PERSON OF THE WEEK: Dennis Hardiman is CEO and founder of Embrace Home Loans, a nationwide lender that grew from humble beginnings. MortgageOrb recently interviewed Hardiman to get his perspective on what community lenders can do to survive and flourish in this new, costly, risky and complex mortgage banking landscape.
Q: Community institutions are increasingly choosing to exit the mortgage business. What are the primary factors causing this and how will it impact their business?
Hardiman: Community banks and credit unions are getting out of the mortgage business, which makes sense for many reasons. The risk, complexity and cost make it just not worth it, and many institutions have decided that mortgages do not hold much opportunity to meaningfully contribute to their profits. In addition, originations in 2014 are projected to be at a 15-year low, while the cost of originating is at an all-time high; however, customers expect their bank to offer mortgage products.
Community institutions are now facing a conundrum – the value and need to provide mortgage products to their customers in order to retain them and extend their brand, yet delivering mortgage products and doing so profitably is practically impossible in today's environment. Furthermore, because mortgages are a core product, losing a mortgage to the competition puts the rest of a lender's customers' accounts at risk.
Q: How can community institutions overcome this challenge?
Hardiman: For these institutions, outsourcing their lending operations is the clear solution. Not only does it provide cost savings – a primary factor for why institutions are opting to shift certain business functions to third-party providers – but it is also helps them remain compliant.
With all the CFPB regulations, document requirements and reporting, it takes a team of experts and attorneys to manage all the changes – dangerous if not done according to new guidelines as well as costly. In fact, a recent study by George Mason University found that 83 percent of community banks in the United States say their compliance costs have increased more than 5 percent due to Dodd Frank. And this is just the beginning. The staff required to understand, implement, track and monitor the more than 900 pages of CFPB mortgage rules is enormous and the risk is real.
But outsourcing can open institutions up to potential dangers as well; therefore, it must be done carefully. First, customer service tends to decline in an outsourced model. There are a number of third-party providers that will outsource back-office operations, but it is imperative to ensure excellent customer service as well. The customer's experience is crucial to the long-term success of an institution, and community banks and credit unions have typically prided themselves on providing personalized service. When looking for a partner to manage lending operations, community banks and credit unions should ask about their customer satisfaction levels. Look for a partner who not only applies six sigma, but human sigma too. To many outsourcing partners are process centric versus customer centric. They manage to optimizing the workflow process, but to often fail to manage the customer experience. Second, some third-party providers are banks and will begin cross-selling other services to the institution's customer base.Â
Q: Beyond compliance and cost savings, are there other benefits community institutions reap through outsourcing their lending operations?
Hardiman: Absolutely. While customer service can be tarnished, it can also be strengthened if the right partner is selected. Outsourcing provides a great opportunity to strengthen relationships by enabling the institution to devote more time and resources to their core products and services.
Outsourcing lending operations to the right partner can also provide community institutions with a competitive advantage. In addition to offering depository services, community institutions can offer various mortgage products to better meet its customer base's entire financial needs. Furthermore, by offering mortgage products, banks' customers are at less risk of having their mortgage provider cross-sell them on other competing products. Essentially, it is a win-win alternative to managing a residential lending program in-house if outsourced to the right partner.
Q: What can we expect from Embrace Home Loans this year?
Hardiman: In today's lending environment, securing loans is a significant challenge for many lenders, but Embrace Home Loans' unique customer-centric approach to lending has helped us serve hundreds of thousands of customers. For more than 30 years, we have placed a primary emphasis on gaining customer engagement through emotional connection. We develop relational skills in all our staff to connect well with customers.
In addition, we remain highly competitive. Our ‘Quick Close 7’ provides a unique process to clear a borrower to close in seven business days after a complete application is uploaded to our system. This unique system for processing and underwriting, expediting document collection and setting a 24-hour turnaround for underwriting – along with our human sigma customer engagement approach – ensures a 98% customer satisfaction rating based on customer surveys. We fully intend to continue on that same path this year and beyond.
