The Mortgage Bankers Association’s mortgage volume forecast is the writing on the wall. It shows that the refinancings that accounted for over 75% of a lender’s business last year will account for only about a quarter of industry volume next year.
That is a huge change, and it will impact every process loan originators are using to serve borrowers today. The old ways the industry used to originate refinance business will not be effective with purchase money borrowers.
As we move into the fall conference season, many lenders will go in search of new technologies that promise to connect them with these consumers and serve them more efficiently. But that is a trap, and I will tell you why.
A Better Strategy For 2022
Lenders only have two choices if they hope to achieve growth and profitability in a year when mortgage volume contracts: win a greater share of the business or reduce their costs.
Vendors on the exhibit hall floor will be telling lenders to invest in new technologies that they promise will win them more business, but we have all heard that before.
A few years ago, when fintech firms invaded the space with mobile phone apps that caught the attention of the new generation of home buyers, lenders rushed to market for new point-of-sale technologies. The promise was that they would help them beat these new competitors, but lenders learned that they often instead added cost and friction to their process, which turned off borrowers and increased their fulfillment cost.
Lenders need a different approach this fall – a strategy that will allow them to operate more efficiently, reduce their costs and accomplish more with less. Tactically, this may be important for the lender to reduce the number of technology platforms they use to meet borrower needs, taking cost out of the equation and reducing friction.
Fortunately, this is a workable strategy.
Back to the Core
When the fintechs came, many loan origination systems did not include robust tools lenders needed to compete at the point of sale. It made sense for lenders to go in search of those tools, but it turned out that those POS tools were an interim technology, rather like digital cameras that existed in the interim between film cameras and camera phones.
Today’s next-generation LOSs include all the functionality lenders need to serve their borrowers, from the point of sale all the way through to post-close. Bolting additional technology onto their core platforms should be to bring innovation, not provide core capabilities.
Instead, lenders should make sure that they are getting everything possible out of their LOSs. That starts with making sure they are using a next-generation technology and not just an updated legacy system.
There are three clues that the LOS is a next-generation software platform:
It Looks and Feels Like Something New
How the software looks matters. Each screen should be intuitive and easy to use on any device it is displayed upon. It should come with a fully integrated POS that lets borrowers interact with the lender from any device they own, easily. It should feel easy for both borrowers and the lender’s staff.
It is Built on an Open Architecture
Application programming interfaces (APIs) make connections between systems, and modules within the same system, easy to create, maintain and use. All next-generation software makes these connections easy and frictionless. This allows the user to extend the functionality of the LOS platform as needed without bolting anything new on to the system.
Its Workflows are Dynamic
Refinance workflows will not result in success in a purchase money market, so next-generation technology allows workflows to be set up and managed electronically. The software provides AI-powered automation that can learn with experience to keep deals moving through the system efficiently.
This fall, lenders who travel to industry conferences are urged to sit down with their primary technology partners and discuss their application of the latest loan origination technologies to the new demands of the coming purchase money market.
The home finance business in 2022 will be different, and good lenders are preparing now to ensure that their companies are ready to efficiently serve the purchase money borrowers who will ensure their success in 2022.
Those who adopt a strategy of getting the most out of their core platforms and doing more with less will be in a better position to achieve this goal.
Joe Camerieri is executive vice president and client account management executive at Accenture Mortgage Cadence.