The Mortgage industry is an important part of the financial sector and has been affected by the pandemic, much like many other industries. Apart from several new and modified regulations to handle the disruptions in lending, we are also seeing that consumer expectations from the industry are changing. There is now a need to improve customer experience and customer engagement, and much of this can be achieved through the use of technology (like chatbots, and back-office automation). However, the industry still needs the human touch as it is a relatively complex business sector.
Here are more detailed predictions from economists, as of mid-April 2022: Mortgage Bankers Association (MBA): “Mortgage rates are expected to end 2022 at 4.8%–and to decline gradually to 4.6%–by 2024 as spreads narrow.” NAR’s Yun: “All in all, the 30-year fixed mortgage rate is likely to hit 5.3% to 5.5% by the end of the year. Some consumers may opt for a five-year ARM (adjustable-rate mortgage) at 4% by the end of the year.” Matthew Speakman, senior economist at Zillow: “Competing dynamics suggest that there will be little reason for mortgage rates to decline anytime soon.”
As mortgage rates continue to rise, lending has become increasingly more costly for homeowners and borrowers. Mortgage lenders are battling fierce competition based on the interest rates, fees, and service levels that they offer. In this article, we elaborate on the top three challenges the mortgage industry faces.
Some of the top challenges faced by Mortgage lenders and organizations are as follows:
Workforce Flexibility Not all quarters in a year are consistent in the mortgage business. Some months in a year require more workforce than others. Having a large resource pool for the full year can be very expensive. Lenders and mortgage organizations need to devise a cost-effective and highly scalable team setup to meet the market's changing demands.
Cutting down the Turn Around Time: Loan application procedures are complex, tedious and time-consuming. Consumers always expect closure of loans on time, if not at approval at the earliest. This implies that besides accuracy, speed also plays an important role in setting mortgage providers apart from the competition.
Increase Pre-underwriting Efficiency A lot of lenders struggle with expertise in pre-underwriting. Some mortgage functions such as stacking and indexing loan documents, preparing and sending initial mortgage disclosures and such similar functions need a standard process to be in place so that all related activities and tasks can be done prior to the underwriting tasks being taken up. This also allows the underwriter on focus on the more important approval decisioning process.
One of the main challenges that mortgage providers face today is labor cost. There has been a spike in labor costs in recent years, and especially after the disruption in the labor market from the pandemic. There is also volatility in capacity requirements – and matching demand to resource needs, specifically of skilled resources, has been affecting the management of costs and profit margins. Mortgage lenders expect profit margins to dip in the coming months says a recent report release from Fannie Mae. According to this Fannie Mae report52% of lenders surveyed believe that the profit margins will fall, as compared to 48% in the prior quarter. Just 33% feel profits will remain same, and 15% think that the profits will increase. Lenders and mortgage organizations need to reduce overhead while retaining core staff. Mortgage providers that are able to respond quickly to the volatile market conditions have a distinct competitive advantage when controlling their labor costs.
One solution – outsourcing? Working with third-party mortgage outsourcing partners can help in the ability to quickly ramp up and down staffing, and provides higher scalability at reasonable rates, as the providers have access to a large pool of resources experienced in all areas of the mortgage business. Frequent hiring or lay-offs can be minimized if mortgage service providers are able to respond quickly to volatile markets and changing customer demands with a scalable pool of resources. The mortgage industry is at an unpredictable stage right now, and many lenders are looking to outsource large chunks of their operations to handle the changes. In a fast paced and ever-changing environment, outsourcing enables lenders to:
Move their focus from repetitive and time-consuming tasks/ processes to focus on growing business
Focus on core competencies
Develop new product strategies
Improve customer experience
Manage compliance risks
Manage employee engagement by re-allocating resources internally for a better and productive workflow
Since the mortgage processing services include handling of large amounts of data on a daily basis it makes sense to simplify the processes and improve efficiency in every way that is possible – and one of the simple ways is to use outsourcing.
Outsourcing partners have much more to offer - big data, latest technology and Information security
One offshoot of outsourcing processes to a tech-savvy provider allows mortgage providers to take full advantage of latest technologies like big data and drive analytics-based decisions in loans and pricing models. This can result in significant increase in profits and customer satisfaction. Outsourcing partners bring expertise on the latest technology and have digitized infrastructure that mortgage lenders usually do not have - thus enabling business functions to run smoothly. Outsourcing partners ensure information security which reduces costs of smaller companies that struggle in handling their information security efficiently. The outsourcing partner ensures information security as part of their responsibility and commitment.
One outsourcing model – transactional or managed outsourcing
Several providers, like Coforge, offer services where the vendor’s team can take over nearly the full mortgage process, or major chunks, with the entire responsibility for the team organization and management, and ensure that they follow best practices, adhere to given SLA’s, provide quality results and reduce any accompanying risks. This model may be the best to opt for when the market is fluctuating, and it allows for quick ramp up/ down without needing to increase fixed costs. Managed services vendors also offer transparent reporting and dedicate a representative (a SPOC - Single Point of Contact) who actively manages communication and reporting. The vendor offers daily communication, on demand and weekly status calls within this outsourcing model so as to streamline the operations and integrate it with the larger service delivery offered by the lender.
A few key advantages of Mortgage process outsourcing
Minimal overhead costs: It is becoming challenging for mortgage lenders and organizations to run their own loan/ mortgage processing units in times of volatility, as it is not cost effective and is highly time consuming. Teams need to be hired and trained, and their compensation is rising as well. Most mortgage outsourcing service providers charge reasonable fees and are flexible enough to adjust their fees based on the lenders’ requirements. The outsourced team is experienced and well trained in mortgage loan processing which helps to reduce infrastructure as well as staffing costs.
Focus on core mortgage operations: Helps lenders and mortgage organizations focus on core mortgage operations and management rather than repetitive simpler tasks such as pre-underwriting, indexing, quality checks, payment processing, tax monitoring and accounting.
Improved customer service for mortgage lending company: Delivering customer satisfaction is one of the most important aspects not only for the mortgage industry but for any business, Higher the customer satisfaction, more the business growth from satisfied customers. With a large amount of documentation, huge number of resources, and significant effort required in several mortgage processes, building in consistency and quality is difficult. By outsourcing back-end/back-office tasks, the lenders and mortgage companies can focus on improving customer satisfaction directly. Outsourcing partner teams help to optimize business processes, minimize errors, accelerate loan processing securely, and improve productivity all leading to higher levels of customer satisfaction.
Lesser turnaround time: Outsourcing speeds up decision-making process and decreases the chances of a borrower opting out or withdrawing a loan application. Utilizing the experience and capabilities of highly skilled and professional teams who ensure a streamlined process, helps to meet required targets, while considerably reducing the turnaround time.
Highly trained / skilled loan processors and optimized process Outsourced or 3rd party loan processors are highly skilled and experienced professionals. Financial institutions and lenders get end to end support from them in an optimized manner.
Market demands are forcing lenders to make relevant modifications to their staffing. There was a boom in refinance loan applications resulting in the hiring of people /workforce and now with higher interest rates and other constraints, there is a dip in loan applications. Considering that such volatility may prevail for some time, it may smarter for mortgage organizations and lenders to outsource parts of or the entire mortgage processing, for instance, to a trusted 3rd party to minimize overhead costs, and improve scalability & flexibility. By opting for outsourcing, the lenders can focus on growing their business and improving customer experience in today’s volatile environment.
Where can we help? Coforge BPS offering comprehensive services for mortgage origination and servicing for over a decade now. These suites of services are built with deep domain experience, flexible & effective workflows and proven platform frameworks that are customized to meet business goals while being compliant to regulations. Powered by 20 years of industry experience, our mortgage services are trusted by several lenders including 4 of the Top 25 U.S banks. Contact us today!