One of the most critical moments in any race is the very beginning. A mistake at the start can snatch away a win before the race is even underway. Any coach will tell you that springing into action the moment the shot is fired is a critical success factor for any athlete.
A race is a useful analog for the mortgage business, especially as it relates to the refinance business.
Lenders in a purchase money market, like the one we’re in now, are running a long-distance race. Starting strong is less important for a deal that takes a long time to close.
Responding to the real estate agent’s or prospective borrower’s first call is the start of this race. Data show that returning that call within a few hours will get your race off to a good start. It’s amazing how many loan officers miss this, don’t return the call quickly, and lose their race before it’s even underway.
It’s the sprint that can really set lenders apart. In our business, that’s the refinance transaction.
Anticipating the start of the refi race
When mortgage rates finally rose above their historically low levels, the mortgage refinance business started to dry up. By the time rates reached 5%, the refi business was essentially gone.
This was a crisis for many large Independent mortgage banks that had created fine-tuned systems for refinancing loans and had virtually no trained sales force to prospect for new purchase money business.
The bankers who stockpiled cash they earned during the COVID crisis have weathered this storm, those that did not have the cash have either sold out or shut down.
Now, everyone is waiting for rates to drop and the refinance business to return. Most experts believe that it’s only a matter of time before mortgage rates come down. When they fall below 5% — maybe even before that — it will be a shot from a starter’s pistol and the race will be on.
The lenders who aren’t ready will falter under the pressure, stumble out of the starter’s blocks, and lose out to lenders who have prepared in advance for the influx of new business.
Leaders are preparing now to make sure they’re not the ones who are left in the dust when the race starts.
Preparing for the next mortgage market
What should lenders be doing now to be ready for the return of the refinance business? Those of us who have been in this business more than a cycle or two know what’s coming next. There is no secret or required magic to be a frontrunner when the refi business returns.
What it will take is strong leadership to spur lethargic institutions to action when it feels less risky to stay the course and wait. That’s an illusion, a false sense of security. The reality is this race will go to the prepared.
I can think of three important actions every lender should be taking now to be prepared for the next wave of refi business.
Build the right team
Given the new technologies and expert outsourcing options available to lenders today, staffing up to handle new business doesn’t make as much sense as it did in the past. Lenders have other options for building ability into their enterprises. That’s a good thing.
Instead of going to the expense and added risk of staffing up to handle more business, now is the time for executives to think through their strategic options and evaluate their existing partnerships. It doesn’t matter what the lender’s current capacity is, everyone should be thinking about this now.
This is the time to sit down with your A and B players and make sure they’re committed to the long term, and understand your commitment to them. The time to let your C and D players go has passed now. Do it if you haven’t.
Then, start visiting with outsourcing firms. I spent a good part of my career working for lenders who originated consumer direct but also provided essential origination outsourcing services to other institutions. When they’re done right, these partnerships offer a balanced model of operational efficiency and scalability, regardless of overall loan volume.
When this work is done, the lender will have a core team of domain experts supplemented by reliable outsourcing partnerships. This provides a buffer against fluctuating demand but also affords lenders a competitive edge in workforce flexibility and cost management.
Fine-tune your tech stack
Once your team is in place, it’s time to empower them with the right technology. For the past few years, I’ve been working inside one of the mortgage industry’s leading technology providers. Lenders have never before had access to such powerful technology.
There are too many factors involved in implementing a lender’s strategy to go too deeply into the technology here, but regardless of how the lender wants to run the business, there are tools available that can make that happen. Each lender is different and so their use of these tools will differ.
Two things I will say about technology. First, a simpler tech stack is a better tech stack. Improvements in the way developers bring products to market have resulted in a flood of new tools and many lenders have invested. Now, their tech stacks are bloated with functionality that doesn’t work well with their core systems and creates more friction. Simplify. Keep what you need and discard the rest. Don’t let the “sunk costs” fallacy keep you paying for technology that doesn’t help you become excellent lenders.
Second, if the tool doesn’t provide a measurable increase in efficiency by reducing touch points and overall cycle time, it’s not a good tool. When this work is done, the lender will have all of the technology required for its team to operate at peak efficiency, and nothing more.
Perfect your process
There’s an old adage in executive management that says you should tell your people what to do, but not necessarily how to do it. In many industries, this frees people up to be great team players and there are wins all around.
In industries where the government is just waiting for someone on your team or extended team to make a mistake, this doesn’t work as well. People need to know what the process is and how to perform it to the satisfaction of the lender, their investors and government regulators.
Lenders are pretty good at this in the back office, but when it comes to front-line salespeople they often leave them free to do what they do best. The problem with this is that good salespeople are often like water, they tend to follow the path of least resistance.
When refis are pouring in, they know where to go and who to contact (or recontact) to get more business. The hard work of building and maintaining relationships with business referral partners falls by the wayside.
Alternatively, when refis are down and purchase money is high, many loan officers don’t stay in contact with past borrowers as well because they know they’re not going to refinance a low-interest-rate loan. By the time the refis come back around, those past customers have made new friends.
The lender should take an active role in all processes the institution uses to do its work, including those in the sales department. When this work is done, every salesperson will be a top salesperson, doing the work required to bring in a steady stream of business, regardless of which loan products consumers are buying.
Today, the race is a long-distance, purchase-money event, where it takes seven or eight calls over the course of 30-45 days to reach the finish line. Soon, it will be all about refinance sprints that only take a call or two and as few as seven days to win.
To get ready for those races, leaders will begin now to pull their expert teams together, both internally and externally, fine-tune their tech stacks, and double-check their processes.
When that work is done, they’ll be in the starter’s blocks. When the pistol is fired, they’ll win the bulk of the new business.
Joseph Camerieri is a former mortgage lending executive, technology system sales leader and outsourcing leader. Today, he consults in the mortgage industry.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story: Joseph Camerieri at camerij@gmail.com
To contact the editor of this story: Tracey Velt at tracey@hwmedia.com
