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Leaning In to Grow Through a Downturn

There is business to be found in today’s market, just look in new places.

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Joe Camerieri
Illustration of two people searching through binoculars and a telescope.

To those looking at our industry from the outside, it must look rather frightening. With more stories about big company layoffs and mortgage lenders declaring bankruptcy or exiting the business in the face of rapidly falling loan volumes and tightening margins. To someone who doesn’t understand the cyclical nature of our business, it must look like the beginning of a crash.

To those who recently entered the mortgage business, it may look very much like a crash, but industry veterans have been watching it happen since at least early February when industry data clearly showed volumes were falling. By April, sources were saying that refinance volume had all but dried up. 

By late spring, most lenders had begun executing their pivots to the purchase money market. Any lender who wasn’t thinking about moving away from refi workflows by June was probably already too late.

But for those who were taking action, this is turning out to be just another industry downturn. In fact, if the Mortgage Bankers Association’s forecast is realized and the industry originates nearly $2.5 trillion in new loans this year, it will be one of the best years in the history of the business. 

That may be a hard point to focus on while the industry watches volume tumble from its $4+ trillion peak in 2021. Leaders know that the way you succeed through a downturn is by leaning in.

Understanding The Cycle

The mortgage business is cyclical and while the traditional cycle has been warped almost beyond recognition over the past 20 years thanks to the subprime mortgage meltdown, the resulting foreclosure crisis and near constant government financial management efforts, this business still operates basically the same way it always has.

Traditionally, the cycle lasted about a year. Winter would be slow, the spring home buying season would be wild, consumers would continue to buy through the summer and when their children returned to school in the fall the market would cool. 

Extremely low interest rates, a global pandemic that let workers live wherever they wanted and consumer-facing technology that made it easier than ever for consumers to apply for a new loan online have created a market that is hot all year long. At least it has been for the last few years.

But the cycle always turns.

Today, high inflation has prompted the Federal Reserve to raise interest rates, which has made homes less affordable and homeowners less eager to sell in anticipation of falling home values, leading to an inventory crisis and a cooling real estate market.

What Lenders Need To Do Now To Thrive

Many lenders are taking advantage of the cooling market to streamline their operations for more efficient mortgage lending. They are not pulling back, but instead taking actions they think will allow them to build stronger companies through the downturn.

Some, like Truist, Bank of America and Wells Fargo, are doubling down on their efforts to recruit and retain the best staff by raising their minimum wage. 

Others are looking at streamlining their bloated tech stacks with next generation loan origination software that can reduce the cost of every loan they originate and make it easy to close more with fewer people.

Many lenders feel that this is their year to get their systems and efficiencies in place, so that they can pick up more business.

In a word, they are leaning in and making the changes and investments required to succeed in the new market. One thing this is allowing them to do is seek out mortgage production in new places and through new channels.

Where Lenders Are Finding Volume Now

Many lenders are finding great success in their pivot to purchase. Streamlined workflows aimed at financing new home buyers supported by next generation technology is proving to be a perfect prescription for many lenders. 

But leading lenders are looking beyond purchase money mortgages to other lines of business. Homeowners have plenty of equity now and so home equity loans and lines are coming back. With inventory still low, home improvement loans are a viable source of new business. And despite rising rates, there are still many seniors who can benefit from a reverse mortgage.

And there is an entire world of loan products in the Jumbo and Non-QM space for lenders who are ready to expand beyond the industry’s largest investors.

Leaders are also looking at new ways to source new business. Internet trigger leads are available, but a better source of new business may be hiding in the lenders own past customer databases. New technology allows them to monitor these databases, sending new leads directly to the loan officer’s cell phone.

While everyone is reaching out to real estate agents for new purchase money loans, smart lenders are also having conversations with other business referral partners.

Wealth management professionals, for instance, are having some interesting conversations with their clients right now, some of whom are calling upon mortgage lenders for additional information. Even with rising rates, mortgage money is some of the cheapest capital available. It turns out that some advisors are suggesting that wealthy homeowners leverage the equity in their homes to make investments where they can get a higher return.

There is business to be found in today’s market, lenders just have to look in new places. 

Whether it’s building stronger teams by picking up experienced professionals competitors let go, building stronger, more versatile tech stacks for originating any type of loan through any channel, or outsourcing their fulfillment and focusing on sales, leaders see the opportunity in the current market. They’re not going to let it go without capitalizing on it.

It’s this bias for action that has always set the leaders in the industry apart from the rest. These leaders should have every confidence that they will weather this downturn thanks to the efforts they are making now to lean in and take action.

This article was originally published in the Mortgage Banker Magazine October 2022 issue.
Joe Camerieri

Joe Camerieri is executive vice president and client account management executive at Accenture Mortgage Cadence.

Published on
Oct 18, 2022
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