Joe Ludlow: Lenders Need Knowledge and Expertise to Capitalize on the Purchase Market


As the refinance segment approaches the saturation point, and mortgage rates gradually begin to rise, mortgage lenders are shifting their focus to the purchase market, which comes with a new set of challenges compared with the last cycle – lack of inventory, rising prices, savvier (and thus more demanding) borrowers, and the lingering effects of the COVID-19 crisis, to name a few.

But demand is strong and opportunity abounds. So what do lenders need to do in order to be successful in this new purchase market? To find out, MortgageOrb recently interviewed Joe Ludlow, vice president for Irvine, Calif-based Advantage Systems.

Q: After a record year for the mortgage industry in 2020, what’s the key to thriving throughout the remainder of 2021?

Ludlow: The historically low rates we have seen over the past 1-2 years drove the refi market, where borrowers were actively reaching out to LOs to initiate a refinance – already knowing that their financials were in order and that they were positioned to benefit from the low-rate market opportunities. It was really a matter of managing incoming volume. As refi opportunities start to fade, however, lenders will need to go after purchase loans to keep increasing volume and with purchase loans, borrowers will likely want more direct access to LOs to help them along. So, lenders will need to make the most of their branches, including leveraging talented LOs that know the local market and are suited to attract that purchase loan business. 

Q: Moving into a new market scenario, how can LOs and branches be most effective and how can lenders evaluate success?

Ludlow: To be successful across the board, lenders must leverage their branches to take advantage of local market opportunities, applying each branch’s location, knowledge and expertise to truly capitalize on specific areas and their local rates.

In addition, lenders must rely on talented LOs to actively cultivate their network of borrowers, building trust by supporting homebuyers throughout the entire loan process. For LOs, this comes from networking with local real estate agents, and creating a referral environment that pulls in a strong network of borrowers. LOs must also be prepared to streamline communications by using those introductions and setting up personal meetings to learn about their borrowers’ needs – becoming advocates for their borrowers and building relationships that will last.

Keeping volume high is engrained into the culture of LOs and mortgage managers, and to be successful, they must manage the three critical aspects that impact their pricing: margin, volume and expenses. Industry regulations only serve to underscore the importance of balancing these factors regularly. 

Consider this: If an LO has more high-income borrowers, they might request a higher commission rate for the upcoming quarter, knowing that they’ll be offering a (relatively) higher interest rate for those borrowers to compensate.

On the other hand, if the LO is working in a local market, with lower housing prices, they’ll seek more volume, meaning lower margins and commission per unit still work for them. Either way, the LO  will work with their branch manager to negotiate what works for their personal income growth. 

While lenders may be willing to adjust compensation and pricing quarterly, the adjustments aren’t typically made at the loan level. So, it’s critical to ask the questions: ”Are our LOs and branches worth retaining at this price point? Are they priced too high? How is this impacting our overall bottom line? Are the LOs going to perform at these margins? Should we increase management oversight?” 

It’s not enough to simply evaluate the “big picture,” viewing the branch or the team of LOs as a whole. Instead, it’s critical to evaluate the profitability of each loan completed by each LO. If a LO is only performing on refi loans – even if the loan is profitable – they’ll likely struggle when rates change. Not to mention, LOs have fixed expenses that must be covered. Although the math may seem simple, collecting the right data can prove challenging. At the end of the day, it’s simple: if lenders get it right at the loan level, the rest will take care of itself.

Q: How can technology serve as the link to measuring a mortgage company’s overall activity in order to remain competitive in today’s environment?

Ludlow: The key lies in solving the data collection problem and simplifying both the evaluation and calculation process. Data collection should go as deep as the loan level, working in tandem with the lender’s LOS to import data, such as the loan numbers, borrower names, associated LO name, loan type and more from the loan origination system.

This non-financial data creates a unique entity in the database that the accounting system can then use to attach debits and credits, payables receipts and journal entries to – for each loan.

From automating general ledger reconciliation to quickly calculating data from multiple vendors, a proper accounting system should provide real-time calculations at the loan level with a clear picture of exactly how much the company will profit from each loan. This technology should enable board members, C-level executives, branch managers, LOs and more to drill down and through the data to see detailed, filtered financial data and in-depth, customizable reports, based on their level of authorization to the data.

Executives should have complete access to compare each branch’s performance, all the way down to each loan, while managers should only be able to see the data that’s applicable to their branch and their LOs.

This provides branch managers with the ability to analyze their LO’s activity and evaluate the performance of loans closed, currently in progress or never completed. Naturally, the technology makes financial data more accessible and comprehensible. It also promotes collaboration between departments – engaging more than just the accounting department, promoting data-driven decisions at every level as well as saving the company time and money while also boosting productivity.

While mortgage companies saw great results last year, lenders face a different set of challenges as they navigate the remainder of the year. As interest rates rise, it’s critical for lenders to prepare in advance.

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