Perhaps you’ve seen our recent article The Trickiest Shift. In it we talk about two important characteristics of the 2014 mortgage market. We are likely entering a long-term, rising rate environment, one that could very well lead to a purchase-money market the likes and duration of which have not been seen since the 1950s.
Then there is the regulatory environment. While mortgage lending has long been subject to many rules and regulations, today’s volume is greater and more complex. These two dynamics lead to the Trickiest Shift; this is not simply another transition from refinance to purchase lending. Knowing what to do in the new market is the Trick (or Tricks).
It’s safe to say navigating the waters ahead will take a combination of strategies and tactics, which reminded me we have shared quite a few of both this year: there are eight articles here on CU Insight that are worth revisiting as you make plans for 2014.
Let’s start with member share (Credit Unions Calculate Your Member Share, March 2013). Knowing your member share is critical because it gives you a quick and easy look at how many of your members come to your credit union each year for a mortgage loan. The linked article goes into detail on how to calculate it (not hard) and, as importantly, how to compare your result with that of your peers. This is one of those ‘diagnostically oriented’ metrics we talk so much about. Arriving at the answer is just the first step in the journey. The next series of steps explain why the result is what it is, which in turn should lead toward solid ideas for improvement. Make no mistake, there’s plenty of market share potential remaining.
While on the subject of metrics and measures this is a good time to update secondary marketing policies and practices. Serial refinancing cycles (The 100-Years Refinance (Exaggeration Intended), April, 2013) are likely a thing of the past, and with their demise comes a different set of secondary market skills. Hedging takes on new prominence as rates rise, much more so than when rates are on the decline.
Where do homebuyers come from? As the two Dreaded Question articles (The Dreaded Question Part I and The Dreaded Question Part II) suggests, this is a market where lenders will have to seek out homebuyers. Refinancing borrowers have a tendency of presenting themselves. Those borrowers in need of a mortgage for the purchase of a home, on the other hand, do not. They need to be cultivated. Yet before cultivation can occur their identities have to be known. One identity is first-time homebuyers. (A Momentous Occasion: First-time Homebuyers, June 2013) It isn’t that they have been totally absent from the housing market since the housing crisis, though they have not been as abundant. Household formation, necessary to the creation of first-time buyers, is expected to rise to pre-recession levels and remain there through the rest of the decade. This will be a good source of mortgage business today and tomorrow; first-time buyers have many years of homeownership and financial service needs ahead of them.
Cultivating borrowers will be an essential strategy. (Groundhog Day, September 2013) The movie Groundhog Day is synonymous with repeating a particular kind of behavior hoping for a different outcome. While thinking about where homebuyers and their loans will come from it is also important to think about how to nurture them through the mortgage origination process from beginning to end. Industry-wide lending pull-through rates are too low, which translates into higher costs and lower profits. Pull-through, and its inverse, fall-out, is another of the diagnostic metrics we know are important. And, like member share, once measured, the result should lead to further, deeper inquiry. One of the answers to improvement, though, is better management of borrowers throughout the mortgage cycle so the lender that opened their loan closes it, too.
No discussion of the brave new world would be complete without mentioning compliance (The Five Cs of Lending, July 2013). All lenders are brought up on the four Cs of lending. Compliance is the fifth. See it as an opportunity to educate borrowers and to help build trust in the mortgage process. Homebuyers, refinancers too, are curious about how the new rules affect them. Cultivate potential borrowers by helping them understand.
Every new era requires a new goal. A big goal. (The Mortgage Moonshot, August 2013) Closing a mortgage in 72 hours is certainly that. While not entirely possible given today’s lending environment, flying to the moon and back wasn’t either in 1961. Eight years later, Neil Armstrong, while strolling 240,000 miles away on the moon, uttered the now-famous phrase, “One small step for man, one giant leap for mankind.” Eight years from now it would be truly remarkable for someone in the lending community to make a noteworthy remark about how fast mortgage loans are closing, and, of course, how quickly people are able to move to their new homes. It starts with a big goal.
Which of these is the Trick? It is likely some combination of the above plus one or two as yet undiscovered ideas. The fact remains, thriving as a lender in the post-2013 world will take some new skills as well as new adaptability plus an old-fashioned dose of hard work. As successful lender friends of mine keep reminding me, there is no holy grail. Get ready for some solid blocking and tackling. Here’s to a successful 2014 and beyond! Happy New Year.