Last year saw a record-breaking $3.83 trillion in mortgage originations, according to the Mortgage Bankers Association (MBA), as interest rates plunged, and COVID-19 accelerated an ongoing exodus from cities to the suburbs. While 2021 volume is expected to slow somewhat, the purchase market appears to be on pace to surpass refinances, the MBA said. How can lenders gain market share and drive profitability in a white-hot purchase mortgage market?
“The shift from a refinance to a purchase market has really changed the dynamics for lenders,” said Jon Gerretsen, SitusAMC Managing Director of Residential New Originations and Fulfillment Services. “Lenders have already had to compete for market share in an era of increasing costs, greater regulatory demands and volatile interest rates, while quickly adapting to new remote-work protocols sparked by the pandemic. As the market shifts from a refinance-driven market to a purchase-driven market, lenders have had to adapt again due to the difference in sourcing leads and the intricacies of financing purchase transactions.”
Higher Borrower Expectations
SitusAMC works with numerous top 50 U.S. lenders and originators, providing solid insight into market trends. “For most of our clients, the current focus is on profitability and finding the right operating model for today’s market,” Gerretsen said. “However, no one wants to compromise on customer experience either.”
The underlying dynamics, timing, and skill sets required to support purchase transactions are much more complex than a refinance, in which the primary focus is on the interest rate and associated closing costs, Gerretsen noted. “In a purchase market, there are multiple stakeholders who have vested interests in the transaction – buyers, sellers, realtors -- and originators, all working under time-driven constraints,” he said. These include rate-lock commitments, mortgage-based contingencies and move-in/move out dates -- which all rely on timely and accurate decisions.
“All of this translates into the purchase borrower requiring increased touch points and service levels to fulfill these expectations,” Gerretsen said. Additionally, homebuyers demand a fast and simple mortgage lending experience, similar to the other types of technology-driven solutions they enjoy in other aspects of their lives.
“Given all the stakeholders involved, the purchase market is about providing product expertise and service excellence while maintaining timelines,” he said. “It’s very easy to have a negative customer experience that can impair your brand.”
Challenges Recruiting Underwriters
Given the volatile environment over the last 18 months, lenders have been challenged to recruit and retain skilled employees, and poaching that has been rampant. “The talent situation has in turn made maintaining service levels a difficult and extremely costly endeavor,” Gerretsen said. “Lenders haven’t been able to hire and train fast enough.” Most market participants expect volumes to fall in 2022, but that material decline has not appeared through the third quarter of 2021; competitive pressures have persisted as lenders were willing to cut margins to keep volumes.
Heading into 2022, SitusAMC is seeing lenders start to focus on what they need their organizations to look like in what is promising to be a market that features lower originations, a mix shift to purchase --which is more expensive to produce -- and a more active regulatory regime, which is also likely to increase costs. “Maintaining productivity and quality in this environment is extremely challenging,” Gerretsen said.
SitusAMC provides origination support services and partners with lenders to provide cost-effective, regulatory-compliant, scalable solutions to help them meet changing market demands while streamlining their operating models. “We have built a global delivery system of technology-enabled underwriting, offering both expertise and scale throughout the origination life cycle for both licensed and non-licensed activities,” Gerretsen said. “Our global workforce enables us to operate around the clock to constantly exceed expectations and help our lender partners achieve a competitive advantage in the marketplace.”
For more information on SitusAMC's origination support services, click here.