As the lackluster purchase market trend continues with no end in sight, mortgage lenders are struggling to remain profitable.
But industry advisory firm Stratmor Group has some tips to help lenders stabilize in this environment and build a foundation for future growth.
The No. 1 critical objective to remain profitable is to optimize the borrower experience, Stratmor Principal Jennifer Fortier said in the February issue of its Insights Report.
“I seldom hear lenders say, ‘We want to build a process that is less painful for our customers,’ and yet offering superior customer service is a known competitive advantage,” Fortier said. “Meeting an ‘acceptable’ level of customer service doesn’t cut it with today’s borrowers – they expect such things as sound product selection advice, prompt, effective communication, closing at the expected rates and fees and closing on time. Processes created absent of the borrower point-of-view need to be refocused.
“Lenders who focus on creating a good borrower experience will naturally end up with more effective fulfillment practices because they button up processes, systems and communications to make the borrower happy. Doing this gives these lenders an edge.”
The second goal is to renegotiate long-term contracts. A good first step is to analyze office lease agreements.
According to Global Workplace Analytics, office space for the average worker costs $11,000 a year. Lease expenses account for about 7.4 percent of total production expenses, and often are negotiable. The report advised lenders to start looking at alternative spaces and then negotiate with your current landlord. Or better yet, consider going remote.
“Stratmor has been remote since our inception in 1985. Yes, 34 years! We were ‘telecommuting’ way before the Internet became a reality, and it has some great benefits,” Stratmor CEO Lisa Springer said in the report.
She added that remote staffing expands the pool of candidates to allow for nationwide recruiting.
“Further, remote work offers lenders the opportunity to add and reduce staff quickly as needed. And, offering remote workers more flexibility in schedules can offset the need for higher cash compensation,” Springer said. “While remote work does not mean below market compensation, lenders may not need to pay a premium to steal talent in a local market if similar skills can be found in a remote worker.”
The third step cited by the report to remain profitable is to evaluate compensation plans – a lender’s biggest expense.
“Today’s market gives lenders an opportunity to get creative in offering incentives to attract and keep key staff members while also enabling the company to achieve the desired efficiencies in work processes while improving customer service,” Springer added.
Non-volume incentives and new loan originator plans to better align with company performance were two suggestions.
“One potential area where lenders can adjust are on maximum per loan payouts,” Springer said.
Sixty-four percent of lenders told Stratmor they have maximum per loan payouts in plans.
“In this market, there may be an opportunity to adjust that maximum payout down,” she said. “For example, jumbo loans can require more attention, but does that requirement double when going from a $1 million loan to a $2 million loan?”
At the same time, lenders need to be more aggressive in managing the bottom 20 percent of producers who close an average of less than one loan a month, require upfront recruiting costs and create friction with the fulfillment team.
“Lenders must actively manage out low producers,” Stratmor Senior Partner Nicole Young said in the report. “If lenders are looking to cut costs, they must be more aggressive in terms of managing sales. Set expectations and stand behind them.”