From all the doom-and-gloom being bandied about these days, one would think the sky is truly falling for the mortgage industry. That’s certainly not to say that things won’t be uncertain and challenging over the next six to 12 months. But it is to say that this is an industry that has survived (and seen more than a few thrive throughout) interest rates in the low teens. People will continue to need housing, and home financing, long after this cycle changes again.
Hopefully, as things do become more competitive, our industry will finally revisit the old strategy of hiring thousands of people to manage high volume, only to lay them off en masse at the hint of a down cycle. We’ve alluded to this cycle on Triple L more than a few times—it’s not even an industry secret. I’m going to call it “The Cycle” for purposes of this week’s Deeper Thoughts.
The flip side of that cycle is the unwillingness and/or inability to improve our automation so that we don’t have to keep living in that cycle. For decades, the common rebuke of the lender to a technology provider like LodeStar, during times of high volume and high revenue, is that the lender has no time for an implementation and/or anticipated disruption of its operations. Then, as the cycle changes to one of reduced volume or margin compression, the same lender will limit or avoid further automation with the argument that it needs to contain costs.
That argument, however, grows more stale by the day. The vast majority of mortgage lenders, coming off of a year that saw over $4 trillion in originations, did manage to pull in some cash last year. I’d presume they didn’t squander all of that in six to 12 months. Faced with some very real uncertainty, why wouldn’t a lender facing into a market of declining revenue—and the opportunity to win greater market share against those doing nothing but cutting back on sales and product development—take a good, hard look at its total operation and ask how it might finally break out of that cycle of ramping up and laying off?
I’m not the only one saying this right now. We’re in a unique situation in that the pivot has been fairly quick and dramatic. What an opportunity to build an amazing competitive advantage. Comprehensive automation (And please note I use the word “comprehensive,” not “total.” We will always need people to drive and manage the mortgage lending process. Just not necessarily to send faxes, key stroke basic data and send unreturned emails.) could allow for a lender recruiting LOs or other key personnel to boast of the fact that it’s not in the headlines for laying off 10% of its workforce every three or four years. It’s also a great tool for employee retention as the work force begins to age. Comprehensive automation is the natural enemy of margin compression and the facilitator of profit maximization. And it provides a very real competitive advantage by allowing lenders who’ve already done it to focus their newfound windfall of resources on emerging markets, sales, new platforms and productive product mixes.
What’s not to like?
There’s a very real opportunity arising that’s getting drowned out a bit by headlines screaming about weekly layoffs. It will take work and some qualified risk taking, but I’d bet that we’ll be referring to those who do manage to break “The Cycle” with words like “ground-breaking,” “successful” and “market leaders.”
We at LodeStar are grateful to all of our clients, friends and colleagues who take the time to view Deeper Thoughts. Please consider having a look as well at some of our other great content, including our podcast, “LodeStar’s Lending Leaders,” and our new graphic-oriented series, “A Tale of Two Mortgages.”
As always, your feedback is welcomed and appreciated!