In today’s market environment, every mortgage originator must be asking themselves, “How do I survive and grow in an industry that just experienced a 40 percent drop in volume within the past 12 months? How do I strategize and operate a business where demand can drop that much within a year? As a manager, how do I model and plan when such a severe swing in demand affects everyone in the industry?”
Yes, it’s still expected to be a trillion-dollar market this year and originator market share will be shifting, but we have not yet seen a significant drop on the supply side of the equation (i.e., lenders merging or closing their doors) to balance out the industry’s current supply and demand equation.
People have been expecting a slowdown for years, but now that it’s here, what can you do? Start calling Realtors and attorneys for Purchase business? Increase your marketing/lead budget? Recruit new originators and branches? Offer other mortgage products (HECM, VA, etc.)? Reduce overhead based on the new volume realities? Become a branch of a larger lender? Merge with another lender?
These are all valid questions, and perhaps some of the scenarios could work if they fit your risk/reward objectives. However, the challenge going forward is finding the answer that’s right for your business and working to separate yourself from the rest of the industry, because everyone else in this market is thinking and doing the same thing.
The answer lies in facing the industry’s current reality (lower volumes, increased regulations, increased competition for market share), asking yourself the questions above, and determining what scenario could work best for you and your company. Once you determine your comfort level with the best possible scenario, your best option will be clear. Make your move and execute carefully.
As I write this, I keep asking myself what factors are most important to finding future success in this market. Having state licenses, warehouse lines, investors (including Fannie, Freddie and Ginnie Mae, depending on size and platform), and a competent and experienced staff overseeing operations, capital markets and compliance are a given. However, having the balance sheet and capital to make long-term growth and investment decisions will be a necessity to grow and capture market share going forward.
Equally important is a diversified platform that has some combination of the following: direct retail/call center/branch network; leads/referrals/builder relationships; wholesale/correspondent/servicing; forward/jumbo/HECM products. However, the most important metric within any platform, no matter the size, is the ability to operate efficiently. The ability to track fixed and variable expenses, among many other metrics, is just as important for any lender as growing market share.
So, now that we’ve identified the many variables and choices ahead, what is the best path for you? With wide variations in company size, location and business models within the industry, the key is to focus on your business’ strengths, make them more efficient and work toward diversifying from those strengths. For example, if you are a mid-size to large wholesale/correspondent lender, are there ways to operate more efficiently so that cost savings can be passed on in the form of reduced margins/better pricing and lead to increased market share? Also, can the strength of the wholesale/correspondent platform lead to opportunities to start a retail platform through vertically integrating smaller clients into the company? These are some of the many types of opportunities that can help your business thrive in today’s market. Ultimately, there is no right or wrong answer if you can analyze the challenge, come up with a game plan and make good decisions while executing on that strategy.
Lastly, while the industry is dealing with myriad challenges today, remember that the mortgage industry will be around and thriving for a long time after this year. The opportunities that present themselves today will have a long-term impact, so invest the time and capital needed now to make the right moves for your business’ future.