Just in case you’re just coming back from a four-month vacation…on the moon…the headlines in the mortgage trades will get you up to speed quickly:
“Mortgage Lenders Expect Profit Margins to Drop”
“Rising Rates Drive Down Refi Apps but No Impact on Purchases”
“Lenders Growing Cautious About Profitability”
“Spring Housing Market Forecast: Record Purchase Volume”
You can also have a look at our last 20 posts! The point is that we’re no longer forecasting the end of refi and the rise of purchase—with all of the costs and expenses inherent to such a market. We’re in a purchase market. Period. Hard stop.
The rest of you already knew that.
There seem to be three prevalent approaches to this market transition in our industry. The first, which we’re also reading about frequently, is to “cash in” and sell the business as market consolidation takes its natural course. The second, with multiple permutations, is to double down on growth. This approach is a bet that not every competitor is ready for or has an appetite for the competition that comes with a purchase market. Thus, this approach usually involves thoughtful investment in one’s operations for maximum efficiency as well as a strategy of growth and acquisition.
It’s the third that has me a little baffled, however. That would be the old “batten down the hatches” approach. This usually entails cutting costs to the bone: staffing, variable expenses and new spending especially. It’s what a ship does to minimize damage when it’s caught in a bad storm. Naturally, that ship also makes no progress and has no chance to outrun the storm, either.
In fact, to take the nautical theme a tad further, we all want to be the “last shrimp boat” on the water after the big storm comes through. Think Forrest Gump. But that boat is the one willing to actively ride out the storm rather than waiting for it to smash into said boat in the harbor.
The issue is pretty simple. A purchase market is not a storm. Is it more of a challenge than a once-in-a-lifetime refinance market? Sure! But is there very real opportunity here? Absolutely.
Most mortgage-related businesses, no matter what they do specifically, are coming off incredibly profitable years. Judging by the volume we are seeing here, most of them are wisely investing in improvements that build efficiencies and streamline their operations. But those that are digging in? They’re positioning themselves at the back of the pack. They’re risking real technical debt by putting off improvements until later, when they’re not as flush with cash and their competitors have already staked out the high ground. And they’re setting themselves up to sell their businesses at the low point, rather than the high point, of their opportunities.
This is Business 101. The vast majority of firms I work with get it. But it’s still amazing to me that now, perhaps the very best time for any kind of mortgage business to position itself for success, there are still some turtles out there pulling their heads into their shells.
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