MReport September 2022

TheMReport — News and strategies for the evolving mortgage marketplace.

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Page 17 of 67

16 | M R EP O RT FEATURE M ortgage lenders in the U.S. are bracing for volatility, as interest rates rise and a sizzling hot retail housing market cools down. Financial conditions have tightened significantly, and the economy is slowing faster than expected, as markets adjust to the Federal Reserve's interest rate hikes. Historically, higher federal funds rates cause mortgage rates to rise quickly, which slows homebuying and refi activity. Preparing for a shifting mar- ketplace is a challenge for lenders. As residential mortgage demand softens, banks and other fintechs have to right-size staffing levels, and squeeze more profitability from less volume. While the banking industry tends to be slow to embrace technology, digital transformation has created a new paradigm that may help insulate lenders from a slowdown. Mortgage lenders can take advantage of a slower market by implementing new automation strategies to streamline the mort- gage loan process. Get Leaner and Work Smarter B oom and bust cycles used to mean massive layoffs in the banking industry. But today, thanks to a reliance on digital mortgage workflows, many fin- techs have expanded their mort- gage processing capacity with better technology, rather than hiring more people. That means personnel overhead is lower than it has been during past market downturns. While more agile financial institutions are in a better posi- tion to manage market volatility, mortgage lending specialists are still vulnerable during a slow- down. Data from the Mortgage Bankers Association (MBA) and STRATMOR Group shows that Loan Officer turnover increases as mortgage volume decreases. The turnover rate reached a historic low of 21% in 2020, with mortgage origination volume at record high levels. Conversely, Loan Officer turnover peaked at 51% when the housing market contracted in 2007. In the long run, investments in technology help lenders avoid lay- offs by enabling them to invest in key personnel, and save on over- head rather than simply cutting costs by reducing staff. In fact, adapting to market variances by adjusting staffing models is costly. The cost to lay off and rehire a Loan Officer is approximately $27,300. This cyclical reaction can actually add to lenders' deficits, and slow down growth when volume returns. Some staff reductions are in- evitable as mortgage originations slow, but fintechs and traditional legacy banks can help mitigate the impact of lower volume with technology that increases auto- mation, and enable personnel to work more efficiently. Drive Down Costs W hile lenders cannot control the market, they can control how they respond and future-proof their business. Among the many opportuni- ties for lenders, a softer market enables lenders to optimize their organizational structure to be more agile and better positioned for dynamic market shifts. In addition to adding technology to their operations, a recent report from the Mortgage Bankers Association (MBA) noted that many factors influence manage- ment approaches to downsiz- ing as a way to improve their workflow, including Loan Officer performance, company culture, licensing requirements, incentive compensation, the availability of product offerings, and pricing parameters. A slower market will put downward pressure on profit margins. This increases the importance for mortgage lenders to reduce costs. In particular, a Freddie Mac study noted that the average cost to initiate a mortgage for retail-only lenders averages more than $8,500 per loan. That cost increases significantly for less efficient lenders. Automation has the ability to reduce loan costs, while helping mortgage loan personnel increase their efficiency. According to a recent survey of lenders, the Slowdown in Loan Volumes Provides Opportunities for Automation Digital advances in the mortgage space have created a new paradigm that may help insulate lenders from a drop in market activity. By Suzanne Ross

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