The buying and technology preferences of borrowers will change the way mortgage originators conduct business.

Technology will drive the industry and make it more efficient for borrowers and renters, over the next five to 10 years, and place  information at their disposal, in an almost instantaneous manner. The high cost of originations, and changing expectations of borrowers, will bring radical changes in the way originators do their jobs and reduce their compensation levels, sources said.

An originator will have access to automated ordering of verification of employment, income and assets--and more data and analytics with a push of a button than has ever been available to them. That will be a radical shift in the way technology is employed and in how people get a mortgage. Paper will give way to web-based processes, and the process will be more digital and seamless.

“My children will take a picture of the house they are interested in with their cell phone, provide the [global positioning satellite] coordinates, and send that off to someone ready to provide financing,” said Timothy Mayopoulos, former chief executive officer at Fannie Mae, speaking on the “Doing Business with the GSEs” at the MBA’s Annual Conference.

The home purchase will remain the largest purchase many people will make in their life times, and they will want to work with a trusted realtor or originator--but ones that make communication possible through technology. The purchase of a house will change because millennials are looking for a buying experience that’s as identical as possible to the interactions they’ve had with Google and Amazon--and that “won’t be anything different from that experience,” said Mayopoulos.

Millennials are the largest generation in U.S. history, and while they desire to buy homes, they want to do so with more technology than have past generation of homebuyers. That means “housing that will be as nimble and agile as consumers need,” he said.

The change in the origination side of the business could be similar to the experience of the travel industry. For instance, there was a time when travel agents were relied on for vacation information 100 percent, because they were the only ones that had that information. But that is no longer the case.

Now, access to travel information is available through the internet. For specialized needs, high-end travelers, or the difficult ones, travelers will use a travel agent. But for the most part, “they are comfortable making their travel plans without the assistance of a travel agent,” said Ken Bates, branch manager of Military Home Loans, a division of American Pacific Mortgage.

With information available online about realtors, mortgage brokers, even houses in their price ranges--just a keystroke or two away--borrowers will do much of their own research. That includes researching properties through Zillow, shop for a realtor and educate themselves on mortgages and the mortgage process. That information had been the private domain of originators, but no longer, which means they will earn less money.

Although they have the information to make a buying decision, one difference with a travel agent is that they will want some guidance to get them through the process. For large loans, for example, a $600,000 mortgage, borrowers will want someone to look in the eye. They don’t want to make a mistake.”If they make a mistake on a $40,0000 car, that hurts,” said Bates. “But if they make a mistake on a $600,000 mortgage that can be devastating to the borrower.

But there are simply too many originators for too few loans. The industry will go through a massive downsizing; and it’s possible that a quarter of us won’t be in the business a year from now,” said Bates.

Economic growth remains on-track to hit Fannie Mae’s 2018 projected growth rate of 3 percent, and meet its 2019 forecast of 2.3 percent, despite expectations of slightly stronger third-quarter growth than in the prior forecast, according to the Fannie Mae Economic and Strategic Research Group’s October 2018 Economic and Housing Outlook.

Residential fixed investment is expected to have fallen for a third-consecutive quarter, with home sales and mortgage demand continuing to soften amid rising interest rates.

“Our expectations for housing have become more pessimistic: Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019,” said Doug Duncan, chief economist for Fannie Mae.  “Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market. While the amount of for-sale inventory of existing homes is finally showing some improvement, it remains tight in many areas of the country, especially in the lower-priced tiers."

The Research Group still anticipates that growth slowed from the second quarter's robust 4.2 percent annualized rate to a still-strong 3.3 percent pace. Factors that could have slowed third-quarter growth include a quarter-over-quarter deceleration in consumer spending and business investment growth, as well as trade, which switched to a detractor from growth, rather than a source of growth.

The SEC and the U.S. Attorney’s Office for the Eastern District of Virginia have charged a Virginia real-estate developer with securities fraud and skimming investor funds that were intended to be used to purchase an office building near the site of a planned commuter rail station on the Washington, D.C. Metro’s Area Silver Line.

Todd Elliott Hitt, 53, used two of his companies--Kiddar Capital LLC and Kiddar Group Holdings Inc.--to raise more than $20 million from investors over at least a four-year period, according to the Securities and Exchange Commission complaint. The money was raised to acquire and operate the office building, new home construction in Northern Virginia, and to invest in a startup business.

The complaint further alleges that Hitt raised the funds by misrepresenting that he would invest $6 million as a general partner as part of the planned $33 million purchase. The SEC complaint also alleges commingling and misappropriation of investments in various real estate and other projects.

Hitt is alleged to have committed securities fraud in connection with his ownership and operation of Kiddar Capital, a self-described asset management firm based in Falls Church. According to court documents, he falsely claimed that Kiddar Capital managed $1.4 billion in assets and had offices located in Houston, Palm Springs and London.

The SEC alleges that Hitt misappropriated several million dollars of investor funds to support his extravagant lifestyle and that he made Ponzi-like payments to prior investors. As part of his settlement with the SEC, the terms of which remain subject to court approval, Hitt consented to entry of a judgment freezing his assets and that prevent him from participating in the offer or sale of interests in real estate development companies.

Also, he consented to the appointment of a receiver over a number of the corporate defendants and relief defendants. Under the terms of the proposed settlement, the receiver would protect investors, prevent asset dissipation and loss, and attend to the businesses. Penalties and disgorgement will be determined by the court at a later date.

“We moved quickly to preserve the value of investors’ stake in a number of commercial and residential properties in Northern Virginia,” said Melissa Hodgman, associate director in the division of enforcement for the SEC. “The total package of relief obtained in the settlement ensures that Hitt’s assets will be used to compensate harmed investors and will limit his ability to harm investors in the future.”

Labor market expectations improved with the median one-year ahead earnings growth expectations reaching a new series’ high and households having more optimistic unemployment expectations, meaning they fear losing their jobs, according to the September 2018 Survey of Consumer Expectations from the Federal Reserve Bank of New York’s Center for Microeconomic Data. In contrast, expectations about household income and spending growth both declined. There was no change in short- and medium-term inflation expectations.

More highlights from the survey are as follows:

Inflation

• Median inflation expectations at both the one-year and three-year horizons remained stable in September at 3.0%. Inflation expectations at both horizons have been virtually unchanged since April 2018.
• Median inflation uncertainty—or the uncertainty expressed by respondents regarding future inflation outcomes—decreased slightly for both horizons compared to last month.
• Median home price change expectations remained steady in September at 3.6% after having declined the previous two months from a three-year high of 4.9% in June. Median home price change uncertainty also remained unchanged.
• The median one-year ahead expected price change for gasoline, food, college education, and rent changed little in September, staying within 0.1 percentage points relative to last month’s expectations. In contrast, the median expected change in medical care and gold increased 0.7 and 0.4 percentage points to 9.2% and to 2.6%, respectively.

Labor Market

• Median one-year ahead earnings growth expectations increased 0.3 percentage points in September to 2.8%, the series’ all-time high. The increase was driven by respondents with annual income between $50,000 and $100,000. The median one-year ahead earnings growth uncertainty was unchanged in September.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased 1.2 percentage points to 34.1% in September, but remains around its 2018 average of 34.0%.
• The mean perceived probability of losing one’s job in the next 12 months increased from 13.8% in August to 16.0% in September, its highest level since November 2016. The mean probability of leaving one’s job voluntarily in the next 12 months also increased from 20.6% in August to 23.4% in September, its highest level since August 2016.
• The mean perceived probability of finding a job (if one’s current job was lost) increased from 57.8% in August to 59.3% in September, slightly above its 12-month trailing average of 58.9%.

Household Finance

• Median expected household income growth decreased 0.3 percentage points in September to 2.5%, its lowest level of the year. The decrease was most pronounced among older (above 60 years old) and low to mid-income (annual income below $100,000) respondents.
• Median household spending growth expectations declined for the third month in a row, from 3.2% in August to 2.9% in September, falling below its 2018 average of 3.1%.
• Households’ perceptions about their current financial situations deteriorated in September, with the proportion of respondents feeling they are better off than a year ago decreasing 2.4 percentage points to 34.9%. This is the lowest level since October 2017. In addition, respondents were slightly less optimistic about their future households’ financial situations, with the proportion of respondents expecting to be worse off financially a year from now increasing 1.1 percentage points to 12.0% in September.
• The perceived and expected change in credit availability were mixed in September. The proportion of respondents reporting that credit has become easier to get than 12 months ago increased 0.8 percentage points to 24.9%, while the proportion of respondents who expect credit to become harder to get in 12 months also increased 0.6 percentage points compared to August to 31.1% in September (the highest level over the past 12 months).
• The median expectation regarding year-ahead change in taxes (at current income level) increased 0.3 percentage points to 2.5%, the series’ high since August 2017.
• The average perceived probability of missing a minimum debt payment over the next three months increased 0.9 percentage point to 13.7% in September, a new series high since January 2017. The increase was driven by respondents with low annual income (below $50,000) and low education (high school or below).