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January 25, 2021

Mortgage Lender Success in 2021

"The mortgage lender’s technology stack is critical to the lender’s ability to reduce overall operating costs. Even more important than the capabilities themselves is the team of technology experts standing behind them to support the lender."

How might innovative technology partners be more crucial than ever supporting mortgage lender success in 2021?

DENVER; Jan. 26, 2021 -Mortgage lender success in 2021 will be driven by the ability to minimize operational costs through technology and leverage the teams at lender tech partners to take full advantage of innovations.

As industry executives set objectives to drive success in 2021, this requires them to ask two important questions. It also requires them to take a break from celebrating their success in 2020.

There is no question that the home finance industry made it through 2020 in very good form. Despite the hardships the global pandemic visited upon us, people continued to buy, sell and refinance their homes.

One need only look at Fannie Mae’s prediction for 2020 loan volume to know what a fantastic year this was for our industry. It’s tempting to think back upon all of the things we did right this year and expect similar success in the year ahead. But that’s probably not the wisest thing for a lender to do.

We all deserve a pat on the back for making it through such a crazy year, but eventually, interest rates will rise and things will change. As loan volumes fall, the thin margins the industry has been operating on will become more visible and profits will fall.

As I articulated in this blog post on our cyclical market, wise lenders are preparing for this now by carefully considering two important questions.

What’s the most effective way to cut operating costs?

If you ask most lenders if they could survive on half the volume they managed in 2020, they would say they could. When some consider what 2021 holds for mortgage lenders, this thought gives them comfort. But it shouldn’t.

Cutting loan volumes in half would have a big impact on the lender’s economies of scale. Operational costs would become more significant on a per loan basis.

As interest rates rise for lenders, those focused on growth will try to absorb the additional cost to keep consumer mortgage rates low. Thin margins will compress further. The phones will keep ringing, but at some point, it will become unsustainable.

As rates continue to rise across the industry, lenders will slowly chase their competitors down the drain. Of course, the lenders with the lowest overall operating costs will be in a position to keep the rates they offer consumers lower longer.

Lenders that think about keeping operational costs low will naturally turn to automation. However, having good technology is not enough in a fast-changing industry. That’s why there is something else the prepared lender should be thinking about now.

Which tech partners prioritize both innovation and supporting lenders?

The mortgage lender’s technology stack is critical to the lender’s ability to reduce overall operating costs. Even more important than the capabilities themselves is the team of technology experts standing behind them to support the lender.

When evaluating their technology partners, a critical consideration for lenders is to determine who is driving and delivering innovation versus who is lagging. Lenders can approach this by looking at the partner’s technology roadmap. Identify what the partner is working on now, what impact will it have on the lender’s ability to compete in the future and how is the partner’s team of experts going to help the lender take full advantage of the innovation(s).

Also, is the lender’s technology partner helping them take full advantage of the tools that are available today? Busy lenders may not find time to implement great automation without the help of a committed technology partner. Evidence for this can clearly be seen in the low adoption rates for Fannie Mae’s Day One Certainty offering.

Lenders that don’t take full advantage of existing automation will be forced to fill in with additional staff. However, today’s competitive environment has driven up the costs of good people. An underwriter a lender could have hired for $65,000/year a year or two back now costs more than $120,000.

Staff will become a heavy burden when rates rise and volumes fall, unless the lender is using technology to do more work with fewer people.

Thinking about what 2021 holds for mortgage lenders requires executives to carefully consider how to reduce operating expenses and how to take full advantage of innovative technology through the teams supporting them at their tech partners in the year ahead.

Contact us today to get a look at the Mortgage Cadence Technology roadmap to learn how our technology and team of experts can enable you to reduce operating expenses now.

By Joe Camerieri, EVP, Client Account Management at Mortgage Cadence

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