Each year brings new opportunities for a fresh start. New resolutions. New goals. New tactics for success. Have you looked beyond your personal goals and thought about what new strategies you will establish this year to amplify your business objectives? With 2014’s shift to purchase lending, we are likely to see the start of an upward trending rate cycle, something not seen since the early 1950’s when the last great housing boom began. Rising rates are not the only reason to think and act differently about new market dynamics, though. Other factors, also previously unseen, will influence every borrowing and lending decision you make.
Knowing what to expect in the coming year helps you proactively prepare for the changes ahead. This article is the first in a series discussing five strategies for future success. Many of these strategies are vintage; there’s no magic success potion. These five are tried and true. Moreover, they work. It’s easy to lose sight of what works in today’s world of constant change, but taking a hint from what worked in the past will helps refine strategies and drive future success.
The first strategy, recognize market differences, is more important this year than it has been in recent memory. Much has changed since 2007’s collapse. Real estate prices are rising, underwater homes are declining, and home sales are increasing according to the Joint Center for Housing Studies of Harvard University’s 2013 State of the Nation’s Housing Report. In the midst of their study, one statistic sums up the Center’s findings: the majority of consumers aged 45 and younger plan to own a home at some time in the future. The desire to become a homeowner remains strong despite the regulatory and economic climate. Motivation for your 2014 goals? You bet.
In addition, regulatory oversight and the volume and complexity of new regulations have never been greater. Lenders started complying with the Ability to Repay (ATR) Rules as of January 10, 2014 while concurrently determining how to work within the Qualified Mortgage (QM) Rules. As lenders were putting the finishing touches on ATR and QM, out came the Know Before You Owe (KBYO) Regulation on November 21, 2013. While KBYO’s effective date is not until August 1, 2015; its timing and the challenges it presents make the point: the shift to purchase lending has never occurred in as dynamic a regulatory environment.
Finally, purchase activity, as it grows, will be different than it was in the boom years of the early 20-oughts. Credit standards remain tight, which will keep many would-be homebuyers from qualifying for mortgages. Even still, first-time buyers who have been on the sidelines because of the recession will begin emerging. Here, too, the Study is helpful; pent-up demand as well as demographic shifts are expected to lead to annual household growth of 1.2 million per year for the remainder of the decade. While not all will purchase homes immediately, this is a market segment every lender must consider courting. When these first-timers decide to purchase a home, they will think first about the lender who took the time to educate them about homeownership. Foster those relationships now for continued success in the years ahead.
Every one of these market differences provides a natural introduction to the second strategy: adapt to borrower behavior. Borrowers are savvier than they were in the 20-oughts. Today’s would-be financers have a better idea of how to compare loans and lenders. Their expectations of the mortgage process are greater, too. All consumers, regardless of the good or service they are pursuing, want all possible information immediately, available wherever they happen to be on whatever device they have in their pocket, briefcase, backpack or purse. A home loan is no different. If borrower allegiance were in question prior to 2007, no doubt today’s fickle, emboldened borrower is likely to be even less loyal.
Keep in mind that borrowers are fickle. Their habit of changing lenders mid-stream is timeless. The reasons are simple. Mortgage lending is intensely competitive. Lenders go all out for every loan because more production is better. That’s what separates the winners from all others. Borrowers, for their part, are better prepared today, though still may not know how to compare one loan from the next. Switching in the middle of the mortgage process, therefore, is often due to perceived rather than real advantage.
Thriving lenders will adapt to borrower behavior, aggressively converting applications to closed loans at much higher than historical rates. How? Transparency throughout the entire mortgage process that provides regular pro-active borrower contact from origination through closing. If your mortgage offering is not online, it’s time to get there. A recent survey by Accenture reveals sales of mortgages via the internet increased 75% while sales at branches fell 16%. It’s clear: borrowers choose to meet their mortgages and their lenders in the digital rather than in the physical world.
While purchase activity will reign supreme, don’t overlook the number of households aged 65 and older, which has risen to the highest level on record, increasing by 9.8 million. Many will likely age in place. Savvy lenders will not discount this group, but will instead create attractive HELOC and second mortgage products, as well as reverse mortgage programs that allow seniors the financial flexibility to remain in their homes.
In light of these market forces, lenders must forge ahead with these strategies by thinking, acting and reacting differently. With any new opportunity comes with it a set of challenges. Over the coming months, we will guide you through a series of strategies. We kicked the series off with recognize market differences and adapt to borrower behavior. Stand by for the remaining three resolutions: adopt a manufacturing mindset, see compliance as an opportunity, and embrace technology. While interrelated, each of these strategies comes with its own set of challenges as well as keys to unlock your success.