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ACUMA 2017
The American Credit Union Mortgage Association’s annual fall conference kicked off Monday in Las Vegas, with a discussion of cyber security concerns, an economic update and a look at a few areas of concern for residential lenders in 2018. Here’s a look at some of the insights from the event.

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A panel discussion on cybersecurity during the 2017 American Credit Union Mortgage Association conference. From left to right: Tracy Ashfield, president, Ashfield and Associates, Tim Segerson, deputy director, Office of Examination and Insurance for NCUA, Todd Hougaard, product manager with Mortgage Cadence, William Burding, Jr., executive vice president and general counsel for Orange Coast Title Company
Cybersecurity panel.
A panel discussion on mortgage banking cybersecurity risks included a reminder that regulators are watching.

The panel, pictured above, included from left to right: Tracy Ashfield, president, Ashfield and Associates, Tim Segerson, deputy director, Office of Examination and Insurance for NCUA, Todd Hougaard, product manager with Mortgage Cadence, William Burding, Jr., executive vice president and general counsel for Orange Coast Title Company

Tim Segerson, deputy director, Office of Examination and Insurance for NCUA, led off the panel discussion risks by stating, “Consumer privacy and security is the responsibility of the entire organization. There needs to be a culture of security throughout the organization.”

Todd Hougaard, product manager with Mortgage Cadence, agreed, saying, “The IT department can only go so far. Everyone says they follow procedures, but if you question them closely they will acknowledge making exceptions.”

Tracy Ashfield, president, Ashfield and Associates, said time and performance pressures can cause some people to cut corners.

“We tell mortgage officers to follow the employee handbook, but sometimes it is Sunday morning and we need a document, so members scan their W-2 and e-mail it. That is something we cannot control.”

According to NCUA’s Segerson, the credit union industry is going to have to move in the direction of greater consciousness of security – and figure out a way to do so without retraining or stifling innovation.

According to Ashfield, there are a cornucopia of vendors and third parties involved in the mortgage process, especially for credit unions that lend in multiple states. And, as William Burding, Jr., executive vice president and general counsel for Orange Coast Title Company, reminded, “It only takes one person in a title company to screw up the entire process.”

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'No sign' of a looming recession
According to Christopher Thornberg, founding partner, Beacon Economics, economic forecasting is one part being aware of trends, one part knowledge of economic fundamentals and one part following government policies. He said in most cases, policies are a “slow-turning boat” that do not play an immediate role in the economy, but that general concept was turned upside down when Donald Trump was elected president last November.

“President Trump was elected more as a populist than a Republican,” Thornberg assessed. “He came into the office with a lot of big ideas and very little political experience. Therefore, we need to pay attention to policies coming from Washington because they will affect the economy going forward.”

The U.S. economy is “growing slowly, but it is growing,” Thornberg said, noting it has been a slow recovery from the last recession, but insisting there is “no sign” of looming recession. He said people who say the expansion has gone on longer than a usual expansion – and therefore a recession is due any minute – are advancing an argument “unsupported by logic.”

“An expansion does not have a life cycle,” he said. “An expansion is permanent until it is murdered by a shock, which then triggers a recession. Predicting a recession requires predicting a shock.”

GDP growth in the second quarter was 3 percent, Thornberg said, noting GDP growth has been “remarkably steady” in recent years. He pointed out several encouraging signs, including the fact manufacturing production is picking up, the ratio of household debt to income is much less than it was leading into the Great Recession and there is no sign of rising delinquencies. He said consumers are in a “powerful position” when it comes to earning money because labor markets are tight.

“There are plenty of job openings in the economy today,” he said. “Never have there been so many job openings, especially in professional services and health care. The slowdown in job creation has come from a lack of workers, not a lack of jobs.”

With tight labor markets, wages are starting to rise, Thornberg pointed out. With rising wages, people are starting to come back into the labor force. “We have an aging work force. Boomers are getting to the last of their working years, so there is a natural dip in the participation rate.”
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'Mediocre' housing market
Taking a look at the housing market, Thornberg said inventories are tight and sales are low, leading to a picture that is “pretty mediocre.”

“This is a so-so market. Single family housing starts have been moving up, but there still is fairly weak growth. But there are no signs of a bubble.”

According to Thornberg, new regulations spawned by the Dodd-Frank Act are driving a drop in mortgage credit by causing lenders to limit lending to low-credit-score borrowers. “The idea that we should not have subprime loans misses the point. Subprime loans are a wonderful product,” he asserted. “There is nothing wrong with a subprime loan, unless the person does not have to actually prove his or her income, or unless it has a 120 percent loan-to-value and a pick-a-payment option. Millions of low-income Americans are being left behind. [Massachusetts Senator] Elizabeth Warren is hurting the very people who support her. There are more renters, which is being driven by a lack of access to credit.”

Over the next 20 years, Thornberg said he expects the continuing trend of aging baby boomers retiring will push the majority of changes in the economy. “We are talking about tax cuts right before the number of Americans on Medicare is going to increase dramatically. This is a problem and no one is thinking about it.”

CUs should expect 2 percent to 2.5 percent GDP growth in 2017 and 2018, Thornberg said, adding labor markets will remain tight and wages will put pressure on profits. “Exports and business investments will pick up, while the housing market will continue its tepid recovery. It will remain tepid until there is a conversation about changing the regulatory environment to increase credit to those with low incomes.”
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Don't hold your breath on reg reform
Rob Chrisman’s best advice to credit unions: “Stay relevant and keep perspective.”

Chrisman, senior advisor to the STRATMOR Group, said due to Wells Fargo’s many scandals, Congress is “not focused” on regulatory reform.

“The regulatory environment is not going anywhere,” he said during a breakout session covering areas of concern for residential lenders heading into 2018.

Congress has far too many regulatory issues on its plate, including calls to reform GSEs Fannie Mae and Freddie Mac, proposed changes to the Federal Housing Administration, plus servicing. So Chrisman said when it comes to reform, credit unions will have to pick their battles.

“The industry will be stuck in the middle if Fannie Mae and Freddie Mac are replaced by private investors,” he said.

As for the oft-cited threat of non-depository lenders getting into mortgage lending, Chrisman said, “There is a difference between a mortgage company becoming more IT savvy and an IT company becoming more mortgage savvy.”

“People like doing business with subject matter experts, and they want somebody to talk to,” he observed. “Many of the changes that have taken place in recent years are so buyers in the secondary market can trust that the loan is legitimate. We cannot ignore change, we need to use it for our advantage.”

As for the many talking heads on TV saying the housing market is in, or is headed toward a bubble, Chrisman flatly dismissed the notion.

“I don’t think we are heading for a bubble. First, the underwriting criteria have gone back to historical standards. Stated income loans have gone away. Second, borrowers have more skin in the game due to down payments. Also, millions of borrowers have low-rate, fixed-rate loans. They are going to keep their properties for a while. There still is growing demand due to demographic and population trends.”

Some lenders are focusing on factors that will help them thrive, Chrisman continued. He said mortgage lending officers who stay relevant and well-trained are a “financial life coach” for borrowers.

“They have credibility,” he said. “The production staff needs to be fully accountable and manage their pipeline. The staff needs to know the cost of producing a loan. The staff needs to know the difference between credit risk and operational risk. Have a culture of character, caliber and integrity. Internet lenders are not talked about in terms of integrity, but credit unions have a reputation for integrity.”

Mortgage lending “is a numbers game,” which Chrisman said is why it is so important for CUs to be efficient. He said CUs are “feared” by banks and non-depository lenders as credit unions are gaining market share.

“You cannot be complacent. You have to stay educated,” he told the audience of credit union mortgage professionals. “Make sure the people working for you stay educated. If you want to do reverse mortgages, you cannot just take a class and then one hour later you can make reverse mortgages. Same goes with alternative lending, small business lending, construction lending. Know the value, and know the market opportunity.”
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