TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/113472
Feature purchase originations in 2011 and have been averaging 38 percent of purchase applications in 2012. "The originations forecast is based on expectations of very modest increases in economic growth in 2013 relative to 2012, but growth nonetheless. We expect gross domestic product to rise 2.0 percent in 2013 versus only 1.6 percent in 2012, about equal to the growth rate in 2011 but well below the 3.1 percent growth rate we saw in 2010. The growth will be driven by a combination of the biggest annual increase in residential fixed investment we have seen since 1992, as well as small increases in consumer spending and business investment. Lender John Walsh said he's spent considerable time planning ahead, including tapping referrals from previous clients. "We've been in business for 15 years and have tens of thousands of current or previous customers. We've weathered the storm and have prospered and have a good book of business," he said. As changes in the industry loom, Walsh, founder of Total Mortgage Services in Milford, Connecticut, also is highly focused on the quality of the firm's loan officers. "We have very experienced people; they're deal makers. That's at the core of what we do," so it makes sense to lean on them as the market tightens, he continued. Not only that, Walsh plans on "going back to our roots" by hiring new loan officers and giving them the ability to work on numerous live leads in order to accelerate the learning curve—opposed to the traditional loan officer, who only will see a "fraction" of the leads during the same startup/training period, he explained. The plan will help get the officers up to speed on guidelines and deal structuring "much more quickly" than through traditional means, continued Walsh. The strategy's worked before and Walsh is confident it will again, complemented with ample help from 36 | The M Report the company's support staff. Santos noted that, in this market, the loan officer becomes "super valued." That's because, when the market dwindles and acquiring new customers becomes more challenging, "you have to depend more heavily on that old fashioned relationship" with the loan officer. Ultimately, though, whatever lenders do, Santos says they need to realize that without a large portfolio of eligible borrowers, they must instead devise a way to attract them, particularly from a brand perspective. Breaking into the purchase side can be difficult for lenders for several reasons, said Santos. For example, while it takes between 45 and 90 days to close a refi in many shops because of the considerable backlog, typically, purchase transactions must close in 30 days or less, an abbreviated cycle time that could pose a big challenge, he continued. Purchase transactions also include steps that refis don't, including appraisals, and additional documentation and regulatory and compliance requirements that must be monitored regularly, added Santos. "Speed and quality are prerequisites in a purchase market, so while adding fixed cost might seem counterintuitive in a waning refi market, it's a decision I'm making to increase my team's competitiveness as the purchase war heats up." —Julian Hebron, RPM Mortgage Difficult—But Not Impossible N evertheless, Garrett maintained it's difficult for lenders, for the most part, to effectively prepare for a rebooted environment. "They all say they plan to, but it's not enough. Don't forget: When the refinance boom ends, every other guy will be trying to contact a Realtor, [do] cut throat pricing, you name it," he said. Furthermore, Garrett said the plans of those who do have one often aren't very realistic. "Many say, 'well, we're trying to expand into the purchase market.' That's a real tough market to break into, and a refi shop most likely doesn't have the skills to do that. And if they haven't done so by now, it's going to be pretty hard," insisted Garrett. Nevertheless, daunting though those requirements might be, it's a process lenders would be well advised to be prepared for, said Santos. That's especially considering that, according to some economic prognosticators, the balance between purchases and refis, which now is at about 70-30 refi-, is expected to tip 4060 in favor of purchases by next year, he said. In preparation of leading with the purchase side, Julian Hebron, VP and mortgage consultant at RPM Mortgage in San Francisco, said his company's currently adding senior processing staff in order to perform underwriterquality analytics on preapprovals for purchase clients. "Speed and quality are prerequisites in a purchase market, so while adding fixed cost might seem counterintuitive in a waning refi market, it's a decision I'm making to increase my team's competitiveness as the purchase war heats up," he said. Speaking of prognostications, Blatt's unfazed by the fact that his predictions on the staying power of the refi market haven't always hit their mark. "I've been saying that this is going to be a purchase year and refinances are going to go down. I said it in 2012, I said it in 2011, and I think I said it in 2010; and I'm zero for three. I say it for 2013, and I might be zero for four. Eventually, I feel I have to be right," he said. Refinances, he continued, are a "great and profitable thing," but, eventually, customer retention and capitalizing on your referral partner relationships is a more effective business strategy. "It's [a matter of] driving purchase business from people you know. Many lenders have a slogan, 'customer for life'; our goal is to make that a reality." Meantime, to further solidify its position going forward, Walsh said his company will continue to utilize the internet to help generate more leads for his people. He expects it to be a relatively seamless process since the firm's been active online for years. However, he's not eschewing more traditional means of reaching out, like having his sales staff hit the road and knock on doors, Walsh said. Whatever the case at the end of the day, Santos said he expects the changes in the industry to create a challenge for lenders in terms of how to avoid running a higher-cost, lower-volume factory. If you're running a business and thinking about margins, you've got to do it faster, with fewer people, and, probably, at a higher cost, he pointed out. Therefore, efficiency and effective optimization of cost structure will be essential, said Santos. Garrett? Well, he believes it could be curtains, at least for some lenders, who are ill prepared for whatever direction the industry's bound. "It can be nasty," he said. "There will be massive failures and some companies will just go out of business."