Russell Anderson, Guardian Mortgage President and CEO, explains how lenders must be swift to adapt and change their business strategies to fit the ever-changing housing market in order to reach and keep customers.
MReport: Many economists and analysts have predicted that 2016 will be a year of slow growth for the housing market—some of which we are already seeing within new housing data numbers. How can lenders overcome this forecast and still prosper in the housing market?
Anderson: The funny thing is that many of those same economists have been predicting this “slow growth” for the last five years. Fortunately for economists, the longer you stay on the same message, eventually you will be right. It’s just general business. When you think about how to overcome a shrinking market, lenders can develop new product lines, increase geographic footprint, expand the population of consumers, grow the sales force, and lastly much of the mortgage industry is adding new channels (wholesale, correspondent, or consumer direct channels).
One of the things we are working on at Guardian is growing and training our sales force. My view is that the best-in-class provider, the one that provides a great customer experience, is going to continue to prosper. The marketplace will continue to find the organizations and individuals that do a good job. Lenders can bolster all of these other areas, but ultimately, it comes down to doing good work. Lenders have to be best-in-class and viewed as the one that can provide a high-quality, transparent, and predictable customer experience so customers will continue to come to them.
MReport: Costs to originate mortgage loans are rising at a rapid pace in the current mortgage environment. How are lenders faring with the rise in costs? How can they streamline operations and cuts costs?
Anderson: Regulation certainly has ramped up and to be in compliance with new rules, lenders and other participants in the mortgage industry must increase their investment in technology, back-office personnel, and compliance with much of this investment having been over a short period of time. It has taken a great deal of time, investment, and resources, which are both a dollar and a productivity investment. That has translated into a much higher per loan cost, which has really been born by the industry as a whole. Many of these changes are fixed-costs, like investment in technology, but it’s necessary to be in compliance with rules. The loss of productivity stems from changes in workflows, expectations, and double checks that we must go through. This has been experienced by everyone in the industry and to deal with this, most companies are forced to be much more financially precise. Costs have gone up. Everybody is trying to do the right thing, but the size of the investment has certainly driven some parties out. I wouldn't be surprised if we started seeing more consolidation in the industry because of the change in the cost structure and the precision that it takes to continue to make money and be successful in light of the shift in cost and the change in productivity.
MReport: Regulation is such a hot-button topic in today's mortgage industry, how are lenders faring with new rules, the CFPB, and compliance matters?
Anderson: It's a really lively and interesting topic throughout the industry. Unfortunately, there seems to be too much finger-pointing going on, which is not particularly helpful. When you think about the bodies involved in the process (regulators, legislators, business owners and operators), we all want to do the right thing. The majority of lenders are trying to create an environment that provides a transparent, predictable process for consumers. There are varying opinions on how to do that, but I think that's where the conversation takes place. There has been a great deal of work and change, but the one thing I can say is that customers tell us is that the mortgage process is still frustrating and confusing. Lenders must address what the marketplace is telling us. We are doing things better and we are doing things right, but we are not finished until we respond to this feedback. That's what we are grappling with and that's the thing we will begin to see take place more over the upcoming years.
A consumer can go to a car dealership and buy an $80,000 car within 30 minutes. If that same customer wanted to buy a $150,000 house, it's a 400-page file and will take at least 30 days. It's inherently misaligned. Legislators, regulators, and business owners are all grappling with this issue inside of their paradigms to try and find solutions to that customer feedback. We have to come together collectively and talk about what those solutions are and how to implement them.
MReport: With the Fed "gradually" raising rates in 2016, should lenders be worried? What will several small increases mean for the mortgage industry moving forward?
Anderson: A rise in interest rates has a far more dramatic impact on refinances than it does on purchase loans. What we're seeing is purchase inventory/real estate inventory growing, and many consumers have recovered from negative equity situations. There are all these new consumers that are back in the marketplace, there's inventory available for move-up buyers and first-time homebuyers, supported by growing builder activity. If consumers look at the equity in their home, and their ability to buy more home, their ability to get a loan, and the cost of the loan, more people are going to be attracted to the market. As for refis, rising rates do reduce the financial impact of refinancing. The good news is that most experts are talking about modest increases, therefore, the value of refi to help homeowners is still likely to be positive and provide a valuable tool to help families manage their financial success.