Originally posted on CUInsight.com.
Mortgage Cadence, LLC, is the NAFCU Services Preferred Partner for Mortgage Processing and Fulfillment Services.
Where I am from in the frozen northern Midwest, winter is always coming. Even in the middle of summer when temperatures are in the middle 90s and humidity is as high, Frosty the Snowmanâs seemingly endless visit is on our minds. Not negative thoughts, not really. People who inhabit the frost lands tend to think practically.
One of our favorite winter holidays should come as no surprise: Groundhog Day. Everyone knows the story. If Punxsutawney Phil sees his shadow and returns to his burrow, weâre popsicles for another six weeks. If, on the other hand, P. Phil does not see his shadow, an early spring is in the offing. Weâll take every sunny winter day we can get. Except on February 2â when dark and dreary is best. A blizzard is even better. Means itâs time to break out the board shorts and head to the beach.
Bill Murray made a movie by the same name as our beloved holiday in 1993. It wasnât at all about the duration of winter, it was about teaching Murrayâs character a lesson about his boorish, self-centered behavior, which in turn compelled him to figure out what he was doing wrong and then fix it. Not until he mended his ways was he able to break the infinite loop he found himself in. And he got the girlâalmost as good as winter coming to an early end. Like I said, we Northerners are practical people.
Mortgage lending has been caught in an infinite loop of sorts for the past 30 years. Economics and finance geeks alike remember or know rates peaked at their highest level in a couple of hundred years in 1982. Think a five percent mortgage is high? Try an 18 percent mortgage. Homeowners had them. But 1982 was the tipping point against the war on inflation. Rates started to drop. Rates continued to drop for 30 years. Rates stopped dropping in May of this year, ending a three-decade downhill slide.
It is true rates did not go straight down. Rates meander rather than head in any one straight direction. Yet they do trend. And itâs this trend with which we are concerned: the downward slope of the curve produced the refinance culture now so ingrained in todayâs homeowners and lenders, our Groundhog Day. Borrowers and lenders alike could count on a refinancing party every 12 to 24 months throughout the 1980s to improve their financial standing. Contrast the last 30 years with the 30 years prior. In the decades leading up to 1982, very few refinanced. One reason was rates were on the upward swing from the 1950s through the late 1970s, which meant borrowers were persistently out of the money. Another reason was cultural inhibition. Refinancing was typically for those with few other options.
Our Groundhog Day is over. Unlike Bill Murray, we did not break the cycle, it was broken for us. What we are faced with looks more like housing finance in the 1950s, 1960s, and 1970s than what everyone lending today grew up with. We are going to have to mend our way and adapt to making purchase-money loans; we are going to have to learn how to help people finance homes instead of refinance mortgages. The work is harder, requires a different set of skills and tools, and it takes longer. It is also more rewarding, especially when the buyer is a first-timer beginning their journey into homeownership.
By different skills, I mean paying closer attention to the borrower, which is to say making the transaction about them rather than about us. Financing a home, regardless of how many times a borrower has done it, is a stressful life event. Mortgage teams need to fully understand the event and anticipate borrower needs. Those that focus on the borrower experience as much or more than they focus on loan manufacturing will thrive. Thriving is what itâs all aboutâespecially when faced with the fact that the overall mortgage market will be smaller in the next five years than it has been since the early 1990s. Fewer loans equal intense competition. Leading lenders will compete and win on service more than any other factor.
Different tools mean even more technology. The obvious question might be, âHavenât we invested enough in technology?â The answer is probably not. Focus on, acquisition of, and deployment of loan manufacturing technology began in earnest in the early 2000s. Clearly most lenders are better at the process today than they were in the 1990s. This does not mean, however, that tune-ups are not needed right now. They are. Refinance volumes as well as profit levels hide inefficiency. Purchase volumes will shine a bright light on their shiny, guilty little faces. While investment in manufacturing technology may have been made once, donât assume it was enough or it was right.
New technology investment will be necessary too because your borrowers expect it. Tablets and smartphones are replacing laptops, which not so long ago replaced desktops. Homebuyers today, especially those at bat for the first time, are interacting with the cyber world using the latest in connected devices. Here, too, thriving means you have to meet them where they are: staring at ever-smaller screens everywhere they happen to be, all the time, even in crosswalks. Mobile technologies are largely borrower-facing and are integral to enhancing the financing experience. Loan officers will demand this sort of access too. For them to be successful in a market where loans are less abundant, they will have to be on the go all the time.
The other essential technology is one that changes another behavior and combats persistently low pull-through. The behavior is benign neglect. Not paying attention to borrowers whose loans languish in the pipeline contributes mightily to high fallout, the inverse of low pull-through. Changing the behavior and improving this expensive metric will require a customer relationship management system (CRM) that is integrated with mortgage manufacturing technologies to help with lead generation as well as lead management. Borrowers are constantly bombarded with âbetterâ financing offers. Many borrowers jump ship for what may be no more than perceived improvements in rates or fees. Closing more of the applications we receive is going to take quality contact with borrowers throughout the mortgage cycle. Think of this as yet another aspect of providing a better financing experience. No lender actively works to lose a borrower once they have their application. Itâs benign neglect. Active engagement, aided by a CRM integrated with loan manufacturing technology, will be table stakes within five years, if not sooner.
âWinter is comingâ is a good analogy for a cooling mortgage market. Bill Murrayâs Groundhog Day is a strong reminder we must change behaviors in order to thrive in the new market. Then thereâs Punxsutawney Phil. He fits too. As we emerge from the refinance ground, will we or will we not see our shadows? Letâs hope we donât, it means weâll adapt faster to the purchase-money market.
More educational resources and contact information are available at www.nafcu.org/MortgageCadence.