By: Dan Green, "Ten Thousand Hours - The Mortgage Process," for Tomorrow's Mortgage Executive
We’re already about a quarter of the way through 2016. TRID is already in rearview. While hardly a distant memory – it may never be a distant memory for mortgage professionals – the biggest regulatory change in mortgage history is becoming de rigueur. And it is almost Spring; that magical time of year when hearts and minds of all ages turn their attention to home buying. Or at least those of us in the mortgage business hope they do.
By: Trevor Gauthier for Tomorrow's Mortgage Executive
My point is this: the mortgage industry has reached a point at which we have to examine our past influencers while at the same time looking for new ones.
In the space of ten days this past summer, I saw Lady Gaga, Slash and Aerosmith in concert. At first blush, it would appear they have little in common. Aerosmith has its roots in the 60s and 70s. Slash played with Guns N’ Roses in the 1980s and Gaga didn’t begin producing chart-topping hits until the early 2000s. It would seem, apart from their shared success and enormous talent, that there really isn’t much tying them together.
By: Trevor Gauthier for Today's Lending Insights
According to conventional wisdom, creating a mortgage loan is like a manufacturing process, with loans progressing along an assembly line that starts with origination and ends with delivery. But the process actually begins before origination when will-be buyers have their first thoughts about homeownership. Without their applications — the raw material that feeds the factory — the factory goes idle.
Refinance is over. What may be the longest running purchase market since the 1950s is about to begin. The importance of cultivating borrowers early in their process and pulling their loan through to closing has never been more important. Today’s purchase market is vastly different from yesterday’s. Volumes will be lower; borrowers will take their time deciding what to buy. The very idea of homeownership will be months or years in the making.
Hence the idea that the mortgage manufacturing process needs to begin much earlier, with the buyer’s very first thought of a house. Lenders need to be thought of at that time as well. Typical buyers follow a process similar to this:
Stage One: Planning and Scheduling.
Stage Two: Follow the Plan and The Schedule.
Stage Three: Shopping and Buying.
Stage Four: Financing.
Stage Five: Residing.
Originating in stage four has been the dominant model. Engaging with buyers in stages one and two will distinguish successful lenders. This is very different thinking for a very different market.
Establishing relationships this early means knowing when the buyer will purchase, making it easier to project capacity, feed the factory and drive efficiency.
Savvy lenders will nurture will-be buyers through the stages offering budgeting help and education about the financing as well as the home buying process. Building trust and relationships through assistance and education leads naturally to becoming the lender of choice when it’s time.
This fundamentally changes the idea of the pipeline, which today starts with stage four. Pipelines that start with stage one will be defined and managed differently, involving much greater nurturing that includes contact using the borrower’s preferred methods. Successfully doing so will lead to applications. Closing more loans means nurturing in similar ways and must continue until the borrower has signed – preferably electronically – and has the keys to their new home.
Technology has a role to play with this new pipeline definition, just as it does throughout the manufacturing process. More than ever before, will-be buyers will browse lender websites, expecting to find information and tools to guide them from the early stages through application to closing. This is how the new mortgage factory has to be fed.
Though similar to the 1950s in that the theme is purchase, today’s borrowers and their expectations along with the technologies are all vastly different than those of the past. Thinking about feeding the factory years ahead is an entirely new discipline for the mortgage industry made necessary because this is an entirely new environment.
By: Dan Green for CBInsight
Last month we introduced part one of vintage strategies with the idea of providing mortgage lenders five ideas for a successful new year. Part one provided the first two strategies. Part two presents the remaining three.
In January’s article, we discussed the importance of recognizing market differences. There are many, and they are varied. From rising rates to complex regulatory oversight to increased purchase activity, one thing is clear: times have changed. When first-timers decide to purchase a home, they will think first about the lender who took the time to educate them about homeownership. This means that lenders need to implement strategies to foster those relationships now for continued success in the years ahead. This brought us to our second strategy: adapt to borrower behavior. If borrower allegiance was in question prior to 2007, no doubt today’s fickle borrower is likely to be even less. Thriving lenders will have to adapt, aggressively converting applications to closed loans at much higher rates through better borrower nurturing and increased transparency throughout the mortgage origination cycle.
This brings us up to date and to our third strategy. With regulatory complexity and borrower impatience, adopting a manufacturing mindset will lead to success. Think about a auto assembly line. While automated components speed up the more mundane processes and ensure compliance, employees are adding the final finishing touches. This is how a mortgage should be: efficient and compliant, while also allowing employees to add finishing touches.. Begin watching one metric: closed loans per employee. The higher it rises, the lower your costs will fall. Build efficiencies now that focus on objective and repeatable processes to help ensure compliance along the way. Find technology that supports these processes. Your success depends on it.
With the onslaught of regulations threatening to overwhelm your business and mortgage volumes projected to drop by one-third in 2014, it can seem as if compliance is a burden. However, this is your chance to see compliance as an opportunity. Non-Qualified Mortgages (QM) originated today range from a low of 25 percent to as much as 60 percent of the market. Even if your numbers are on the low end, non-QM lending could help offset market contraction. With these new regulations designed for increased transparency in the lending process, embrace them as an opportunity to proactively educate your borrowers. Strategically, it is worth looking at the Qualified Mortgage Rules a bit more closely. Unlike the Ability to Repay Rule, QM is optional; lenders are free to lend outside of them. There may be implications to doing so, but the reason to consider this move is opportunity.
No discussion on efficiency, compliance and manufacturing mortgages would be complete without mentioning the clear necessity and importance of embracing technology. Having the right tools for the job is crucial, and not all are created equal. Comprehensive mortgage lending platforms that guide the loan process from application through funding are no longer optional. The solution you choose must offer transparency and ensure data integrity throughout the mortgage cycle. Finding that all-in-one origination system is no longer a “nice to have” but a reality. Find yours, and see almost immediate efficiency gains. In addition, the new frontier for lending technologies will begin including systems that generate and manage leads. These soon-to-be indispensable tools will become standard for thriving mortgage lenders.
As previously mentioned these strategies are interrelated and provide keys to unlocking your success. Lenders that implement even just a few of these strategies will be better positioned to thrive in 2014 and beyond.