Deeper Thoughts
The Sky is Only Falling for the Unprepared

This week, we’re going to try to avoid the terms “interest rate, purchase market, declining volume and margin compression,” except maybe in this first sentence. By now, you’d really have to have been under a rock the past six months if you’re not aware of the new landscape the mortgage industry is entering.  For some, it seems the sky is falling.

So instead, let’s talk a bit about what in this new landscape will likely have changed for the long term. All indications are that many of the conditions we’re seeing won’t be going away for at least a couple of years. Refinance volume will likely be depressed for some time. Change—some via innovation and some via necessity—is imminent.

Let’s have a look at the role of the LO in the coming months and years. LOs are in many ways the lifeblood of our industry. They are our marketing campaigns, oftentimes. They’re our first point of contact with a potential borrower and the first line of screening and qualifying for underwriting. And yet, for more than a few years, they’ve been reduced to the role of order takers, charged with funneling inbound prospects into a narrow channel of refinancing and then moving on to the next prospect.

That’s about to change.

A more diverse product mix

Once we’ve gotten over our collective panic attack (which should happen any minute now), the mortgage industry will get down to work finding alternate revenue paths to help make up for the refinancing channel. Some past favorites, although never really given a full chance to shine because of the Fed’s eagerness to jump into the fray with a rate decrease, include the non-QM mortgage or the ever-popular reverse mortgage. We’ll see this again. Perhaps home equity loans will be thrown into the breach. Maybe unique purchase products (15-year loan, anyone?) will arise. Heck, maybe we’ll see an increased emphasis on 203k or manufactured housing loans. Whatever the case, the positive impact of that trend is that LOs, at least, successful LOs, will have no choice but to know what’s in their tool kits and understand which applicants fit what products. That will require a more adaptive and customizable interview process—one that goes beyond “what’s your credit score?”

A more diverse mix of markets

Since we will be a purchase-driven industry for at least a few years, lenders will inevitably find it advantageous to target markets beyond the “traditional” markets of the past five years. That means non-QM. That means underserved markets, such as speakers with Limited English Proficiency (LEP). 

This too, will require good LOs to do their research, for both target market and product. Again, LOs not wishing to earn the ire of their employers will have an eye on fall out rate, a simple solution for which is the right product for the right fit. LOs will need to spend more time getting to know their prospects beyond credit score and current zip code. And they’ll need to spend more time earning their prospects’ trust.

The tools to help them

As the provider of a closing cost calculator, we have some idea of how many LOs and front line originators are working far too manually, even today. Google searches. Templates. Inboxes used as project management queues. Those LOs won’t have the time to blunder through time-wasting administrative tasks. Not when every loan counts toward market share. Not when they’re going to have to spend more time with prospects and less time with forms and paperwork. It’s not just closing fee technology they’ll need. Lenders will need to spend more time digitizing the entire “back end” of the process, including client support, educational resources and closing. It’s already started.

And for those who have foreseen this, the sky may not really be falling as much as they said it would.