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November 8, 2022

Lenders Getting Creative to Compete

What are some creative techniques that lenders are implementing as a way to stay competitive in today's market?

As the market tightens, lenders are looking for advantage. Many are turning to new technologies, updating their systems in favor of next-generation loan origination technology.

New technology investment is only one tactic that leading lenders are using to outpace their competition. One example of this is reducing, or completely eliminating, the fees for locking a loan.

In my experience, lock fees have been more than a source of revenue for lenders, they have also been an important risk mitigation tool. If they couldn’t close the loan before interest rates fell, they could afford to offer the borrower the lower rate because they had already collected a fee when the loan was locked.

New techniques for a tougher market

But today’s environment is different, and rates are rising.

For the first time in my career, I’m seeing lenders, particularly independent mortgage bankers, forgo the lock fee altogether to increase pull-through.

It’s not like this has never been done. Depositories have long used this tactic to great advantage, but now I’m seeing IMBs offering free locks on home equity products that they know they can sell quite quickly to a bank with a balance sheet who wants those assets.

That’s the other thing that’s different about this market.

A new appetite for home equity products

After the last few years and the meteoric rise in home prices, homeowner equity in their homes has never been higher. But the big change has been their willingness to tap into it.

In the past, lenders knew that of every ten HELOCs they sold, only 2 or 3 borrowers would tap that line, with the rest holding onto that money for a rainy day. Most never drew down their lines. That made buying HELOCs from a third-party originator a risky proposition for a bank, because most would never make them money.

Today, that dynamic has been flipped upside down. We are seeing 7 out of 10 homeowners with a HELOC are tapping their lines. That makes new HELOC originations a hot commodity and IMBs who are looking for a way to stay competitive are originating them for quick sale to one of these lenders.

One of the techniques is to remove the lock fees and reduce the cost to originate. The risk is low because buyers are standing by.

The other technique, of course, is using loan origination technology that is nimble enough to originate a wide range of loan products, including home equity products.

Lenders who don’t have the right LOS, and many do not, need to reach out to us today to take advantage of this opportunity to stay competitive in this tough market.

By Joe Camerieri, EVP, Sales & Strategy at Mortgage Cadence 

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