2022’s market gives lenders a prime opportunity to reevaluate their businesses, scrutinizing processes, loan margins, and technology providers to determine the best path towards profitability. To help lenders think through this process, we interviewed Amy Brandt, a veteran with two decades of experience in digital mortgage solutions and previous President and CEO of First American Docutech, who today serves as Operating Executive Director at the private equity firm Serent Capital. Here’s what we learned.
This interview series is excerpted from our 2H 2022 Outlook: Managing Rising Rates, Declining Volume & the Possible Recession Ahead. Click here to download the full report.
How do you view today’s mortgage market?
Overwhelmingly, mortgage headlines today speak of dire outlooks and unprecedented volatility. While there’s no doubt that 2022’s market holds sizable challenges for both lenders and borrowers, it’s also neither surprising nor a historic anomaly. As loan volume falls from the record highs of 2020 and 2021, it represents a return to more normal levels seen in pre-pandemic years. Look at origination numbers over the past decade, and you’ll find similar origination numbers both by volume and dollar amount.
Still, there are unique elements of today’s market that should shape lender strategy and priorities as we enter the second half of the year. Namely, we’re seeing significant cracks in the housing market signified by scarce inventory, Fed action, geopolitical concerns, and turbulent macroeconomic factors. Borrowers are struggling to find suitable home options, lenders are grappling with shrinking margins, and economists are beginning to debate signals of a recession. Not every mortgage market ebb includes this level of uncertainty, and lenders need to proceed deliberately and swiftly through the rest of 2022 and beyond to bolster their profitability against rising challenges.
What can lenders do to support profitability in the second half of 2022?
My biggest piece of advice for lenders looking to maintain profitability through the rest of the year is to stop chasing momentary fixes to recurring obstacles. In other words, we as an industry need to expect and consistently prepare for markets like 2022’s. The only way to do this is to step outside of the day-to-day struggle to stay above water and use this pressing time as an opportunity: a chance to strengthen operations, layer in efficiency wherever possible, and differentiate yourself against your competitors.
This exercise begins with a full, detailed review of your loan manufacturing process—something that many lenders are overdue to perform. Even during the widespread profitability of the past few years, productivity continued to lag, driven by processing and underwriting bottlenecks. Meanwhile, costs to originate reached a staggering $9,500 per loan by the end of 2021. At the time, productivity issues were masked by overwhelming volume; now, with the pace of business slowing dramatically, lenders are feeling every inefficiency acutely.
As the market downturns, lenders need to dig into their procedures and ask telling questions, including:
- What’s my cost to produce, and how has it been trending across market cycles?
- Where is my business spending money, and what’s the return on that investment?
- Are funds placed towards marketing and sales bringing in reliable business growth and leads?
- What’s the single business area where expense can be removed with limited business impact?
Digging into the math behind your lending business will inform the tough decisions you’ll need to make to remain viable should the market continue to decline through the rest of the year. Here, you should aim to pull out the first layer of fat to immediately bolster your budget, then put more significant time into a zero cost analysis and long-term strategy for reducing costs and refining areas of opportunity.
What role will technology play in lender success in 2022 and beyond?
Once you’re clear on the metrics that impact your bottom line and areas for improvement, you’ll want to consider the technology solutions that can uplift efficiency, save costs, and improve your margins. Increasingly, modern, well-functioning point-of-sale technology is becoming table stakes and vital to capturing available borrower business in challenging markets like 2022. What’s newer in the technology space is efficiency-driving solutions that enhance both front-office and back-office processes to ensure lending teams are achieving their best numbers no matter the market cycle.
While it may seem counterintuitive to consider technology offerings in today’s margin-compressed environment, I’d argue that for some, an investment in technology is too costly not to make. Innovative solutions will increasingly separate lenders into two camps: those who passively react to market changes with ad hoc actions aimed at patching together profitability and those who arm themselves for volume highs and lows by building peak efficiency into their businesses. The question for lenders is: Can you afford to weather another market ebb without the incremental lift technology adds to each step of the mortgage process?
When layering in technology, it’s vital to ensure you’re solving your most urgent issues and choosing a partner who integrates seamlessly into your business. Mortgage technology isn’t a guaranteed, immediate fix, but rather a tool that should augment your existing team and act as a valuable resource when times get tough. Parse your processes for highest areas of improvement, explore partners who play well with existing vendors, and invest in a solution that sets you up for success by adding lasting agility to your business.
Download Maxwell’s 2H 2022 Mortgage Industry Outlook
Now is the time to act on forecasts, making the proper strategy revisions to capitalize on changing market opportunities and meet business objectives for 2022.
Our newest eBook, 2H 2022 Outlook: Managing Rising Rates, Declining Volume & the Possible Recession Ahead, interviews five industry vets—Serent Capital’s Amy Brandt, Richey May’s Seth Sprague, and Maxwell leaders Bryan Traeger, Anthony Ianni, and Kim Powers—on their thoughts on the second half of 2022. The result is a forward-looking game plan to help lenders best position themselves to compete in a tightening market, available in two formats for free download: a 16-page report and an hour-long webinar recording.
Download this report—and gain access to the accompanying webinar recording—for valuable insight, including:
- How to allocate spend to bolster your bottom line
- Considerations for launching new loan channels and products like HELOCs
- Tips to hone your mortgage process to achieve peak efficiency
- Areas of opportunity that still exist in today’s challenging market
- And more!
Get your free copy of the 2H 2022 Outlook report and access the webinar recording