Moving the Needle: Best Practices to Help Capture the Origination Market
As interest rates climb and new regulations take effect, the U.S. mortgage market faces its greatest shift in more than a decade. While demand for refinancing has slowed dramatically, the Goldman Sachs Group expects that by 2016, purchase originations will total $1.1 trillion – roughly equal to the level seen in 2002.
Still smarting from the crash of the housing market, many lenders are reluctant to fully embrace a new, more competitive environment that includes fewer lenders, increased regulation and skittish consumers. Those that do, however, are faced with an excellent opportunity to grow their business by turning their attention to purchase originations instead of heavy reliance on a sluggish refinance market.
Consumers are once again thinking about converting their home searches into purchases, and to capitalize, lenders may have to reconsider their current tight credit standards, gradually moving the needle back to take on a bit more risk. Considering all that has happened in the lending industry in the past five years, how do lenders go about accomplishing this?
Consumers are once again thinking about converting their home searches into purchases, and to capitalize, lenders may have to reconsider their current tight credit standards, gradually moving the needle back to take on a bit more risk.
Lenders must find ways to reduce costs, mitigate risks and increase profitability while challenged with stricter regulations and already stressed businesses. That’s a tall order, but the implementation of updated technologies can help lenders capture a share of the purchase origination market – even with recent mortgage qualification standards. To use available tools, processes and technologies in the most effective and cost-efficient way, lenders should keep the following best practices in mind:
It’s all in the implementation. Having new technology isn’t enough. For lenders looking to increase originations and sustainably grow their business, new technology must be designed, understood and implemented in a way that reduces transaction costs, consolidates and automates processes, and complies with the latest regulations. While Loan Origination System (LOS) offerings will continue to evolve to meet growing demand, the technology itself is only as effective as the lender’s ability to use the new capabilities. How the lender decides to use improved origination software is the real differentiator in enabling a lender to grow origination capacity. If correctly implemented, flexible software enables lenders to proactively meet marketplace demands, instead of simply reacting to a variety of operational risk factors.
The components within LOS software are key. Elements such as policy management, rules-enabled workflow technology, paper-free processing and regulatory compliance are key for lenders in order to meet their objectives. The ability to expand markets while growing existing market share is ultimately based on how well new and updated technologies support compliance – and on how effectively lenders customize, deploy and implement those technologies.
Don’t underestimate the importance of integration. To leverage the investment beyond the balance sheet, lenders should select technology that allows integrated applications to help drive the lending process, paperless options that can be adopted in phases as business needs change, and training that creates a better user experience. Borrowers expect to receive loan options, approvals and documentation in minutes as opposed to days. With an integrated LOS system, lenders can streamline loan processes in order to manage more loans with fewer resources.
Use the right tools to comply with current regulations. Regulators are issuing strict lending and reporting standards. Lenders must ensure that they are utilizing the right tools to comply with current regulations, and that the LOS is flexible enough to accommodate even greater consumer protection requirements. This adds cost and resources and places greater expectations on technology platforms. However, despite the unprecedented regulatory environment and volatile economic recovery, updated LOS technology can improve life-of-loan support, meet consumer expectations for new loan offerings and enable lenders to grow their business.
For more than a decade, lenders and borrowers benefitted from falling interest rates, which led to record increases in refinancing, and more recently, a scramble to lock in low rates on new homes. Although no one expected the refinancing boom to last forever, its volatility – along with a leveling off of new mortgages – signals the need for a new and potentially more profitable way of doing business. As the ship slowly begins to right itself, successful lenders will need to take advantage of all the tools available to them, including new and updated technology, to help capture the projected growth in the purchase origination market.
Terri Gillespie is Vice President of Strategic Business Development, Lending Solutions, Fiserv. She can be reached at firstname.lastname@example.org.