The housing market is nothing if not cyclical in nature. For several years now, we’ve enjoyed rising volume and low rates. Last year, the picture shifted to a purchase market environment. The industry is currently on track to originate more purchase loans than it did in 2006—and that was a very big year.
But the story has already changed. Interest rates are nearing 5 percent for the first time since 2011, the refi market is pretty much dried up, and home sales are down due in part to low inventory and affordability issues. However, loan application volume has been all over the map. It drops for several weeks, then jumps higher. Then drops. And jumps. All this volatility is happening as loan costs soar through the roof.
Of course, this sort of market isn’t terrible – it’s just tougher. While it’s difficult to know what to expect week by week, any lender can maximize shifts in the market by deciding what’s important and avoiding mistakes commonly made during market shifts like these.
Below, we have outlined three common mistakes lenders should avoid right now.
Improper Staffing Levels
It may come as a surprise, but most of the time, lenders are either over-staffed or under-staffed, especially during market shifts. That’s a costly mistake, as by far, the most expensive component to mortgage production is people. It’s not just compensation costs, but also recruiting, training, administration, benefits and other expenses that are involved with hiring and maintaining employees. So, it’s no surprise that when times are tight, staff is the first to go. But when volumes jump again, you can miss the boat.
This is why a growing number of lenders are outsourcing origination and fulfillment services through third parties. This is a reasonable move, but knowing which third party to trust is key. Before outsourcing anything, ask how the outsourcer keeps its own costs down, and how long they have performed the work you need done.
Paying for More Than You Need
A big mistake lenders often make is to pay for more outsourcing services than they need. When outsourcing staff, you’ll only save money if you leverage an outsourcer that uses a variable cost structure, so you get what you pay for, and you don’t pay for anything you don’t get.
Not every outsourcer offers a variable cost structure, though. By having an outsourcer with a variable cost model, you can react to shifts in volume very quickly – whether volumes go up or down, and you can react immediately as opposed to having to hire a processor or underwriter at a moment’s notice when there is a sudden jump in your pipeline.
Anyone who thought a changing of the guard in Washington would result in a reduction of regulations was sadly mistaken. Regulatory compliance is more important than ever, and today, it extends to the secondary market and the investor guidelines that make compliance just as tricky as TRID or HMDA. Compliance and ensuring loan quality is even more important given the growth of non-QM products we’re seeing today.
Assuming you go with a trusted third-party provider with a well-earned repurtation, you will receive the combined expertise of professionals who have dealt with practically every type of regulation, product and investor. That means if you want to add new loan programs, you don’t have to train staff on how to underwrite it—your outsourcer already knows how.
All in all, lenders need to keep in mind that market shifts are a time when they need to be as nimble as ever. As such, outsourcing origination and fulfillment support is a sound strategy. Lenders save money only when they are able to handle fluctuating volumes with a variable cost structure. And they are able to ensure compliance and loan quality by leveraging the combined expertise of third-party QC experts who have seen and done it all.
If you are thinking about outsourcing any or all of your origination support or fulfillment processes, or if you have questions about how to do so, drop us a note info@TheStoneHillGroup.com. We’d be happy to help .