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» VISIT US ONLINE @ DSNEWS.COM DELOITTE ANALYZES SHORT- AND LONG-TERM OUTLOOK FOR LENDERS Though rising mortgage rates and the current supply and demand situation present short-term difficulties for originators, researchers at Deloitte say the long-term picture is rosier. With demand, prices, and credit conditions all on a path to recovery, Deloitte Banking & Securities research leader Val Srinivas examined the problems still facing originators and how they must adapt to overcome these challenges. The biggest challenge to the housing market in general right now is low supply. According to data collected from the Census Bureau and the National Association of Realtors, supply of new and existing singlefamily homes has been cut nearly in half in both categories since 2011. "All else equal, limited supply means fewer purchases—and fewer originations. And that could mean banks may not see hoped-for, short-term growth in origination volume from such demand," Srinivas said. "The picture is one of strong demand and a market caught flat-footed. However, builders have taken note, and housing starts [in March] surpassed the 1 million mark for the first time since 2008." Also changing the landscape is the imminent end of the refinance boom, which has been drawing to a close as mortgage rates start to pick up again. The purchase market is unlikely to provide immediate relief to originators trying to make up for declining refinance volume. "Supply constraints, a large number of cash purchases, and continuing weakness in other sectors of the economy probably mean weak prospects across the board for the near future," Srinivas noted. That's not to say there's no hope for the future—if past trends hold up, supply will catch up to demand as builders and homeowners adjust to the market, and lenders will make changes to standards and strategy to increase purchase loans. Then there are next year's regulatory changes, which should provide as many opportunities as they do challenges, according to Srinivas. "Originators may also benefit from the increased regulatory clarity given by the recent qualified mortgage and ability-to-repay rule as well as the forthcoming qualified residential mortgage rule, which governs securitization and risk retention," Srinivas said. "In preparing for renewed challenges in the near term, originators should find home in their longterm prospects." STAT INSIGHT 980,000 Households formed in 2012, well below the 19652001 average of 1.28 million annual household formations. Source: U.S. Department of Commerce and Wells Fargo Securities 19