Jim Loving: Correspondent Lenders Face Tough Call on Adding Niche Products


PERSON OF THE WEEK: The COVID-19 crisis had a profound impact on the mortgage industry in 2020. At the start of the pandemic, many industry experts were predicting that home sales and mortgage volume were going to fall off a cliff. But by June, a new trend was starting to emerge: Millions of city dwellers, seeking to escape the effects of the crisis, were suddenly seeking to buy detached, single-family suburban homes – a trend that accelerated in the second half as mortgage rates fell to new historic lows.

That meant mortgage lenders were suddenly in the difficult position of having to deal with increased volume whilst at the same time figuring out how to serve customers in a fully remote, “contactless” manner.

The impact of the crisis rippled through the entire industry, affecting each segment with its own unique set of challenges. The correspondent lending segment, of course, was no exception. To learn more about how the crisis reshaped the correspondent lending business, MortgageOrb recently interviewed Jim Loving, vice president, correspondent sales for Planet Home Lending.

Q: How would you sum up 2020 for correspondent lenders?

Loving: In 2020, during the onset of the pandemic, some companies pulled out of the market. Those companies that elected to take a more conservative route did so because of the initial uncertainty of how the pandemic would affect the market. Those companies have now gotten back into the arena. 

Companies that elected to stay in the market, as we did, saw substantial growth.

Q: What are you projecting or foreseeing in 2021? 

Loving: At least for the first part of this year, interest rates will remain stable or slightly increase. As a result, the industry may face similar challenges as it did last year relating to operational capacity.

Our correspondent volume rose to a $14.4 billion in 2020, a 133% increase from the prior year. And while I do not see us doubling volume again in 2021, I do believe there will be significant growth for our correspondent volume. We are poised to continue to expand our network of lenders and aiming for another 40% to 50% in growth.

To continue our successes in our correspondent program, we must look to grow our network of lenders.

Q: What significant challenges will correspondent lenders face in the year ahead?

Loving: One challenge facing correspondent lenders will be deciding whether they should get into niche products or continue focusing on products they currently have. While adding niche products adds cost to one’s infrastructure, those products have higher margins. Corporately, a lender can justify the cost if it is bringing in solid business covered by those niche products’ margins.

Margins compressed significantly at the beginning of 2021 – faster than anticipated – adding to this year’s challenges. We are back to pre-Covid-19 margins now. Companies will have to adjust their financial pro formas to account for current market conditions, reflecting pre-COVID-19 margins.

Then, lenders must ask themselves, “is our company on solid ground on those margins, or do we expand our product base to niche products that carry more margin? And who do we use as a partner if we want to add those products? Who is structured to support us?”

Every Correspondent lender needs at least two outlets, so it has consistent access to home loan products. 

Housing prices are up in most markets, but there may be an exodus from urban to exurban, rural and second home areas depending on whether companies recall workers to the office after the vaccine is widely distributed. Whether the local challenge is high prices or a lack of affordable turnkey housing, regional or state-based banks, credit unions and independent bankers will be looking to correspondent lenders for solutions.

Q: What are your goals for 2021?

Loving: We will continue looking at industry changes, especially when it comes to e-mortgage. It is important to have a smooth process in place before moving that out to our correspondent lenders. We are also looking at improving operational efficiencies and our lenders’ overall experience. Our goal is to create a seamless sale not only for our lenders and for their customers but also for our team.

Another goal is to continue offering numerous products – both niche and mainstream. We are very committed to expanding our renovation and manufactured business. While Planet has been offering that business for many years, we strongly believe those markets will continue to grow.

Q: How do you see the new Administration changing the landscape for correspondent lenders?

Loving: The new administration and Fannie Mae have said they are going to be purchasing more manufactured housing loans in 2021. President Biden has also proposed a $15,000 tax credit for first-time homebuyers, which we will be watching.

With a push for more affordable housing, manufactured housing is a real-world solution to that. Correspondent lenders should be poised to meet both an increased demand for manufactured housing and the needs of new first-time homebuyers who may be taking advantage of changes in housing policy.

One thing I think will stay the same is there will still be a lot of above-market interest rates for refinancing. The refinance market will continue to be strong.

The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views, policy, or position of Planet Home Lending, LLC.

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