BLOG VIEW: Rising mortgage interest rates and rapidly rising home prices have created two massive hurdles for mortgage industry players to overcome in the year ahead. With the Mortgage Bankers Association predicting originations will decline nearly 40% from 2021, what factors would entice a branch manager to move in today’s market?
What follows are six main issues branch leaders are facing as they consider whether to stay or seek out a partnership with a new company:
1. Out-of-Market Pricing
Every borrower wants the lowest possible rate, and pricing is especially critical when rising interest rates start pricing homebuyers out of the market. Out-of-market pricing can occur at single-channel companies. In rising-rate markets, retail-only shops may have to raise rates to break even and avoid future losses.
Multichannel companies benefit from rising rates because the value of their mortgage servicing rights rises with rates. Plus, with fewer borrowers paying off, prepayment speeds slow and the timeframe during which servicing fees are collected lengthens. Those factors increase servicing income, which diversified companies can deploy to reduce pricing and fund new products.
With less of a need to squeeze margins, multichannel companies can sharpen pricing by as much as 50 to 75 bps over single-channel competitors.
2. Operational Speed and Execution
If a lender can’t close loans, the location and the compensation plan don’t matter. Branches move in all environments to get away from excessive internal overlays, guidelines interpretations that are overly conservative, credit committee delays, and underwriting that feels like they’re sending files into a black hole from which they emerge at some uncertain date carrying unnecessary “feel good” conditions.
Processing delays frustrate customers in all markets, and when volume is down, branches feel the pain of losing even one customer to a competitor. Branches will shift to a new company to gain a closing date guarantee product, or a branch and regionally aligned operations pod system where branches work with the same processors, underwriters and closers.
Turn times matter. That’s why the right operations technology matters. Planet Home Lending knows our tech stack products, like Blue Sage pricing at the point of sale, Leverage+ (AI underwriting), and the full spectrum of E-technology from application through disclosure, speed loans through the pipeline to the closing table.
3. Growth Opportunities
Many factors influence branch managers’ ability to grow not only in production but also in leadership within the company. A company with existing branches on every corner may limit local expansion. If the management seats are already filled, a manager might have to wait for someone to leave before he/she can advance.
Branch managers will move to a company that has a retail footprint allowing for growth locally or regionally. Women and minorities will seek out companies that value diversity and move away from companies where all the seats at the leadership table are reserved for people in the Old Boys’ Network.
4. Marketing Technology Stack
Marketing technology is key to winning customers in today’s market and the lack of one can lead a branch manager to seek a new company. Planet Home Lending’s MarTech stack includes automated digital marketing from TotalExpert™, MBS Highway, and Homebot, a borrower conversion platform (Mortgage Coach), and a video messaging tool (BombBomb™). Many consumers check online ratings and monitoring consumer sentiment and responding to reviews is best done with online reputation management (ORM) tools, such as ReviewTrackers and Experience.com.
Access to those aforementioned tools is one consideration and the cost is another. Is the company splitting the cost 50/50 and giving them to MLOs free of charge? Charging the branch 100%? Passing the full cost on to each MLO? These questions must be considered.
5. Financial Stability and Access to Capital
For the next 12 to 18 months, financial challenges will abound. Companies will lose warehouse lines, consolidate, be forced to make staffing reductions or exit the market because they cannot make the transition from a refinance to a purchase market.
Each of those transitions comes with unique challenges influenced by corporate structure, access to capital and the financial stability of the company going into this cycle.
Each downturn provides expansion opportunities to branches. To take advantage of them, branch managers will seek a partner with a strong balance sheet, a parent with deep pockets or another reliable funding stream.
6. P&L Transparency
Financial transparency is critical regardless of whether a branch prefers a P&L model or a standard retail branch model. In either framework, it’s important for all components from loan-level margins, to compensation, investment and expenses to be clearly disclosed.
Another bottom-line factor that influences branch movement is having finance experts and leadership who consistently offer coaching on how to operate the business, and more importantly, how to grow in any market.
In the final analysis, a branch manager might not be inclined to switch to gain just one of these advantages. But suffering declining volume or profits because of any one of them could be extremely motivating.
Caleb Mittelstet is executive vice president of national production distributed retail sales at Planet Home Lending.
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.