The current state of the market in everyone’s minds: significant lack of housing inventory in contrast with the current high need, as well as future demand from Generation Z, all while Baby Boomers retire in place.
The MBA has identified 2022 as a transition year, moving from a refinance market to a purchase market. They also expect both 2022 and 2023 to be record years for purchase originations. However, lenders have to layer on two factors: the rising interest rates and the rising inflation rates.
With this transition year ahead, we reflected on four themes which could help position lenders to be better prepared for the future. We have gathered these themes in this article.
Expand Your Product Offering And Be Strategic About Managing It
The borrower base is diverse— not only in age and demographics, but in income sources as well. In an industry that was able to rely on refis to have a successful year in 2020-2021, it’s time to start looking beyond what was once low hanging fruit in order to meet the needs and demands of your customers. Diverse borrowers means you’ll need diverse loan products such as new construction and renovation.
Meeting these customers where they are also includes capturing the senior market who perhaps need a little more than they thought to retire on, or perhaps need a few renovations to their home, and their solution may be the reverse mortgage. There is a large possible borrower base who could truly use that product, but they don’t know it’s available to them, if you don’t offer it to them.
It is time to work smarter, not harder, and with the multitude of effective technology or professional services available, mortgage bankers could do just that. Not all financial institutions have the resources to offer every loan program, but they can partner with others who do, and bring the same level of service as they would if the service were in-house.
The Solution to Margin Compression
With new refi applications slowing and the Federal Reserve buying fewer mortgage backed securities, lenders are seeing their oft-sought-after margins compress to miniscule amounts. Lenders are asking themselves, “How can I optimize my profit in mortgages?”
Already lenders are creating solutions to margin compression. Instead of selling to the GSEs, they are selling the servicing to third parties, such as Mr. Cooper, and recouping a little of their margin.
Other lenders are also looking for different revenue streams in the form of construction and renovation loan products. These loan products can be lucrative and serve a huge need across America. If lenders want to benefit from these other types of loan products, they need to get started today if they haven’t already. Lenders who are ready to offer their customers the right loan product at the right time will win the year.
Don’t leave Warehouse Banks Out of the Equation
For those lenders who already have a construction program, communicate now to see if your warehouse bank is willing to increase your sublimit for more planned construction lending.
For those lenders who are considering construction lending, may we suggest communicating early and often with your warehouse bank, so you may learn their process and procedures with your goal of construction lending in mind. And not all warehouse banks offer construction lines of credit. You may need to shop around for a warehouse bank that will be able to support your construction line. For more information on what to ask a warehouse bank, see this blog here.
Lenders Can and Should Start Digitizing their Operations
Software should bring automated processes, an elevated customer experience, and more profit, due to the combined efficiencies provided by the software solution. For example, construction loan administrators can manage so many more loans effectively simply through the introduction of technology. On average, draw disbursements take 5 times longer to pay when using a manual process. If you can cut that process down, you’ll be seeing a greater total amount of interest income from those days you were able to recoup.
What some lenders are just now realizing, these different software solutions can typically connect their different software through APIs/integrations which allows information to pass between the software. These digitized solutions create far better efficiencies for team members and a better customer experience overall.
What was the biggest take away for you at this year’s MBA Annual? If you are interested in managing your construction loans faster, safer, and more efficiently, or just want to chat through some of these ideas and how Land Gorilla can help you, request a demo today.