For too long, the mortgage industry has used “the money gun” to deal with problems. And that has consequences. Nowhere is this more evident than in the cost to manufacture a mortgage, which was more than $11,600 in the second quarter.

In a panel at HousingWire‘s IMB Summit in Dallas on Tuesday, Community Home Lenders of America leaders Taylor Stork and Paulina McGrath tackled some of the thornier affordability issues plaguing the industry.

And there are big structural changes occurring, Stork noted. The industry will see declining interest rates, new capital rules for nonbanks, new open banking rules under Section 1033, huge technology changes, a new tax bill, tens of billions in damage from hurricanes, new loan limits and artificial intelligence “storming into our business,” he said.

What keeps McGrath up at night?

“It’s the fear of the unknown,” said McGrath, whose lending company, Republic State Mortgage, has a presence in Florida. “While it’s exciting that we’ve got business finally coming back in the door, how are we going to adjust as business owners to benefit from that, to be able to grow our business while at the same time controlling our costs?

“How much technology can we take on, can we absorb, can we use responsibly in order to grow our business without expanding our payments?”

She added that there is the specter of increased regulation as well over the next four years, which would likely result in additional costs.

Stork and McGrath also touched on the promise — and potential threat — of generative AI.

“We need to know how any third-party companies we work with are using gen AI and how it can potentially impact our customers,” McGrath said.

While rates are coming down and there will be more refinance activity, it won’t be a full-fledged boom like in 2020 and 2021. Key for both Stork and McGrath is to help low-balance borrowers who were left out of the last boom, something that is also a stated priority of the Consumer Financial Protection Bureau (CFPB), according to Director Rohit Chopra.

It’s a challenge for the industry because of the high fixed costs to manufacture a mortgage, they said.

“I’m in Houston and Dallas predominantly and lend a bit in Kentucky and Ohio, where we have low-balance loans, and it’s a legitimate struggle,” McGrath said. “There are real hurdles because the cost to originate is so high and there are so many flat costs you can’t absorb in those smaller-balance loans.

“I think the focus on trying to reduce … certain costs — ‘junk fees’ as they call it — are important. We need to get a handle on some of the costs. Just seeing the crazy increases in technology costs have skyrocketed. I don’t have an answer.”

Stork said there have been proposals out of Washington, D.C., that attempt to address the rising costs of origination, including legislative action to change loan officer compensation rules.

“There are thoughts and ideas about creating greater incentives for IMBs to participate in those lower-end loan cost structures,” he said. “When you look at what FHFA is driving through the enterprises, through the scorecard system, to create additional incentives for low-ball loan amounts, those can create some some profit opportunities, but it’s a distinct challenge.

“But it’s also simultaneously a distinct opportunity, because there are a good number of people who didn’t get the 3% refi and will be potentially able to refinance it at 5% and 6%.”

The exploding cost of homeowners insurance — which is largely regulated by states — also likely requires federal action, Stork said. Remarkably, insurance agencies have blown off requests to meet with Federal Housing Finance Agency Director Sandra Thompson.

“It’s keeping people on the sidelines. … Insurance is doubling for some customers from one year to the next,” McGrath said. “Something needs to be done.”