MReport October 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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22 | M R EP O RT FEATURE but there's still more to do, ac- cording to Finnegan, "They need to continue to explore efficiencies by understanding their mortgage loan process, and the technolo- gies that they're employing to improve workflow and keep costs at a minimum." Finnegan also recommended that depository institution lend- ers look at their per-loan com- pensation levels to see if they should be reduced when volume drops to help with cost control. Finnegan added that many depository institutions have seasoned sales forces, which can be an advantage. However, to compete effectively in the future, they will have to replace that pool of people. Regulatory Concerns W hile all mortgage lenders are subject to the basic fair lending rules, Mortgage Disclosure Act rules, etc., the depository institutions also need to report to their primary federal regulator, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), or the National Credit Union Administration (NCUA). "The regulatory environment in the current political adminis- tration is changing and may be tightening up," Finnegan said. "The uncertainty around the regulatory environment is an- other risk that banks (and credit unions) face that independent lenders don't, at least not to the same degree." However, Austin Kilgore, Director of Digital Lending, Javelin & Research, sees little difference in the regulatory concerns between independent mortgage lenders and depository institutions outside of Community Reinvestment Act concerns. "More regulation creates bur- dens for small lenders—additional cost, need for additional exper- tise to navigate the rules, etc.," said James Post, COO, Credit Union of Texas. "As a result, cost of oversight and the impact on revenues will continue to be a concern moving forward. Relationships Can Offer Advantages D espite the regulatory and staffing challenges, de- pository institutions have several advantages over independent mortgage bankers, Finnegan said. "They need to focus on those competitive strengths." Those would include that they are well capitalized, that they have a low cost of funds, they can hold loans in their portfolio, as part of their overall mortgage strategy. They are not just bound to selling loans into the sec- ondary market as independent mortgage bankers are. "If they can take all those advantages as well as their refer- ral sources, and bring those to bear in terms of serving custom- ers, they can hold their market share in lower volume times," Finnegan said. "The other big successful banks do is focus on market- ing. One difference between the independent mortgage lenders and banks has been that the in- dependents are better and more intense, with all of their market- ing emphasis on mortgages." Banks and credit unions typi- cally don't tell their story well, and really target market to their customer base, and to people in their surrounding communities as well as some of the indepen- dent lenders do, Finnegan added. Rocket Mortgage, loanDepot, and other independent mort- gage lenders are very aggressive with their television advertising, Finnegan said. While depository institutions, even large national ones like Bank of America or JPMorgan Chase, are unlikely to match the television cam- paigns, they can instead focus on marketing to their own customer base for mortgages, emphasiz- ing how they can serve their customers better. "Depository certainly have a strong advantage over nonbanks when it comes to the opportunity to provide mortgages to their ex- isting customers," Kilgore agreed. "Consumers will often go to their primary financial institution to at least apply for a mortgage and get a rate quote, if not go through the loan process from end to end. The big opportunity there is that you have that touchpoint of that existing relationship." "That's particularly true of credit unions, which have tight memberships," Finnegan said. "Many of them do a very good job in marketing to their custom- ers in this area." Whereas the large national mortgage lenders can make large investments in marketing, such as Super Bowl ads, that smaller depository lenders can't, smaller marketing budgets also mean that these lenders can pass along the savings to customers in the form of lower rates, Post added. "Members may be more likely to pay a marginally higher rate for the service and convenience of working with their credit union; however, members are also very rate sensitive in the current market due to the amount of rate information and marketing saturation being delivered," Post said. "Members expect their credit union to be the best and offer rates at, or better, than their competitors." Product diversity is also a key driver for credit union members, with flexibility to tailor solutions to meet their individual needs— and based on their relationship. The credit union offer solutions for them that "the big guys" can't, Post added. "There are oppor- tunities to offer unique portfolio product options such as bank statement or stated income pro- grams for self-employed members. Product diversity is also a key driver for credit union members, with flexibility to tailor solutions to meet their individual needs— and based on their relationship." "They can always do a better job leveraging their existing relationships to improve the borrower experience," Kilgore added. "That's a goal that is never going away and can always be improved upon. It's not an opportunity that they're necessarily maximizing on as an entire sector." A more focused marketing "The depositories can compete in the current market by focusing their technology automation and their business strategies around the purchase market." —Craig Focardi, Senior Banking Analyst, Celent

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