There’s the old tale about a shepherd boy in a medieval land who runs down from the hills and tells the villagers that a wolf is coming to eat their sheep. The townsfolk get out of bed and rush into the hills to find nothing but grazing sheep. The boy laughs.
It is possible that economists and mortgage analysts have been laughing for the past two years as they called for an end to the refi boom that never came. It is possible that just like the case of the boy who cried wolf, people have stopped believing that the easy refi business will ever end. But it will. Smart mortgage professionals can see it from here.
The data is clear. The industry’s largest investors and many of the larger settlement-services companies have shown exactly why the refinance business will fall off precipitously in 2022. The Mortgage Bankers Association’s forecast is the most concerning as it shows that what accounted for more than 60% of the lending business last year will account for only one-third next year.
This is a huge change that many lenders and originators will not be adequately prepared to face. Mortgage professionals who do not plan now to sustain their business in 2022 will not be in a position to do so. Fortunately, there is still time. Looking at the changing market, there are some important next steps for independent mortgage brokers and branch-manager originators.
Before exploring specific tactics for origination, it is important that a lender and the mortgage originators who work with them make some strategic decisions that will guide the enterprise into this new market. It is clear, for instance, that the needs of purchase-money borrowers are different from those of refinance clients. Generally, there also is the addition of a real estate agent. This creates complications that could impact staffing.
Staffing depends upon the required workflow and the level of automation the lender can bring to bear on the process. The workflow for purchase loans is different and the lender needs people or technology — or both — at every touchpoint in the process. If the lender adequately prepares its front-line sales staff to bring in new business, there will come a point when it is just not possible to staff up enough to process all the work.
This is a good problem to have, but it requires the lender to consider how this work will be completed. Nothing is more demoralizing for an originator than finding out that the new business they have sourced, nurtured and sold cannot be processed.
Smart lenders will make sure that they have adequate mortgage fulfillment capabilities by having strategic outsourcing partners on deck to deal with a flood of new business. Many already have this in place due to the crushing volume the industry saw in 2020. If a company is not in this position, however, the time to figure out how to get there is now.
There are a number of good resources available in today’s market. One of the best advantages that these partners offer is flexible resources, freeing the lender from the need to recruit and hire back-office personnel before laying them off when the cycle turns.
Once the lender knows it can process and close every good deal that originators bring in, it is time to give the company’s front-line staff the tools they need to succeed. In a purchase-money market, it is all about tools that help them build relationships.
Refinance business flows through the doors as long as rates are low or declining and the lender makes an effort to keep its brand alive in the marketplace. Purchase money is different, however. Borrowers need a lot more support when they finance a home purchase and they seek someone they can trust.
The same is true for real estate agents and other business referral partners. They are building their businesses and they will not waste time with anyone who cannot help them do that. They are looking for partners they can trust.
A purchase-money mortgage market is all about relationships, so lenders must give originators the tools and training to build them now. It also is critical that the lender’s technology can do everything involved in refinancing a loan for a client virtually so that originators do not need to spend any time on these tasks.
Without good technology, originators often feel like they have to spend more time on refi deals, which takes their focus away from building relationships with important business referral partners. If the lender cannot take pressure off their originators, the temptation will be to chase the fast-money refis and this will hurt the company in 2022.
The same is true for the importance of relationships with borrowers. A little more time spent on these relationships will pay huge dividends in terms of referrals. Ignoring borrowers because the originator wants to get a few more quick refi loans will be very costly.
Big data and business intelligence (BI) have come of age, and every lender has access to some great tools that will help them analyze their client database and find new opportunities for their originators. One of the best ways to leverage BI is by using it to find out which client niches the lender is truly serving well. The more a lender knows about existing clients, the easier it will be to find more like them and serve up these leads to originators.
This data also can help the lender choose better products to market to these prospects. With good BI, lenders can take a surgical approach to loan product choices and customer service expectations. All of this makes it easier for originators to find and convert new purchase-money clients.
The coming market will be different, and good lenders are preparing now to ensure that their companies are ready to seek out and find the purchase-money borrowers who will ensure their success in 2022. The companies that close their eyes to the changes in the mortgage business will learn that the experts were not crying wolf when they said it was time to embrace the purchase-money market. ●