“We need to be thinking about the immediate and longer-range opportunities and threats created in the marketplace for mortgage lenders by big banks continuing their ‘hire and fire’ practices,” says Ruth Lee, executive vice president of sales at Titan Lenders Corp., a Denver-based provider of mortgage fulfillment and warehouse lending systems and loan processing services.
“What is exciting about the current market,” she notes, is that successful companies have been quick to adjust to a business model that includes the opportunity to benefit from the massive layoffs from the large banks.
The mortgage market is going through a pretty massive shift that is reversing the business model changes implemented by banks through 2008, during the recession and to assist borrowers trying to take advantage of the very low interest rate. Now the refinancing boom and demand for loss mitigation is dwindling down.
“Retail and direct to consumers was one of the best ways to make money, and by far, it has the highest requirement for personnel,” Lee says. Processors, loan officers, support staff, underwriters and loan closers were in high demand because that is a labor-intensive market.
Large banks switched from a correspondent model that does not require as much staff to a big retail-direct to customer, Internet-based lead-generation model and now back to the correspondent model.
Midtier businesses like Titan Lenders Corp. had to be more efficient and able to multitask. “We did not have sign-in bonuses, and could not just set up a big corporate apps or regional operations center “and then shut it down three years later to cut costs.”
The big banks were able to aggregate such large volumes because the ups and the downs of their economies of scale are part of the cost of doing business, she says.
The rest of the industry is now going towards a more relationship-building mode. Middle-market companies will be building up their businesses from the process efficiency and staff perspective in order to take full advantage of the new marketplace that favors outsourcing, she says. In addition the middle market will have access to talent and outsourcers like Titan Lenders Corp.’s need to take a progressive approach. “There’s still a lot of business out there.”
A successful business model does not count on just the current cycle of the market to increase volume. The opportunity has shifted. “For a long time all the air was sucked up by the big five,” she adds. “Opportunities are now being made in the middle market.”
Banks of all sizes are in transition mode. But it is not possible to change the business model from retail to wholesale focused without the right technology.
Cole Taylor Mortgage is one example. It recently signed up for Fiserv’s borrower self-service website LoanLink and selected Fiserv’s LoanServ platform “to support its expanding loan servicing portfolio and further develop a full-service mortgage banking capabilities.” The Chicago-based bank with roughly $6 billion in assets as of June 30 originates commercial and residential loans in 44 states through a combination of retail mortgage branch locations in 14 states and independent mortgage bankers and brokers throughout the U.S.
Many companies with growth plans are adopting servicing and default platforms, says Terri Gillespie, vice president of strategic business development, lending solutions, Fiserv. Such clients include community banks or midsize credit unions that have been servicers for some time and have decided to provide subservicing support. “Typically small in both staffing and servicing volume, they cater to smaller banks and credit unions with a specific niche,” or financial institutions that want to sell to Fannie Mae or Freddie Mac but “don’t want the burden of all the complications and rules associated with servicing.” These midtier companies need to be able to grow the scale of their operations and at the same time control staffing and technology costs.
Common sense and layoffs from various banks including most recently Flagstar suggest that mortgage companies now heavily investing in technology are also restructuring their business models.
“Regulatory mandates, low mortgage rate margins and growing operational costs are the top motivators to leverage efficient and agile technology to overcome these challenges,” says Gillespe. In today’s competitive and regulatory-driven marketplace, mortgage lenders have a substantial challenge to maintain and grow their business, “or they may decide to change their business as evidenced by Flagstar’s approach to loans in default.”
However, whether adapting to change or changing to thrive, “we have seen an increasing need for paperless processes,” she says. Banks can make a technology investment and forgo a similar investment in adding to staff, but typically layoffs come from certain anticipations. “A smaller set of mortgage products may require fewer personnel to manage.”