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Navigating Through The Twilight Zone

Navigating Through The Twilight Zone

The summer of 24 just whizzed by at what seems to have been the pace of a Formula One race. Despite expectations that the administration would recognize that housing is a core economic driver and mortgage interest rates would lower to spark home sales and some level of refinancing, rates have remained at relatively high levels. If one carefully reads the comments by the various Fed presidents, the FOMC is still looking for confirming data before pulling the trigger. While there's clear consensus that rates will drop soon, the timing is definitely not locked for September given the most recent inflation data. The gurus at Housing Wire recently pointed out the 6 out of every 7 homeowners have a mortgage interest rate below 6% with the preponderance of that market segment having loans with interest rates below 4%. Thus, we're not likely to see a flurry of existing homes coming on the market. After all, the financing and transaction costs for making a housing change coupled with likely higher monthly payments are significant hurdles that need to be overcome.

While it's just a matter of time until the aging baby boomer population cohort decides to that health and life circumstances warrant selling the current homestead, when those drivers will trigger a high volume of housing changes is not clear. However, the pace of change is accelerating. Consider that as of June 2024 some 10,000 baby boomers are retiring every day. That pace is expected to continue through 2027 when the number will jump to more than 11,000. Life events of this huge population cohort will eventually drive significant changes in the housing market.
Meanwhile, housing and mortgage banking must adapt to a myriad of changes including, but not limited to:

  • How the real estate brokerage business adapts to a new compensation environment.
  • How mortgage bankers and specialized vendors develop and integrate AI into business processes to reduce transaction friction, lower costs and make home financing more like buying a car or getting a credit line.
  • Laws and regulations governing financial transactions involving homes and consumers are based on a world with materially different technology than what is readily available today. For example, the NMLS licensing system evolved to ensure greater accountability for pricing mortgage loans and interfacing with consumers. The legislative and regulatory environment at the time never envisioned a world where a mortgage borrower might sell, buy, finance, and close a transaction without ever talking to a live person.
  • You can open a bank account, open a brokerage account, buy insurance, and even buy and sell stocks as well as options and all sorts of esoteric instruments without ever talking to a human being. Home financing by the end of the decade will surely be markedly different than it is today.

A comment during a recent panel planning call for MBA's upcoming Risk Management Conference in September warrants repetition here: "Businesses that don't use AI and its likely derivatives to materially accelerate processes will be replaced by those who do." Consider that the current environment has created a Twilight Zone. The narrator's opening words of that famous TV show that aired between 1959 and 1964 are worth recalling, "You unlock this door with the key of imagination. Beyond it is another dimension - a dimension of sound, a dimension of sight, a dimension of mind. You're moving into a land of both shadow and substance, of things and ideas. You've just crossed over into the Twilight Zone.!"

The narrator goes on to say, "It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man's fears and the summit of his knowledge. This is the dimension of opportunity and imagination.

The current pace of change coupled with lots of uncertainty is like being in the Twilight Zone. It's important to recognize that rapid change and uncertain outcomes warrant effective risk management strategies that ensure the business makes well-informed decisions supporting continued viability and success. All elements of mortgage banking depend in varying degrees on specialized vendors. However, the panoply of laws and regulations that oversee these businesses hold the lender/servicer responsible for all outcomes. Thus, it's imperative that individual company vendor management practices ensure that they understand the intended impact of AI-based modifications and that outcomes are appropriately governed. The Crowd Strike incident on July 19 affirmed that event risk is always present. We're happy to have a no cost.

The Crowd Strike incident on July 19 affirmed that event risk is always present. We're happy to have a no cost confidential conversation about managing enterprise risks including credit, liquidity, regulatory, operational and reputational risks. We can also show you how our fractional approach can play a pivotal role in protecting capital and events that light impact enterprise value.

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