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5 Loan Products That Will Make You Thrive In 2023

How to rise above the rest in what is bound to be a distressed market

Joe Camerieri
Joe Camerieri
Thrive In 2023

Given the current mortgage loan volume predictions we’ve been seeing the experts relay, it’s clear that you will either grow in 2023 or face the very real possibility of being forced out of the business.

There simply won’t be enough new mortgages next year to satisfy the revenue demands of the lenders still in the business, to say nothing of meeting their growth objectives. To make matters worse, many lenders are still paying the high overhead expenses of overcapacity.

But in every market, even those that seem the most distressed, there will be leaders who rise above the rest and grow in spite of everything.

To win in 2023, lenders will have to do a number of things right, including:

  • Right-sizing their organizations to staff appropriately;
  • Streamlining their operations for efficiency to do more with less;
  • Refocusing their process for better borrower and employee satisfaction;
  • Reducing overall origination costs by better leveraging their tech stacks;
  • Making any required corrections to their existing compensation plans;
  • Closing every loan faster.

But none of those will matter if lenders don’t do a good job of getting new loan applications into their pipelines.

Some of that will depend on good marketing to the business referral partners, homeowners, and new homebuyers living in the markets they serve. But a lot of it will depend upon offering the loan products that borrowers need now.

If lenders can’t meet the actual needs of the borrowers their business referral partners bring them in 2023, they won’t grow. They may not even survive.

Here are five loan products — in addition to the plain vanilla agency paper that everyone sells — that should be on every lender’s menu going into the new year.

Non-Qualified Mortgages (Non-QM)

Rising interest rates and high home values have left many borrowers feeling priced out of the market. When borrowers see the monthly payments that result from agency loans, they feel homes are too expensive. That’s not really the case. At the same time, inflation has caused more consumers to fall back on credit cards, which reduces their credit scores. Product innovation, predominantly in Non-QM lending, can help both types of borrowers and the lenders who serve them.

In fact, Non-QM lenders are finding strong demand for their products right now. We work with hundreds of lenders who originate loans for their own portfolios, as well as some of the largest independent portfolio lenders in the country, and they are still aggressively promoting Non-QM loans to their applicants and serving more borrowers.

Some have put the size of the total addressable market for Non-QM lending somewhere between $175 billion and $200 billion. That might be on the low side.

Home Equity Lines of Credit

Cash-out refinances don’t make sense for most existing homeowners today, and they won’t for some time. This doesn’t mean consumers won’t have a need to tap their existing home equity.

The Home Equity Line of Credit (HELOC) is a good solution if the lender can make qualification easy and funding quick.

Inflation aside, a strong job market is keeping consumers optimistic. We’re seeing consumer spending increase, which could lead to more demand for HELOCS in the future.

While loan balances are lower and few borrowers traditionally tap their entire line of credit, it’s a loan product we expect to see borrowers requesting more often next year.

Banks used to predominantly deliver this product, but there are options for IMBs to get into this mortgage segment as well.

2023 Trends

Reverse Mortgage Loans

After years of consumer education by a number of large players in the reverse mortgage space, we’re beginning to see more interest from aging borrowers for these loan products. People seem to understand what this loan product is for and how to use it.

Higher interest rates make these loans less attractive to some borrowers because it limits the amount of equity homeowners can pull out of their homes through these products. Even so, reverse mortgages can be more attractive than home equity loans for paying end-of-life expenses.

Add to that the demographic data that shows how quickly the U.S. population is aging and you can see how important it is that lenders offer these products.

Leaning into this product is not an easy lift, but more and more forward-looking lenders are adding this capability to their platforms.

Adjustable-Rate Loans

Many who have only been working in this industry for a decade or so may be operating under the erroneous assumption that adjustable-rate mortgages (ARMs) caused the financial crisis. That’s not true.

These loans can make sense for borrowers who qualify but want a more affordable mortgage. Given that most people will not remain in their homes for very long before moving, trading up or downsizing their residence, ARM loans can make a lot of sense.

Home Improvement Loans (Fixed Balance Home Equity)

If buying a new home is too expensive, as many Americans are finding it to be today given home prices and current mortgage interest rates, a good alternative is to take out a home equity loan to make adjustments to the homeowner’s existing property.

Again, the smaller loan balances may lead some lenders to discount these products, but each loan adds to the lender’s overall loan volume. Besides, with the right technology, these loans can be fast, easy, and very affordable to originate.

By offering the loan products that more borrowers want, lenders will naturally have an advantage over their competitors with the consumers in the geographies they serve.

One important key to success with a broader menu of mortgage loan products is having a single technology platform that can originate anything the lender sells to a borrower. When additional technology is required to expand the business into new lines, the overall profitability of the strategy is reduced.

Fortunately, there are loan origination platforms that can originate all of these products and more. Even better, these next-generation LOS platforms can also deliver most of the other success requirements mentioned at the beginning of this article.

There will be no silver bullet or magic elixir for success in the year ahead, but doing more of these things right will set some lenders up to grow, even in 2023. Those with broader product menus will likely get the first shot at new business.

This article was originally published in the NMP Magazine February 2023 issue.
Joe Camerieri
Joe Camerieri,
Executive vice president of sales and strategy

Joe Camerieri is executive vice president of sales and strategy at Mortgage Cadence. He can be reached at [email protected]

Published on
Jan 30, 2023
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