STRATMOR Group: Lenders Have Window Of Opportunity As Market Enters A Classic Down Cycle

Mortgage executives are seeing the signs of a coming downturn and are considering the changes they’ll need to make to remain competitive, according to this month’s Insights Report from mortgage advisory firm STRATMOR Group. 

In his article, “As the Mortgage Market Turns: Lender Perspectives on the 2022 Market,” Senior Partner Jim Cameron details the challenges discussed in recent STRATMOR Group Operations and Technology Workshops. Cameron explains where the industry is in the current mortgage cycle and why now is the time for lenders to make the changes they are considering. 

“While 2021 turned out to be a very good year by historical standards, the trend lines are troubling,” says Cameron. “We are in the beginning stages of a classic down cycle: Volumes are down, revenue is declining and cost per loan is going up as lenders are spreading their fixed cost base over a shrinking number of loan units. To pile on, it costs more to originate a purchase loan than a refinance due to a variety of factors. 

“It’s tough sledding out there,” says Cameron. “The good news is that many lenders are seeing these signs as well and are reporting back to us that they realize changes will be required to succeed as we move through this part of the cycle.”

Cameron analyzes the data on numerous industry indicators including cycle times, staffing levels and appraisal turn times. He also provides insight on technology and the customer experience. Cameron cites he industry’s long-running conundrum: the “too busy vs. too poor” syndrome, and stresses that lenders now have more time than they did during the hectic period from 2020-2021. Lenders also have a much stronger capital position than they did in 2018-2019. “Lenders therefore have an opportunity to act now before the red ink starts flowing and a ‘siege mentality’ starts to creep in,” he explains.  

On the technology front, Cameron notes that lenders have come into 2022 with an uneven record of successful technology implementations. The percentage of lenders using Robotic Process Automation (RPA), or bots, increased from 20% in 2019 to 42% in 2021, as lenders’ investment in RPA technology went up as well. However, RPA vendor usage dropped from 75% to 53% during that same time. 

Also, lenders have not made any real progress in rolling out hybrid eClose transactions since late 2020. Amazingly, 61% of the lenders surveyed in the STRATMOR Workshops did not book any hybrid eClosings in the fourth quarter of 2021. In addition, an astounding 80% of lenders indicated that they would consider switching their LOS if it were not so painful, signaling there is plenty of lender angst when it comes to their core technologies.

As lenders consider implementing new technologies, they should keep the borrower’s experience in mind, Cameron says. Only 30% of lenders attending the February 2022 Operations Workshop said they were using borrower journey maps, a tool that reveals what the borrower is thinking and feeling during each step of the mortgage experience, as opposed to process flows from the perspective of the lender to make the “mortgage factory” as efficient as possible. For the 70% of lenders that do not create journey maps, Cameron asks the question: “Will you have the discipline to find the time to make this happen in the middle of an industry downturn?” 

There is no time like the present to make the shift to a borrower-focused approach, while lenders have the time and resources to do so, Cameron says. Overcoming the “too busy vs. too poor” syndrome provides a window of opportunity for lenders, but one that may not last long. 

“Lenders that take advantage of this window of opportunity, when they have the time to choose and implement new technologies, as well as the cash to do so, will lead through this downturn and emerge as stronger competitors when the next upturn arrives,” he says. “Making good choices will require them to fully understand the needs of their borrowers and invest in technologies that will deliver high levels of borrower satisfaction.”