STRATMOR Group: Challenging Environment Leads Mortgage Lenders To Consider Their Options

In the mortgage industry’s current environment of rising rates, shrinking volumes and tight-enough-to-choke margins, lenders are faced with making tough decisions in their efforts to “right the ship,” according to mortgage advisory firm STRATMOR Group. In the August Insights Report, STRATMOR experts examine the factors lenders should consider in weighing the options available in today’s market: stay in the fight, sell the company or shut down the enterprise.

In the article “Strategies for the Down Cycle: Option for Mortgage Lenders,” STRATMOR Senior Partner Jim Cameron says most lenders will opt to stay in the fight. “The headlines are filled with news of the challenges facing lenders. Some will feel equal to the challenge and others will not. But before considering strategic options, a clear-eyed assessment of the current state of both the primary shareholders and the company is critical,” he says.

According to Cameron, making the right business decision starts with understanding the internal realities including the current state of the business. “A lender who has achieved fantastic success by offering streamlined refinance loans over the past few years may find the cost of retooling for the purchase money market to be a major impediment and choose not to remain in the fight.”

Once the decision to remain in business has been made, winning the fight will require management to achieve two objectives in short order: stop the bleeding and maximize current revenue. In both cases, management will have to take an objective view of their business as it stands today. For many lenders this is a gut-wrenching process, and they would benefit from some external, objective counsel, Cameron says.

As lenders look at ways to cut costs, staffing is at the top of the list, and Cameron notes that believing every job can be saved in the current market is not realistic. In fact, in recent STRATMOR lender workshops, 86% of attendees reported that they are currently reducing staff via direct reductions or attrition. “Getting staff exactly right requires the lender to know how much the business is expected to originate and the productivity of its people by role,” says Cameron. “Only then can a lender create a credible production forecast and adjust associated staffing and expenses accordingly.”

Cutting costs alone will not be enough to succeed, and other STRATMOR advisors, including Customer Experience Director Mike Seminari, Senior Advisor Sue Woodard and STRATMOR Principal Tom Finnegan, outline the methods available to lenders to grow even in this down market. For some lenders, selling the company and moving to other endeavors make the most sense, the second option available to lenders. Senior Partner Garth Graham reports STRATMOR is already seeing a significant spike in its M&A practice. He strongly encourages lenders who are thinking about selling their business to start the process early and advises prospective sellers to focus on model match and culture. “Buyers and sellers need to have a level of compatibility to make the deal work. After all, you typically are going to work together after the sale, and the key is that it’s a good fit, not just a good price,” he says.

If an objective view into a business indicates that its operating model is no longer viable and the cost to right the ship is too high or the results uncertain, shutting down the business is the third option. STRATMOR Principal David Hrobon offers advice to lenders considering this option, including not delaying the decision. “Waiting to make the decision to shut down is a difficult one, and the longer the lender waits, the greater the impact on everyone involved,” says Hrobon. “The responsibilities that lenders feel for others is normal and admirable, but extending the decision ‘just a little longer,’ means burning through assets that could go toward softening the landing for those impacted.”

In a second Insights Report article, Customer Experience Director Mike Seminari compares the mortgage industry to a business world version of “The Hunger Games.” In “A CX Strategy to Put the Odds Ever in Your Favor,” Seminari draws out that thought and uncovers how some lenders are not only surviving in this current market but are inching forward: they have made a long-term commitment to providing a best-in-class customer experience.

Get the details on both articles in this month’s Insights Report.