Five Tips to Help Mortgage Lenders Prepare For a Lower Interest Rate Environment


In a rising interest rate environment, mortgage applications have reached their lowest point in years, putting pressure on financial institutions, like community banks and credit unions, to streamline their operations.

According to the Mortgage Bankers Association (MBA), the mortgage origination market is expected to improve by 19% to $1.95T in 2024, a rebound after the estimated 30% drop from 2022 to 2023, and 50% fall from 2021 to 2022. Recent action from the Fed indicates rates may decline soon, but with an unclear timeline, as officials remain divided on next steps. 

With this in mind, now is the time for financial institutions to boost their readiness by planning ahead and enhancing their back-office operations. Here are five strategies community banks and credit unions can implement to optimize their business. 

Refocus on Speedy Service

Across all industries, 78% of borrowers ultimately select the first business to respond to their inquiry, highlighting the need for speedy service. It is key that financial institutions meet customers where they are – whether that’s online, on the phone, or in a traditional branch environment.

In an increasingly digital world, lenders can provide borrowers easy access to loan originators through individually-branded websites, which enhance referral opportunities, speed up response times, and improve communication between the lender and the borrower. Through these branded sites, and to enhance the application process even further, solutions like self-service document upload make the process even easier and more efficient, giving the applicant the ability to upload requested documents without delay.

Establishing parameters for seamless loan prequalification also improves service for borrowers. This can be done through point-of-sale (POS) approvals, a hot topic in the mortgage applications space. Conditional underwriting guidelines can simply be integrated into the system to allow for faster prequalification based on consumer data.

Finally, making the application process simple and easy-to-complete is critical. Lenders must set up their application process to be as short as possible, without unnecessary questions and steps. Mortgage teams can work with their compliance teams and a tech partner to ensure the application portal runs efficiently and without errors.

Streamline the Back Office

While preparing for an increase in mortgage application volumes, lenders must focus on integrated services and paperless processing. According to research from Finastra and East & Partners, a key pain point for many lenders is the automation of digital workflows, with respondents saying only 29% of their commercial and consumer lending workflows are automated, indicating that more than 71% of processes remain manual.

This presents a clear opportunity for areas where the back office can be streamlined. To process and underwrite applications more quickly, community banks and credit unions should leverage integrated services, workflow automation, and document management for a paperless loan file.

Lending solutions that seamlessly migrate borrower information from the financial institution’s POS to the Loan Origination System (LOS) solve this challenge, providing back-office teams with an automated system that reduces costs, risk, and time to close.

Investing in the Tech Stack

When leads and applications increase, easily managing and nurturing them is important to prevent losing potential borrowers to the competition. With the need for speedy service, any obstacles that slow a lender down will certainly cost them down the road, especially in a competitive market, emphasizing the need for a modern tech stack.

Finastra’s Financial Services: State of the Nation Survey 2023 notes that US financial institutions are among the most likely globally to have resumed their technology investments in full, with almost a quarter of financial decision makers reporting that normal investment levels in technology and digital banking have returned after previous budget cuts enacted in the wake of global economic uncertainty.

Despite this uncertainty, US financial institutions possess increased optimism, highlighting why they must pay attention to needed improvements in their tech stacks, as competitors may already be one step ahead.

Promote Different Types of Loans

With the right technology supporting a financial institution’s lending operations, teams can quickly react to market conditions and offer products that borrowers need, which can be useful in any rate environment. With the Fed’s plan for rate decreases remaining somewhat unclear, finding revenue opportunities outside of traditional mortgages remains a strong stopgap.

Home equity lines of credit (HELOC) and construction loans are two types of loans that may be of interest to both lenders and borrowers. Online searches for “HELOC” reached an all-time high in 2023, with many borrowers requiring access to cash for repairs and improvements to their homes.

At the end of 2023, housing inventory was down 7.1% year-over-year across the United States, with prices remaining high. This presents an opportunity for lenders to promote construction loans, as some borrowers may be interested in building rather than buying while inventory remains low throughout the country.

If alternative loan types are not already programmed into a financial institution’s POS, revenue opportunities may be lost, highlighting the need to plan ahead and build these options into the overall user experience.

Analyze Insights for Enduring Success

Financial institutions of all sizes possess valuable customer data that can be leveraged to best position their brands for enduring success. Many financial software providers offer analytics tools that provide insights and highlight opportunities for growth.

By leveraging the right data, lenders can improve loan cycle times and profitability, and make any needed changes quickly and efficiently. For example, analytics tools can demonstrate where in the application they are most likely to lose an applicant, highlighting the need for a fix to the process.

These tools likewise allow community banks and credit unions to target new borrowers more efficiently. With heat maps powered by the institution’s data, Community Reinvestment Act (CRA) challenges can be identified and solved. They can also help find areas of opportunity – for example, areas within the market where few mortgages are held. With heat maps available at the click of a button, mortgage leaders can identify areas of revenue opportunity and develop strategies to prevent regulatory challenges.

Utilizing generative AI to analyze data, and for other means, may also support mortgage lending teams as they plan for enduring success. Finastra’s research notes that more than three-quarters of US respondents say their institution is interested in the technology, whether that means it is already fully implemented (19%), being researched or trialed (32%), or is something of interest yet to be installed (25%).

With these five strategies in mind, smaller financial institutions will be well-positioned when mortgage volumes inevitably increase to more consistent levels. The early days of this trend may already be on the horizon, with homebuying demand showing increased signs of a rebound. Planning now is key.

Mary Kay Theriault is director of product management for Mortgagebot at Finastra.

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