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Lenders Continue to Pivot

By Rob Chrisman, Senior Advisor

At the risk of using an overused term, as we wrap up the first quarter of 2022, originators and lenders have pivoted. 2021 was a culmination of great two years of volumes, profits, and incomes, but the focus has turned to 2022 and what this year might hold. The “rate and term refi phone” has stopped ringing. STRATMOR has its finger on the pulse of the residential lending business in the United States, so what are we hearing and seeing, at the MLO level, from company tactics to that of the entire industry?

Certainly, the shift to a purchase market (and decline in volume, especially with limited volume in practically every market) drives a need for processing and marketing automation. Lenders recognize that this automation is not there to remove humans, but instead to support them in the ability to proactively engage in “high impact” moments with customers and agents. The best mortgage loan officers (MLOs) know that borrowers are demanding intelligent human outreach and an excellent customer experience.

Experienced mortgage loan originators are adept at selling payment, lifestyle, and products rather than merely rate. They need to be, because any discussion that begins with, “Yes, you have a 2.75 percent 30-year fixed-rate mortgage, and now they’re at 3.875” is going nowhere unless the MLO can offer beneficial options that are tailor-made to the client. If the Federal Reserve, over the next several months, raises the targeted Fed Funds rate by one percent, how will that impact mortgage rates and your client’s costs?

MLOs are helping their clients with pre-approvals and pre-quals designed to help a home buyer in today’s market. Sellers of homes want to know that the potential buyer of their home is “good to go.” MLOs are showing their borrowers options such increased down payments, down payment assistance programs, bond programs through HFAs (Housing Finance Authorities), and non-30-year options such as adjustable-rate mortgages or 15-year maturities. Originators are adding value by helping clients with their credit ratings to improve their credit score, arranging to buy down the rate or paying discount points.

STRATMOR Workshops participants report that sales managers are almost re-teaching their MLO staffs to actually talk to people and go meet them. “Let’s get back to basics of human interaction!” But managers are also keenly aware of increasing the productivity of originators with technology. Originators know that they must use technology as a tool, and that while they can’t outwork a computer, they must automate the things they can.

Up the ladder, lenders, regardless of whatever origination channel they specialize in, are evaluating technology (“tech stacks”) with margin compression, and how integrated technology can power excellence in the customer journey and bring together disparate systems. And just not any technology, as software that is purpose-built for the residential industry trumps “generic” tech that doesn’t recognize the uniqueness of our business. Senior managers are educating themselves on the use of Robotic Process Automation (RPA), hybrid eClosings, and lender perspectives on Loan Origination Systems (LOS) and journey mapping.

STRATMOR Workshops, conducted by Senior Partner Jim Cameron, show that, “Over the past several years, lenders have begun to use Robotic Process Automation (RPA) or robotics (bots) to automatically execute certain tasks in the mortgage process that a human would otherwise perform. The use of RPA has been rapidly increasing in the mortgage industry… Lenders typically use a third-party vendor as they get their feet wet with RPA but tend to use vendors less and less as they develop in-house expertise, and their investment grows.”

But lenders don’t operate in a vacuum, and this has become obvious in implementing electronic closings. STRATMOR Workshops indicate that settlement agent readiness and adoption has proved a big hurdle, along with inconsistent state and local requirements. Even investor acceptance of e-signed documents and sales force resistance are factors, unfortunately.

And, lenders are hard at work overcoming the challenges in rolling out hybrids. Some are using “presumptive hybrid” and incorporating the hybrid process into the point-of-sale (POS) system with an “opt out” mentality. That is, make the hybrid process the default choice and require the borrower to opt out if they do not wish to have a hybrid closing. This takes the loan officers and any hesitancies they might have out of the equation. Some lenders are not charging an extra fee for a hybrid close. And most lenders are reaching out to their top settlement agents and working with them one on-one-to ensure full adoption of the hybrid process.

From an industry perspective, millions and millions of borrowers have been helped in the last two years. From a dollar perspective, early tallies indicate that over $4.5 trillion of residential loans were funded in 2022, a new record. But there is nowhere to go but down. The wave of hiring in 2020 and 2021 has ended, at least in the operations ranks. Lenders initially stopped paying their staff overtime, then moved to not replacing those who were leaving, and now have clearly begun to reduce staff directly. Looking ahead, we are going to see mortgage banking production headcounts decline throughout 2022 and into 2023, with large variations from lender to lender based on their purchase versus refinance mix of business.

Lenders and vendors tend not to rest on their laurels for very long. No one predicted the impact that the pandemic would have on interest rates, property values, the shift in the workforce, or what our economy would look like coming out of it. Once again, however, trained and compliant loan officers are adding value every day through educating and coaching their clients. MLOs using the right technology are “stepping up their game” and showing borrowers that it is an advantage in dealing with a human rather than obtaining financing over the internet. Lenders are introducing helpful technology. And the industry will continue to help borrowers across the nation achieve homeownership as the American dream.

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