It’s well known that ours is a cyclical industry. Well, it used to be until what seemed like a 20-year refinance boom (sandwiching the Great Recession and an REO/default cycle, of course.). But there’s no getting away from it now. It’s going to be a purchase market for at least the remainder of 2022 and likely 2023. Already, we’ve seen our lending clients making the necessary adjustments to pivot to a competitive market.

The pivot to non-vanilla lending products

One market trend that never fails to follow any forecast for a decline in overall revenue is the subsequent ramp-up of marketing for less traditional products. Already the headlines are announcing various lenders’ intentions to more heavily promote products like bridge loans, trade-in loans and reverse mortgages. Or maybe investor loans, commercial loans, and home improvement products. It’s also widely expected that, after a couple of years of primarily vanilla mortgage lending, we’ll see quite the increase in Non-QM products as well. The point is, we spent 2020 and 2021 focused on things like volume, capacity and turn-time, since the vast majority of mortgages being made were basic refinance loans. But now we’re going to have a more diverse array of products being marketed as lenders vie for position. 

Another strategic pivot coming: underserved markets

But what about markets to be targeted more aggressively? Specifically, New Americans and underserved markets. We’ve written before about the changing face of America. The number of Black Americans grew from 36.2 million to 46.8 million almost twenty years later. That’s 13% faster than the growth rate of the White American population over that same stretch. Asian and Hispanic populations grew faster than either of them. (Our thanks to MBA NewsLink for publishing our thoughts on this in June, 2021).

While we may not be hearing a ton about lenders pivoting to increased marketing and advertising targeting both the underserved market and immigrant population, it’s almost impossible not to imagine that happening soon. Even more likely, it is happening now. It’s just not getting a lot of publicity yet. While a few lenders may believe that they’re scaling up the marketing to those markets by hiring a few multi-lingual LOs, in reality, it will take a full-fledged effort—think multi-lingual marketing materials, application materials and building a diverse workforce—to win over these communities.  In so doing, lenders can win a decisive competitive edge. You can bet some lenders have already begun that process.

An opportunity to differentiate via LO training and performance

This is also another great opportunity to mention that, for the past few years many LOs and specialists on the front-line of origination were, in essence, order takers. When the proverbial phone rang, they knew it was a refinance waiting to happen. In fact, too often that assumption led to the originator failing to hear or assess what the applicant was seeking or to take the time to fit the best product to that applicant’s needs. Every loan application was a potential re-fi.

Now is an opportunity for lenders to let their originators shine. One great way to do that will be to train them and judge them by their ability to get to know prospects and applicants, well beyond asking for credit score. Perhaps fall out rate should be measured as a KPI in judging originator’s performance. After all, it stands to reason that at least some percentage (and we suspect it’s a significant number) of defaulted mortgages started with an ill-fitting product in the first place.

Not all doom and gloom

We’ll say it one more time. Even though the headlines are screaming about the end of refi as we know it, great mortgage lenders have long since been planning for this. We’ve seen some very real transformation in the industry over the past few years. Now is a great opportunity for lenders to profit by doing the right thing (there’s that theme again!) and fully investing in some of the target markets they might not have emphasized in the past.