As the strong refinance volume of 2020 and 2021 drops industry-wide, lending businesses find themselves at a crossroads: How do they weather the impact of seasonal expenses and survive until the next up-cycle? While all lenders confront this question, smaller players that don’t have other business elements to offset losses bear the brunt of compression.
As increasingly large and well-funded competition sets a new bar for resiliency throughout market cycles, local lenders are forced to step up. Some smaller shops may need additional capital or alternatives to combat market changes and shrinking margins in 2022 and beyond.
This begs the question: What can these smaller players do to access nimbleness and scale while minimizing expenses? Based on my decades of industry experience, I believe these three strategies will give local lenders the best chance at resilience and longevity through market cycles.
3 ways local lenders can market-proof their fulfillment operations
1. Hone your lead funnel
To begin strengthening your fulfillment operations, you need to first create a strong basis. Here, lenders should go back to basics by analyzing and building a functioning lead funnel. Doing so will help you create business that perpetuates itself through market cycles.
Specifically, lenders should create a framework for building a market that offers lead flow. This could mean doubling down on community outreach, increasing spend in marketing and sales, or encouraging referral business through dedicated programs and top borrower service. Then, lenders need to coach their salespeople to reliably capture those opportunities. Regardless of the methods used, a sustained increase in leads will insulate your business as volume subsides.
2. Leverage a loan fulfillment solution
Leveraging a loan fulfillment solution is one strategy that can add flexibility and capacity to your lending business almost immediately. By partnering with a provider like Maxwell Fulfillment, you gain access to industry talent when you need it and avoid the pains and brand damage of downsizing your staff when the market changes. Plus, reputable fulfillment solutions offer high-caliber, experienced talent, which can be difficult and costly to access, especially during periods of increased demand.
This option also bulletproofs your lending business against market cycles for another reason: the variable cost model it creates. By standardizing costs, a loan fulfillment solution helps smaller lenders create scalable economics and avoid the fixed costs that come with growing your fulfillment staff internally. In other words, because this strategy creates a variable cost model, it allows you to remain agile, scaling your fulfillment expenses in proportion to loan volume availability.
Worried you’ll lose control of an important business operation by adding a loan fulfillment solution? Here, vetting potential providers is key for success. Specifically, you’ll want to ensure you choose a reputable company with experienced talent that works in lock-step with you to embed in your processes and help you achieve your goals. A few areas you’ll want to consider include:
- Communication style
- Partnership philosophy
- Expertise and market reputation
- Privacy and data security
- Flexibility and scale
Not sure where to start? Read our full ebook, The Definitive Guide to Outsource Fulfillment Success, to get comprehensive insight into vetting, preparing for, and integrating a fulfillment solution into your business.
3. Invest in technology
The technological revolution has already taken the mortgage front office by storm, with the COVID-19 pandemic only accelerating trends that had been rising for years. What many lenders may not realize is that technology is just beginning to transform the mortgage back office, with massive potential for efficiency gains in the local lending segment.
According to the MBA’s 2021 Q2 Quarterly Mortgage Bankers Performance Report, fulfillment personnel expenses in Q2 2021 grew to $1,252 per loan, up 26.7% from a year prior. Similarly, the total cost of a loan grew to a near-record high of $8,668, reducing profit margins to an average of only 73 BPS. This increase puts stress on already thin margins, which are only projected to shrink into 2022.
Maxwell’s newest solution, Maxwell Processor Edge, boosts efficiency across lenders’ fulfillment teams, helping to combat these trends and sending improved margins straight to the bottom line. Offering document-parsing technology, intelligent workflows, and more, this solution represents the next wave of innovation in mortgage—and the fact that it’s now accessible to small lenders is game-changing.
Want to stay ahead of industry trends and arm yourself for challenges ahead?
Download our new eBook, “Future-Proof: Industry Insight to Help Local Lenders Thrive” to gain access to:
- 12 tips from industry veterans to help you optimize your mortgage process from loan application to the secondary market
- Insight into challenges and opportunities local lenders will experience in coming years
- 4 solutions that give local lenders efficiency, scale, and flexibility through market cycles
- Advice from Maxwell’s leadership team on how to leverage technology, partnerships, and competitive advantages to better compete
Get your free copy of “Future-Proof: Industry Insight to Help Local Lenders Thrive”