Mortgage brokers have always done well in lean environments by focusing on their core competencies and minding the bottom line. This commentary piece features John Vella, chief revenue officer of Altisource Portfolio Solutions, discussing how the residential property market is recovering–but at the same time, it’s experiencing a shrinking pool of the refinancing and distressed opportunities that helped mortgage brokers make it through some pretty lean years.
Brokers don’t have to relegate themselves to the bottom for small improvements. Instead, now is precisely the right time to explore new revenue sources that may be just outside many brokers’ traditional comfort zones. The path to growth starts with clearly understanding the challenges brokers are facing – and then focusing on the potential solutions.
Understanding the Problem
The shift back to a purchase-based market is being driven by the impact of rising interest rates on the refinancing business. Previously, many brokers were able to bolster their bottom lines by seizing the opportunities in the refinance boom. It was a much-needed market expansion that introduced brokers to an entirely new crowd of customers. The distressed market has almost completely closed down with foreclosure inventories having been reduced to pre-crisis levels.
To make up for that dwindling revenue, brokers are moving back to working with customers in the initial purchase market. Yet that market isn’t showing signs of tremendous growth anytime soon–so brokers have been left looking into every nook and cranny of their operations for efficiencies to improve their bottom line.
Brokers should certainly find ways to reduce costs as they mine opportunities to grow revenue. To keep bottom lines steady, most brokers should look to build a variable expense structure around the items they can control–aligning expenses with revenue while reducing fixed overhead costs. However, that line-by-line trimming is only going to help so much.
Recognizing the Opportunities Ahead
Mortgage companies need a new boom. Fortunately, there are real opportunities out there–quite possibly right in brokers’ own backyards. If the market could pivot to refinancing, why can’t it find the next growth opportunities among small balance commercial loan referral programs or by tapping into the reverse mortgage market?
After all, most likely embedded in a broker’s customer list is a large population of older homeowners who are attracted to the simplicity of selling their home and moving into a rental property. At the same time, these customers’ grandchildren are among a generation that doesn’t appear as interested in becoming homeowners–at least, not right away. These macro trends are driving opportunities in small balance commercial loans for rental properties.
On the other end of the spectrum, a broker’s rolodex may also be filled with homeowners who are ready to tap into a lifetime of home equity through reverse mortgages.
Agents and brokers can also earn incremental revenue by issuing broker price opinions, becoming a property manager, and/or providing property inspection services in today’s rental-focused market.
Seizing the Day
Now, these burgeoning areas may seem out of focus and complicated for the purely loan origination-focused broker. Many may not want to put stress on their business by stepping outside their comfort zone. Small firms, in particular, don’t have wiggle room to make strategic moves into new areas.
The key for these brokers is to find partners and technology platforms that can help them dip a toe into new areas–as opposed to diving in head first. As they explore small balance and commercial loans or reverse mortgages, they can get help by outsourcing some of the functions traditionally managed in-house–for example, loan processing or the quality control of closed loans. Just about every step in the lifecycle of a loan origination has a third-party tool that a broker can use for outsourcing. Mortgage brokers are skilled at identifying business and finding opportunities, and they can transfer those skills into the commercial and reverse mortgage arenas–especially if these brokers get the support they need from the right outsourcing tools.
The Bottom Line
In the end, the hardest part about making this shift may simply be opening up purchase originators’ eyes to the opportunities that are right in front of them. The key is taking the first step. It’s time for brokers to stop thinking only about the bottom line–and start focusing on the new top line revenue opportunities that are within their reach.
Real estate agents and brokers have always been resilient through origination booms and record distressed real estate inventories. The industry and market moving to more online real estate activities is also forcing a change in the broker business model. By adapting to investors’, buyers’ and sellers’ needs in this ever-changing market, agents and brokers will continue to find a way to prosper. The willingness to change and the attitude to change is the first step, as getting outside a comfort zone is never easy. With a growing rental market, flat purchase market, declining distressed market, the brokerage community will adapt and continue to be a valuable resource.
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