Mortgage banks must do more than just stick to their knitting now
We're a quarter of the way through the year, and economic news has alternated between record-low unemployment rates, and dramatic daily/weekly losses in the stock market. Punctuating the startling volatility, mortgage rates fell by the largest amount in over 10 years in late March, dropping from an average of 4.28% to 4.06%, according to Freddie Mac.
This could be an early sign that the industry will see surprising growth in originations this year. Late last year, the Mortgage Bankers Association estimated that mortgage originations would likely remain flat in 2019, compared to 2018. So, what should a savvy mortgage banker's strategy look like for the rest of the year?
First, let's look at some intelligence and the state of the mortgage market. Experts suggest that the slowing economy and less-than-exuberant borrower demand will likely lead to tepid growth this year and next.
Additionally, mortgage bankers face a double whammy of sorts: researchers at Chase have noted that mortgage spreads have fallen while per-loan costs have risen significantly due to sharp increases in compliance-related costs, as well as onboarding new technology, compensation, and more. The good news is that there is little indication the Fed will raise rates this year, and may even lower rates in the face of caution about the state of the economy.
Mortgage professionals are also noticing other signs that indicate a slowdown is likely headed our way. While the Census Bureau reported that new-home sales have increased, it's important to note that, when adjusting for population, we're essentially at the same level of sales that we saw during the early 1980s recession when mortgage rates reached nearly 19%. Home price appreciation continues to sag as well, with CoreLogic predicting just 3.4% growth this year, following a 5.8% monthly average last year.
In addition to these challenges, mortgage lenders are under further pressure in the form of industry consolidation. The refinance market has been rather volatile since the beginning of the year. Additionally, rising costs to originate a loan, and increased regulations have forced many independent mortgage bankers to find buyers or partners, and institutional lenders are tempted to exit the mortgage market entirely. We are in a market that is consolidating — and getting smaller every day.
In order to succeed in this challenging environment as a nonbank mortgage company, we believe the answer is to find a healthy balance between different segments of business and have a clear strategy to weather the slowing market — in other words, multiple revenue lines and customers-for-life must be created and maintained. That means being ready with multiple product offerings and prioritizing customer experience — particularly by capturing more business from servicing.
For most homeowners, the amount of interaction between them and their originator is dwarfed by the time spent with their servicer. Simply put, it pays to have a team that understands that fact and is dedicated to providing top-notch service and customer care. A happy mortgagee is much more likely to be interested in your other financial services products than one who finds it difficult to make a payment through your system, has a hard time getting help or navigating your website or app.
Finding that balance is difficult but essential, it is simply no longer feasible to be just an originator, or just a servicer. Taking care of borrowers from start to finish in the life cycle of the loan is the key to success. Having this approach will not only guide us through a down market, but also will position a company like ours to capitalize on our broad product suite and customer base when the market is more robust.