Deeper Thoughts
Facing the Inevitable. – October 20th, 2020

Issue #45: Facing the Inevitable.

An article in Mortgage Professional America (MPA) caught my eye recently. To be honest, it was the headline that really got me to thinking: “Are you prepared for the end of the re-fi boom?” (It’s actually mostly about converting product mix more toward Non-QM. Do read it. It’s very good.)

It’s an interesting concept. While it seems the latest refinance surge has gone on forever and seems like it could last that long as well, we all know it won’t. Whether it happens in January or in 2029, at some point, even this historic cycle will end. And while we don’t know how or exactly what will cause that, we know that, as an industry, we’ll probably have to shift gears quickly. In the article, the suggestion is to vary your lending product mix, a successful, tried-and-true approach.

But what about addressing margin compression?

I know, I know. This was the thorn in every lender’s foot no more than two or three years ago. Pressed up against it by regulation and enforcement gone wild, lenders were searching every which way for some way to keep their profit margin. I’d argue it’s a major reason the “eMortgage” craze that was once confined to the last session on the last day of every major conference suddenly came front and center. 

While technology likely helped many lenders improve their margins, we have to admit that a tidal wave of refi volume also does the trick nicely. The end of the refi boom doesn’t have to be apocalyptic, but no matter what the numbers are, it will mean having to win more purchase or niche business. Which means tougher margins. 

I know of several lenders who, in spite of the “all hands on deck” mentality needed to service an overflowing sales funnel, have kept an eye on addressing margin compression by continuing their investments in process improvement—especially in “back end” operations. After all, if your process has a glitch, overwhelming it with new orders will only bring those glitches into the light. But has the entire industry done that? Has operational efficiency continued to be some kind of priority, even as the pundits forecast more insanely high origination volume for the foreseeable future?

I guess we’ll find out at some point. 

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