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One of the challenges in discussing what the mortgage industry should do next is figuring out what really comes next. In August, when interest rates topped 7% for the first time in 22 years, there were a series of articles in which leading industry economists predicted what interest rates would do for the rest of the year and into 2024. The consensus was… there really was no consensus.
At one end of the spectrum, the most positive forecasts (for example, the MBA‘sand NAR‘s: Rates are expected to remain high through the end of the year and gradually decline in 2024, perhaps settling in the 5% range. The most pessimistic forecasters believed that the fed would keep rates high to combat inflation and that rates of 7% or even 8% would become the new norm.
Two very different looks. One projects an increase in volume to $2.1 trillion in 2024 and a 20% increase in unit production year over year. The other would make 2024 a repeat of 2023.
Instead of trying to predict where the Fed and the market are headed, it might make more sense to focus on some long-term trends that lenders will still have to deal with, no matter where interest rates move.
Control costs
Throughout 2022 and the first half of 2023, the average mortgage lender lost money on every mortgage it originated. In the first quarter of this year, the average loss was $1,972 per loan. In the second quarter, the magnitude of the loss improved to $534 per loan.
TO freddy mac A study published in late 2021 foreshadowed the situation many lenders find themselves in today. He predicted: “Mortgage volumes begin to decline and shift more toward purchasing market activity; Lenders will face intensified competition and compressed margins. “A challenge most mortgage lenders now face is how to remain profitable regardless of the macroeconomic environment.”
The study’s recommendations: Relentlessly focus on costs and leverage digital technology to scale and drive customer experience.
When it comes to cost control, staffing is probably the most important cost factor. The more tasks that can be automated safely and efficiently, the better. In recent Wolters Kluwer In surveys, most lenders surveyed said they will rely more on technology in the future rather than adding “agencies” to deal with bull cycles.
Does this mean that technology is always the answer? No, sometimes less is more.
For many smaller banks and credit unions, for example, one could argue that they may be spending too much on their legacy systems, such as LOS, in this lower unit environment. Given recent advances in document, fulfillment and ordering systems, many of these lenders may not need LOS, while a document preparation system can give them what they need with a lower price and fewer unnecessary bells and whistles. Similarly, financial institutions that offer a variety of consumer loan products could replace multiple loan production systems with single platforms that can be used to create multiple types of assets.
Building relationships can also lead to cost savings. Working with larger, more diversified suppliers, like Wolters Kluwer, can often lead to several benefits: better pricing and easier product integration, working within a single MSA, more efficient decision making, and reduced supplier costs.
Digital initiatives
Unsurprisingly, it is much more difficult to greenlight large technology investments at a time when many lenders are losing money or, at best, breaking even. However, this does not mean that digital lending has stagnated.
In a recent webinar hosted by HousingWire, executives from street mortgage and Lennar Mortgage They talked about their companies’ extremely positive experiences with eClosings in the purchasing market. Speakers acknowledged the economic benefits of electronic closings, but emphasized that a more modern customer experience was the main reason their organizations moved to hybrid and fully digital closings.
A common theme that participants returned to again and again was that the move to digital loans and closings does not have to happen all at once, but can happen incrementally.
Their suggestion: Look for partners who can support a transition from paper to hybrid to digital without significantly impacting the lender’s workflow and processes.
Closing platforms are an important element in eClosing transformations. When selecting these platforms, lenders should ensure they integrate with documentation systems and decide whether they want a proprietary, provider-centric platform or an agnostic platform, like Wolters Kluwer’s ClosingCenter, that can work with any settlement service provider. . In a purchase environment, where the lender no longer controls the title and is dependent on the borrower’s title provider, agnostic solutions typically offer greater flexibility.
In the spotlight
At a time when all lenders are struggling to cut costs, some institutions may be tempted to reduce staff in areas such as compliance that do not generate revenue or profits. However, given the current zero-tolerance environment, this is dangerous and short-term thinking.
For example, loan fairness review, monitoring and enforcement are key priorities for the CFPBprudential regulators, Justice Department and hud.
Regardless of market conditions, it is necessary to ensure that compliance and risk management teams are fully staffed and supported at the highest levels of the organization.
One way to leverage these resources is to support them with data and analytics solutions that automate various compliance tasks, such as HMDA and AVE Reporting provides early warning signals about important credit problems, such as redlining, biases in valuations, or to identify practices that could be considered unfair or abusive. The goal should always be to identify these problems before regulators do.
Today, Wolters Kluwer solutions such as HMDA Wiz, CRA Wiz, ClosingCenter and its IDS and Expere mortgage content solutions are used by more than 1,000 banks, credit unions and mortgage lenders.
Having the right partner and technology is critical to a successful mortgage strategy for 2024 and beyond. Wolters Kluwer offers options every step of the way to help drive productivity, ensure compliance and improve the customer experience.