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The Mortgage Playbook

Editor's note: This feature originally appeared in the January issue of MReport, out now.

A pro football team prepares for the big game by training, watching team videos, examining stats, eating and sleeping well, and practicing plays ad nauseam. Fans get ready by purchasing team apparel to wear on game day, planning their tailgates, and placing wagers based on what they have seen all season. Fans will be ranking teams by those that don’t stand a chance, the ones that are bankable powerhouses, and the teams that are full of surprises. In the lead up to the big game, people generally feel pretty sure about what the outcome might be—whether it’s good or bad. Then the game begins, and anything can happen.

While many fans and sportscasters THINK they know what the outcome will be, no one knows. And, if you are a betting man, all you can do is go with your gut. The teams, on the other hand, have to adjust their game as the quarters unfold and things happen. Injuries, bad calls, and unforeseen plays—a good team stands ready for all these things and reacts. With luck, anticipation, and preparation wins the game.

As 2019 takes shape, there are many things mortgage lenders should anticipate and prepare for
as well. In our industry, winning the big game is akin to keeping your pipeline filled, keeping costs in check, and closing more loans. But, given the emerging trends that are expected to take hold this year, that may not be such an easy task. That’s precisely why preparation is essential.

Assessing the Field Conditions

The first step to proper preparation is understanding what you are up against. What are the things that may impact your game that are out of your control? A football team takes the weather and the condition of the field into account, among other things. Mortgage lenders must weigh industry forecasts. The Mortgage Bankers Association (MBA) anticipates home purchase originations to increase each year from 2019-2021, and that pace should continue to increase beyond the forecast horizon, given the wave of millennial buyers beginning to hit the market. In addition, MBA Chief Economist Mike Fratantoni said the Fed is expected to raise the federal funds rate three times in 2019, bringing the fed funds target to 3 percent. The MBA also expects the 10-year Treasury rate to increase to 3.4 percent and then level out, bringing 30-year mortgage rates to 5.1 percent.

The mortgage industry continues to be challenged by the ongoing drop in origination volume and significant margin compression. This has resulted in lenders seeing an increase in costs coupled with extremely competitive pricing to capture loan volume that, in turn, is depressing volume. The 2019 field conditions for the mortgage industry are less than stellar.

Writing the Playbook

Just as a football team sizes up its competition in terms of its strengths, weaknesses, accomplishments, and failures, so too should the mortgage industry examine how things are evolving regarding technological advances and the underlying factors contributing to an increase in fallout.

  • Digital Mortgage – Up until the past year or so, lenders have been mainly focused on all things compliance related. However, that changed dramatically in 2018 as the industry developed a new, laser-sharp focus on technology–and that obsession is expected to continue throughout 2019. Application programming interfaces (APIs) will help the industry make great technological strides this year.

APIs facilitate the use of shortcuts among programmers who are in the business of building new software. This is especially important in the mortgage industry, where many existing platforms and programs must be retrofitted with automated programs—something made possible through the use of APIs. The fact is, mortgage lenders today use multiple vendors and communication between vendor programs is not a luxury, but a necessity. Otherwise, loans cannot be processed accurately or on time. All of this means APIs have become a vital component of mortgage lending’s digital future.

  • Automation–With mortgage fraud on the rise, lenders are searching for tools to minimize their risk more effectively. Automation is helping to accomplish this by making incidents of fraud easier to detect. Assets, income, and credit histories can all be obtained through technology now, which is eliminating the need for borrowers to submit information and possibly tamper with information. Technology is also helping lenders identify red flags earlier. It can provide an alert if the borrower information is inconsistent if there are issues with a Social Security number’s date or state of issuance if address records are inconsistent with employer addresses, and more.
  • Increasing Fallout—As interest rates have risen, refinances have diminished considerably. Add to that the fact that not everyone who applies for a mortgage, qualifies for a mortgage. LendingTree recently did a study of 10 million mortgage applications. Credit history and debt were the most significant barriers to home application approval, which were each responsible for 26 percent of denials.

This combination of factors is causing significant fallout. And currently, lenders pay for this fallout—meaning they are paying for the applicant’s credit report. In other words, when an applicant doesn’t qualify, and the loan doesn’t close, the lender doesn’t recoup the cost for the credit report. So, as fallout increases, so do the associated costs, and it is the lender who is bearing that financial burden right now.

Suiting Up

“Proper preparation prevents poor performance.” —Charlie Batch, Former NFL Quarterback

As I mentioned before, to win the big game in 2019, it is imperative for lenders to keep their pipelines full, reign in costs, and close more loans. Here are some ways to get your team game-day ready for whatever this year may throw at your lending operation:

Building your pipeline: To find more potential applicants, you should look for a lead source that doesn’t require any minimums. No minimums will make your lead generation efforts more affordable. Today’s lead generation programs let you select lead attributes based on credit scores, location, LTVs, bankruptcies, etc. And, these programs don’t even require you to design a marketing piece. You can select a design from a library of mail piece options, and a printer will produce your selection, and a mail house will send them to your prospect list. It’s as easy as that!

  • Retain your portfolio: The market will consolidate next year, so it is important to be vigilant and make sure that you are poised to succeed by adjusting your approach whenever necessary. To that end, you must ensure you keep the customers you already have. Use the technology that is available today to monitor your portfolio and to be alerted if any of your borrowers are shopping for a refinance or a new mortgage.
  • Reduce costs: One way lenders can be savvier when it comes to spending is by utilizing a feature that allows loan officers only to pull a credit report from just one credit bureau. Then, requirements can be set, and if they are met, the two additional bureaus reports can be obtained. This process is a more fiscally responsible way to obtain credit.
  • Assist declined applicants: If you have an applicant who is close to qualifying for a mortgage, consider contacting your verifications provider for a more detailed review of the file. They might notice something that you cannot readily see. The truth is, even those who have been in the industry a long time do not always think of everything. Sometimes a fresh perspective can shed new light on a file that reveals simple changes that could be made to qualify the borrower.

Let the applicant know that by becoming informed and working on their credit score, they could qualify for a mortgage down the road. There is a program available right now that will help you:

  • Secure and retain incremental mortgage loan prospects over the long term through consumer credit score education.
  • Equip your loan officers with a solution that helps consumers set a plan with meaningful actions on how to reach a qualifying credit score.
  • Reduce stress through increased transparency—receive instant alerts when your prospect is qualified.
  • Increase revenue with higher application-to-close rates by keeping the consumer engaged.

Any football team will tell you that some seasons are more difficult than others. To be sure, 2019 promises to be a challenging one for the mortgage industry. Between evaporating refis, rate increases, lagging originations, and rising costs, lenders must be more strategic than ever and truly up their game to not just survive, but thrive, in the coming year. So, be sure to use all the tools at your disposal to tackle these issues head-on. Reach out to your verifications provider and ask them what resources and technology solutions they can offer you to capture more leads, better manage costs, and close more loans. Because when you anticipate what could happen, and prepare for those scenarios, your chances of winning the big game are far greater.

About Author: Greg Holmes

GREG HOLMES is President and CEO at CreditPlus, Inc., a third-party verifications company serving the mortgage industry. He can be reached at [email protected]

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