The return to a purchase market will not be easy for many lenders. Much of the industry has been feasting on a steady diet of refinance volume for a long time, extending cycle times to manage capacity and letting service slip to increase throughput.
While consumers may grudgingly tolerate an unreturned call or a delayed closing date in a refinance, flawless execution is the only acceptable option in a purchase. We all have our war stories about that purchase “gone wrong,” usually involving a moving van idling in front of the subject property while buyers, sellers, agents and attorneys sit on pins and needles around a closing table trying to resolve issues that could have been prevented. Now imagine a pipeline where purchases are the norm, rather than the exception.
Despite indications that housing finance markets are improving, many lenders are not operationally prepared to manage the shift from refinance to purchase.
This shift also comes at a time when compliance has taken center stage with the CFPB rules, QM, QRM and Basel. Being noncompliant in today’s market has substantial consequences, including stiff financial penalties.
The intent of regulatory changes is clearly designed to protect the end-consumer, but the biggest concerns are how to be compliant and at what cost, both operationally and financially. These two issues, service and compliance, have converged and will drive operational and technology decisions throughout 2013.
Not all lenders and servicers have the same level of internal resources to manage operational change and stay compliant.
While many institutions simply cannot afford the increased headcount, they are still burdened with tighter regulatory requirements and challenged with being profitable as the housing market improves.
To remain compliant and financially competitive, outsourcing is critical. Institutions should partner with an experienced team to manage these challenges and better focus on the core business of closing loans. The outsourced team then focuses on their core competency—bringing best practices to their clients.
The current market conditions have also positioned technology providers as key contributors in helping the industry make the necessary business model changes to manage service expectations and stay compliant. Institutions must leverage modern technology.
Particularly important for smaller institutions with limited resources, a Web-based loan origination system empowers staff to be more efficient, controls the process, minimizes costs, streamlines systems maintenance and support, and improves service.
As the government promises to make additional regulatory changes, it’s also critical for technology to allow for customization, which reduces the time and resources required for ongoing maintenance. With an estimated $19 billion in origination costs alone spent last year, there are significant opportunities to streamline operations by leveraging technology.
As the industry returns to a purchase market with a higher degree of regulation, it is no longer business as usual.
Lenders must adapt to survive but the change does not need to be accomplished internally. Outsourcers and technology providers are creating the economically viable solutions to better prepare for the return to a purchase market.
Anne Politis is EVP, mortgage fulfillment solutions, for ISGN.
