This article originally appeared in the January 2022 edition of ReportM magazine.
In mid-November, the New York Times asked in a headline, “Will real estate ever return to normal?? “Home prices continue to skyrocket in cities across the United States, despite a record consumer price index hike in October and reports of shortages of goods and workers in the United States. Nationally, the US Federal Reserve has indicated that it will keep the benchmark interest rate low to support the still young economic recovery. However, the economy may force the bank to act much sooner. transitory, the Fed may be able to continue with its near zero interest rate policy, which will support current trends, but we do not know if inflation will subside.
In opening the conversation to rates being linked to inflation, there are other factors that may contribute to a continuation, or delay, of our current housing bubble (let’s not pretend that we are not in a bubble). A predicted COVID-19 baby boom could keep families on the move, looking for more and better places to live. However, if commodity prices remain high and the Fed raises rates earlier than expected, the party could end in a hurry. We all have our opinions on what’s going to happen. The market has the final say.
Although the timing is unknown, a correction in the residential real estate market is looming. Falling home prices and rising interest rates will reduce the volume of new purchase loans and refinances, forcing the industry to contract. Loan processors and underwriters will be particularly affected. If history repeats itself, mortgage lenders and brokers will invest in sales and marketing to maintain volume, ignoring the need to invest in loan processing and underwriting operations before the next recovery.
Beyond the impending slowdown, as the mortgage origination industry recovers and begins a new cycle, the industry will struggle to meet growing demand for a new set of lower rates and / or price increases. houses. The homebuyer’s experience will suffer as closing times lengthen and stress increases, as we saw when rates bottomed out and loan applications rose during the pandemic. . This is an outcome that lenders and brokers should have seen coming, given past experience.
As the originator of over $ 2 billion in residential mortgage loans in all 50 states during the 2010-11 recovery in the US real estate markets, I have felt these pain points, case by case.
Real estate is slow to change
The mortgage industry is slow to change and resilient to disruption. The way we shop for clothes, furniture, and food is drastically different from standard practices of a decade or two ago. Imagine yourself in 2003, choosing your groceries on your phone and setting a delivery deadline. At that time, you were probably still carrying a plastic card entitling you to rent DVDs from a physical store on your way home from work.
Surprisingly, the experience of buying and financing a home hasn’t changed much at all. Financing terms are determined, as always, by a borrower’s ability to obtain credit, their ability to pay, and the value of the collateral. Some lenders are better than others. However, their rates and fees are higher than those of other lenders with less technology. The industry’s two largest lenders investing heavily in technology, Quicken Loans / RocketPro and United Wholesale Mortgage (UWM), have rates below average prices. So why are they the leaders in space? Customers generally don’t expect the mortgage closing process to be fun, easy, or quick. Most people will only go through the process a few times in their life, so they have a narrow frame of reference.
The industry adage is that the average adult will own less than three homes in their lifetime, typically purchased in early adulthood (a starting home), midlife (the upgrade), and at the approach of retirement (the leisure residence). A homeowner can also refinance their mortgage multiple times in a declining rate environment, but buyers today are unlikely to see lower rates in the future. Let that sink in… we will probably never see rates this low again. Do not hesitate to get rid of the word “probable”.
The situation is also unpleasant for mortgage loan officers. In good times, they’re overworked and forced to push through funding despite struggling with outdated technology, manual processes, and frequent mistakes made by those submitting and reviewing documentation. The best loan officers own their own brokerage firms or work for well-funded franchise brokerages that treat them well. Many become exhausted and move to other industries. Others work long hours during good times and find themselves unemployed when the economy turns, never to return to an industry that could benefit from their experiences.
Technology can end reactionary thinking and the explosion
We now have reliable and scalable technology that can increase the productivity, efficiency and accuracy of the mortgage loan officer function, enabling businesses large and small to retain, reward and retain their top talent in the good and bad savings. In the digital age where machine learning and artificial intelligence are widely available, forward-thinking organizations should embrace automation in their mortgage application and underwriting processes.
Document management: The systems allow borrowers and their representatives to upload standard documents such as tax returns, salaries, and bank statements while quickly and accurately analyzing these files to determine if additional documents will be needed early in the process. A homebuyer may not know, for example, to report court-ordered support or child support payments. However, an automated system can catch such an omission immediately so that the borrower does not have to scramble to provide documents in the last few days before closing.
By quickly correcting these errors and omissions, I believe that such systems can reduce the time and effort required on the part of borrowers and mortgage lender staff by 50%, allowing energies to be spent on all sides more productively. , thus improving the customer experience.
Information warehouse: These systems can provide a common point of reference for every professional who needs to touch the loan throughout the process, including borrowers, loan officers, loan processors, underwriters, and other professionals involved in each transaction. Everything is in one place, clearly labeled, stored securely in the cloud, and available for download as needed, eliminating the need for phone calls and busy professionals searching for documents.
Systems integration: Real estate is a fragmented industry with many organizations using free and generic software systems that cannot be customized. An intelligent document and process management system will augment existing systems and prevent errors across the ecosystem and process.
The business case
Businesses that implement automated solutions now will break free from the ups and downs of decision making that has become rampant. Technology that increases efficiency and capacity while shortening shutdown times by eliminating errors will enable managers to help their teams succeed in a changing environment.
Technology allows lenders and brokers to hire fewer people and make them more productive. New hires will ramp up faster and provide a higher level of service sooner. This will improve the customer experience and could alleviate the need for over-the-top and costly marketing, as customers will not only come back for their refinance or next purchase, but they will refer their lenders and brokers to their networks.
If you are skeptical that an industry that has been so slow to change can be moved in this way, your skepticism is understood but will not help you in the face of changing market dynamics. Machine learning and artificial intelligence algorithms that are revolutionizing manual processes like driving a car occur for loan origination, underwriting and maintenance. Nothing stays the same forever. Not our current real estate boom, and not our current ways of doing business. Adapt now, or risk falling behind.