For at least the past 25 years the residential mortgage industry has gone through one refinance-driven boom-and-bust cycle after the other, and lenders have employed basically the same people strategy each time: hire a lot of workers to handle the originations rush, then lay them off when the rush dies off.
But is there a better, and more humane, way of handling these feast-or-famine situations? The industry is about to find out, as yet another "originations cliff" is coming. Both the Mortgage Bankers Association and Freddie Mac are predicting a sharp dropoff in refis later this year and another, even bigger, decline in 2014. The MBA, for example, is forecasting a 34% drop in refis in 2013 followed by a 56% decline next year.
The downsizing has already begun. JPMorgan recently said it would reduce its global staff by 4,000 positions this year and 13,000 in 2012, the majority of those from the bank's mortgage group.
There's a lot technology can do to smooth out these cycles, at least as it concerns employee management. But are mortgage companies doing enough to put it into action?
"The ones who have implemented technology will be the ones who can survive the big dips, whether it's 10% or 30% or 50%," says Andrew WeissMalik, chief operating officer at 360 Mortgage Group in Austin, Texas.
Unfortunately, he says, not many companies meet that description. "Our industry is way behind the technology curve and we have a long way to go to make it up."
"Many mortgage platforms are 20 years old or even older than that," WeissMalik says. "I'm still recruiting underwriters from banks that are using platforms that are 30 years old and have a DOS interface. While there might be a lot of news articles out there about how great technology is and how everybody's adopting it, the truth of the matter is that I don't think we've hit critical mass at all."
"The problem a lot of lenders have is instead of investing in technology, when volume goes up they throw people at the problem and when volume goes down you have to lay them off," says Tyler Sherman, CEO of Motivity Solutions in Denver. "If they look at the amount of money they spend on an employee, if they would just spend it on a technology solution they could make it more efficient to handle changes in volume without laying people off."
"When you use these technology platforms you can scale your people and your productivity so you can staff for the averages and not the peaks," adds WeissMalik. "Technology allows you to operate efficiently at different levels of capacity."
Joey McDuffee, director at Wipro Gallagher Solutions in Franklin, Tenn., says this may be the year that lenders finally take a more serious look at technology solutions rather than take the usual hire-and-fire approach.
"Now that employee acquisition and training costs have risen considerably, more and more lenders want to hold onto their employees more than ever," he says. "The way they can do that is to enable their employees by providing them with the tools to make them more efficient."
Sherman says the new, more intense, regulatory environment—and not necessarily the coming refi cliff—may be the impetus that finally forces mortgage companies to adopt technology to become more efficient.
"People are starting to come to us more from a regulatory concern than an efficiency concern," he says. "In this new regulatory environment it's paramount that companies start to become more proactive in managing their organizations. You need a better handle on your data to make decisions because your stakeholders—investors, warehouse lenders, state regulators, the CFPB—are demanding that mortgage lenders have control of their data and understand it and know how to manage it. People are starting to realize that the regulatory environment is not going to change, it's only going to get more intense, so they realize they need systems and technology in place to help them and more people is not the answer."
"The end result is that they're going to be efficient, and increased compliance does have those ancillary benefits," Sherman says. "One way or another they're going to have better data and become more efficient."
McDuffee notes that besides increasing productivity, technology can help lenders find new customers and keep existing ones, vitally important if origination volumes plummet as expected.
"More and more lenders have to be positioned in order to survive any business environment, whether it's a purchase-money or a refi market," he says. "Companies that are successful and will survive in the long term really have to be adept at identifying customers, finding new referral sources and closing loans. Technology is really one of the things that can help them get there."
"One of the things we're doing is helping companies focus on data mining and customer relationship management and emerging mobile technology to help loan officers in the field help customers get the right product. It really leads to exceptional customer service and also increases the retention of existing customers."
With mortgage refis already starting to slow down, does this mean it's too late for mortgage companies to implement a technology fix?
"To some degree it is," says WeissMalik. "You would have had to implement it and trained your staff on how to use it at least a year ago."
But, he quickly adds, change can always be made. "But change is a mentality that has to come from the highest levels of senior management. When management understands the benefit of a change it doesn't matter what else that company is going through. If you have a management that wants change, you can make it happen. It's a cultural change as much as a technology change."
If you haven't already, now may actually be the best time to start implementing technology change, says Sherman. "As volumes start to slow down, companies have time to improve efficiencies. Companies that are in this for the long haul are going to put these systems in place to help them weather the storm of lower volume. Now is the time to do it, not when they become busy again and it becomes overwhelming."