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TH E M R EP O RT | 41 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Maintaining an Edge in Mortgage Lending What are the factors that are crucial to creating a seamless lending experience and ensuring profitability? A ccording to a report from STRATMOR Group, mortgage lenders can remain profitable and build a scalable foundation for future growth by achieving a few critical objec- tives. In the firm's February 2019 Insights Report, it outlines ways to optimize borrower experi- ences, renegotiating long-term contracts, and evaluating com- pensation plans. "Most lenders intuitively know they must do a better job meet- ing the needs of customers," said Garth Graham, Senior Partner at STRATMOR Group. "However, they don't always measure the impact of their technology and their system investments on the consumer." Sound product selection advice, timely and good communication, closing at the expected rates and fees, and closing on time are cited as some of the most important features that are detrimental to creating seamless experiences. Lenders also need to keep an eye on their fixed costs, including office rent, the report indicated. Lisa Springer, Senior Partner and CEO at STRATMOR, and the author of the article believes that analyzing office lease agreements is a first good step. "Unlike most other fixed costs, a commercial lease is often negotiable. The key is to understand why you need a reduction in costs, identify key negotiation options that are a win-win for you and the land- lord, and write a proposal. Do not leave it in the landlord's court to propose to you," she added. The report also highlighted the need for lenders to look for opportunities to consolidate their operations or to relocate to mar- kets with more skilled labor and/ or cost savings. Allowing more employees to work remotely— which offers benefits to both the company and its workers—can help accomplish this objective. This is also an effective way to bring in a wider pool of candi- dates and reduce geographical barriers, according to the report. Quoting data from 2018 Global Workplace Analytics in telecom- muting trends report, the report indicated that regular work-at- home among non-self-employed people has grown by 140 percent since 2005. The telecommuter population grew 11.7 percent from 2015 to 2016 alone. The trend of underwriters working remotely has continued to grow, with the percent of underwriters reported as fully remote growing from 20 percent in 2014 to more than 39 percent in 2018. According to STRATMOR's Originator Census Study 2017, the bottom 20 percent of loan officers close, on average, less than one loan a month. Today's lender needs to effectively shift focus to purchase versus refinance origi- nations all while dealing with another contributing factor to today's market dilemma—the lack of housing inventory that is keep- ing both buyers and sellers out of the market, the report stated. Speaking of how much mortgage technology software agreements have evolved over the last decade—from a traditional "per seat" licensing model to "per closed loan" subscription fees—the study quoted STRATMOR's 2018 Technology Insight results which revealed that over 67 percent of all lenders who responded are paying subscription fees based on volume. According to STRATMOR's 2017 Tech Study results, 54.5 per- cent of vendors defined "Go-Live" as a test group or branch running live loans through their systems. Conversely, many lenders who responded (41.3 percent) defined "Go-Live" as the entire com- pany running live loans through the system, with the old LOS still available as backup. Using advanced marketing methods and tools to significantly increase the volume of lender-generated leads and base commissions on the source of a lead. in mortgage applications, both purchase and refinance." Fleming also noted that the defect index illustrated a distinct difference in risk between refinance and purchase loan transactions—refinance loan transactions have always been less risky than purchase transactions. He pointed out that the relationship has often shown that as mortgage rates rise, so does overall defect, fraud, and misrepresentation risk. "As mortgage rates rise, fewer people refinance, so the share of less risky refinance loan transactions decreases and the share of more risky purchase transactions increases. This dynamic played out throughout most of 2018, as rates were rising. However, the forces driving the acceleration in fraud risk over the last two months are a little less clear because the recent decline in mortgage rates prompted a surge in both purchase and refinance mortgage applications," Fleming added. In addition to this, Fleming indicated that rising demand and a competitive market may contribute to increasing fraud risk. "The overall rise in purchase and refinance applications, coupled with strong first-time home buyer demand and tight inventory, bodes well for an early spring home-buying season, but may contribute to further increases in defect risk. Historically, purchase transactions tend to be more at risk of defects, fraud, and misrepresentation, and the pressures resulting from rising demand and a strong sellers' market compounds that risk," Fleming said. "When home values are rising and the housing market is competitive, more buyers want to enter in the market. As a result, misrepresentation and fraud are more likely on a loan application. According to the index, the five states with the greatest year-over- year increase in defect frequency are West Virginia (+37.5 percent), Maine (+35.8 percent), New York (+35.5 percent), Nebraska (+33.3 percent), and Alaska (+30.7 percent).