As fine margins, lenders are faced with a staff reconfiguration in order to retain an advantage.

One of the biggest waves of consolidation in years is expected due to aging industry leadership and changing tax policy, according to a recent Stratmor Group report. This means that lenders must be careful to adjust their mix of staff and technology to remain profitable, whether they plan to continue to compete or sell.

With the market in general move away from refinancing, which accounted for over 50% of the market in the past 12 months, all lenders face pressure on margins, even for the two cheapest lending channels. For example, the profit margins on the sale of digital mortgage giant and wholesaler Rocket Cos. fell from their 2020 highs and moved closer to 2019 levels in the second quarter of 2021.

For direct consumer recruiting, the main challenge is its more automated approach to finding loans, which tends to become less effective when refis fade away, while the reverse is true for wholesalers who outsource. the task to mortgage brokers. As a result, the downward pressure on margins in both channels intensifies as the lead generation spend of direct customers increases, and wholesale prices for lenders increases.

“It’s the marketing and promotion campaign that becomes a challenge for the direct consumer,” said Garth Graham, senior partner at Stratmor. “The cost of marketing per funded loan increases and the volume generally decreases for CD lenders. “

Lenders looking for direct-to-consumer alternatives may look to third-party originators, but a different challenge exists in this channel, he noted.

“Basically you can look to brokers to get loans for you as variable cost, but the problem is, it’s a knife fight of lower margins when it comes time for a broker to place that loan. , which becomes a very bloody proposition financially, ”Graham said.

Where staff reassignment can work
Strategies related to where to move staff in a context of cyclical change are generally the most relevant to banks, as they tend to be more prone to retain dual-function workers.

“With a 10% drop in industry origination volume this year, margins have been squeezed, overtime has been managed down, temporary staff has been reduced and custodians in particular may be looking to relocate. people. [out of mortgage] return to [other parts of] the bank, ”said Jim Cameron, senior partner at Stratmor.

Custodians are likely to move their staff directly from consumers to home equity lines of credit. HELOCs offer a lower rate than credit card debt and are more attractive in a market where consumers have a harder time reducing the cost of their first mortgage. They are also generally easier to create through a digital mortgage channel, because the lending institution already has information about the customer’s first mortgage, much like a refinance.

“I think we will see home equity become a great substitute for cash-out [refinances] as interest rates rise, ”Graham said.

Whether and how mortgage and home equity staff can have a dual purpose will depend on how a financial institution’s operations are structured, said Daryl Jones, senior director who manages the mortgage lending practice for Cornerstone Advisors.

“Some lenders might support home equity loans within this mortgage division, while others don’t. Either way, if the balance of power shifts from mortgages to more home equity loans, they will likely have to reassign some of their staff, ”he said.

Another option for direct consumer reassignment could be to move some support staff into temporary loan modification roles with the borrower. Wholesale staff could also potentially manage roles in another aspect of the change: quality control work.

“For wholesalers and correspondents, their main goal is to see that the collateral is eligible, has no flaws, and the loan is compliant, as opposed to a retail or direct consumer store, where you have people talking to the borrower, “noted Nate Johnson, executive vice president, mortgage banking, SLK Global Solutions.” If repairers have loan resources with one of these skill sets, they can certainly use them. “

Of course, these are not necessarily universal strategies for mortgage companies, which may be specialists active in only a few industries. Banks, for example, tend to do less wholesale business, while non-custodians generally do not have home equity divisions.

However, there are exceptions. Citizens Bank, for example, has a wholesale unit and has maintained staff for higher levels of home equity buying and lending during the refi boom. These large companies may not need to reallocate their staff or may even grow through mergers.

“Our workforce continues to grow as a result of acquisitions. This means that we may not have to make some of the difficult decisions. [about personnel] other lenders are doing it, ”said Sona Mittal, head of mortgage origination at Citizens, who recently announced considering buying Investors Bancorp.

Loan officers are also increasingly becoming mortgage brokers, as state-owned companies in the wholesale channel have made it particularly competitive, lenders note.

“Large regional mortgage companies are saying they are losing loan officers to brokers,” said Kevin Parra, co-founder and president of Plaza Home Mortgage, a private multi-channel non-bank.

How technology can (and cannot) help (again)
Lenders may struggle to maintain efficient purchasing-focused LOs as refinancings wane, but new technology now available could allow them to get rid of the inexperienced support staff added over the past year.

“Many processes, from request to post-closing, have been automated through [optical character recognition], [robotic process automation] or some other technology, to the point where we’re able to do a lot of things that we needed processors or facilities or shutdowns to do in the past, ”said Shashank Shekhar, Founder and CEO of Direct Lender InstaMortgage.

In the more complex market for unskilled mortgages, where demand tends to hold up better than for traditional mortgages in a down cycle, additional training may be required on the direct consumer and wholesale side.

“Now you have clients doing things like using peer-to-peer transactions to collect payment for their services, in part because of working remotely during the pandemic. That’s the kind of thing to come, ”said Desh Weragoda, chief technology officer at mbanc, a direct-to-consumer lender. His company uses electronic learning modules with interactive features to reduce training costs and respond to an increased preference for working remotely when possible.

Artificial intelligence-driven underwriting decisions could also make staffing more efficient for low-cost lending channels.

“[Our automation] can complete a full subscription without human assistance, except when data sources require it, ”Thomas Showalter, CEO and Founder of Candor Technology Solutions. (Some of the data used in the subscription requires the consent of the consumer.)

Automation has yet to be applied to third-party origination, but could be in the future, he said.

“We’re getting the most traction in the retail and direct-to-consumer space, but we’re under substantial pressure to go into wholesale,” Showalter said.