least for their high FICO low LTV decisions. Even very conservative institutions will have trouble justifying expenses and the long-turn times of appraisals. Some will be using standalone AVMs, others will opt for solutions, like our FraudGuard® Home Equity solution, that has our Procision™ AVM built in.
“From a marketing perspective, AVMs are also an extremely predictive tool for home equity business. Banks and credit unions can run AVMs against their portfolios and instantly identify all their customers that live in Orange County, California, that have at least 60% equity.
“If, as some observers expect, housing prices start to go down, portfolio monitoring will become hypercritical, and investors and servicers will be using AVMs to understand their exposure.
“Finally, there are several working groups that are focusing on creating more standards and acceptable use practices for AVMs, and this, along with better testing, will also increase confidence and expand their usage.”
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Paul W. Harris, General Manager, Mortgage Analytics
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“As Mark Fleming’s team has reported, housing affordability is now at a 30-year low. In fact, in just the last six months, the average buyer has lost about $162,000 in purchasing power. Although prices have cooled a little, they remain at a historically high level. This is the kind of environment that can breed fraud for housing.
“Occupancy is one of the primary ways this manifests itself, and this is one of the hardest types of fraud to uncover. Verifying income and employment will also take on new importance in 2023, because downsizing and job losses will also increase risk for lenders. While there’s some debate over whether we are technically in a recession, there is no doubt that we’re starting to see layoffs across the tech and financial services sectors. Right now, it's imperative that a lender verify employment and income prior to closing and double check, because things change quickly.
“Just about every article you read about what to do if you're worried about losing your job, includes the suggestion of taking out a home equity line of credit, just in case. So, if you’re originating HELOCs, running FraudGuard Home Equity should be a best practice. You can run it as many times as you want in the loan process, so you should definitely run it right before closing.
“FraudGuard Home Equity can also significantly accelerate HELOC decisioning. It’s a streamlined version of our original platform and it provides virtually all the tools you need to originate a HELOC or HEL: valuation, income and employment, ownership, flood cert and HOA and condo information.
“In times like these, counterparty risk increases: Loan officers and mortgage brokers are certainly making significantly less money now than they have during the past couple of years. And this could lead to cutting corners or inflating income to get deals done.
“As compensation decreases, we’re also seeing loan officers strike out on their own as mortgage brokers. So as lenders bring on these new brokers, there’s a need to conduct diligence on them. A number of large wholesale and correspondent lenders, for example, use our Vendor Management Suite to vet their counterparties.”
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“There’s a high likelihood that consolidation will accelerate in our industry next year with firms acquiring other companies, assets and/or loan and MSR portfolios. Done well, this is an opportunity, but it can also expose the acquiring firm to risk, particularly if there’s a lack of data or the data is dated.
“So, portfolio analytics will likely take on a greater importance next year. Acquirers will need property information, valuation, fraud, HOA data and AVMs to understand the value of the risk that they are taking on. They will also want to understand any risk that the seller might not have awareness or exposure to, such as additional liens on the property- voluntary and/or involuntary- so getting a comprehensive and current view of the property is key.”