Nick Costas
In the first quarter of 2024, just 59 percent of independent mortgage banks and mortgage subsidiaries of chartered banks surveyed by the Mortgage Bankers Association were profitable.
Just 59 percent.
While it may be debatable whether the mortgage community is in a crisis, it should not be a surprise that the smart money believes an opportunity presently exists. As Albert Einstein famously said, “In the midst of every crisis, lies great opportunity.”
High origination costs, a scarcity of affordable housing options that are driving buyers out of the market and fluctuating interest rates all challenge mortgage lenders to create solutions that meet prospects’ needs. Spiking escrows for current homeowners – due to increases in property taxes and homeowners insurance premiums – are driving lenders that retain servicing rights to innovate services that “rescue” borrowers, too.
Indeed, as Kyle Draper and Brian Vieaux note in their book, “Rethink Everything You Know About Being a Next Gen Loan Officer,” the mortgage industry must remake itself in order to keep thriving. Industry leaders say it’s time to eschew a transaction mentality and go beyond just issuing mortgages or collecting monthly payments.
A more profitable paradigm involves meeting borrowers where they are, and continually finding new ways to keep homeownership as affordable as possible.
How are mortgage lenders doing this? They’re diversifying their traditional product offerings to stay relevant. This is also enabling them to generate important new revenue streams and hold onto their borrowers for a longer time period.
Private Student Loans and Refis
Private student lending and refinancing programs are enabling mortgage lenders to establish strong relationships with new borrowers before their competitors do.
They are reaching young borrowers when they’re ready for their first significant loan: a private loan to help finance their college or university education, filling the gaps that their federal loans, scholarships and work-study programs don’t.
For example, the maximum amount an undergraduate student is allowed to borrow in federal loans for the first year of study is $5,500 to $9,500. Many students need more, and a private loan can be a lifeline.
When these same students are ready to buy a home years later, the ability to refinance their student debt reduces their overall debt-to-income ratios and helps them qualify for a mortgage under more favorable terms. Even now, mortgage lenders who offer student loan refis are in a position to help would-be homebuyers who are close to buying – if they can just lower their rates a little bit.
Finding Hidden Sources of Savings
According to the National Taxpayers Union Foundation, it’s estimated that 30 percent to 60 percent of taxable property across the nation is over-assessed. Many borrowers may not know that they are among those who could be paying hundreds or thousands of dollars in excessive property taxes annually. This is especially true now given spiking valuations in New England.
Moreover, the combination of soaring property taxes and homeowners insurance premiums is leading to escrows that are so high, many current homeowners could default, saddling lenders and servicers with non-performing loans that they don’t want.
Understanding this, many mortgage lenders, as well as residential servicers and call centers, are offering free reviews of property owners’ tax assessments and paid appeal services. These services are proving to be valuable in keeping homeowners not only engaged (read: not seeking to go elsewhere) – but in their homes. Free insurance reviews are also helping with this effort.
On the insurance side, there is more that lenders can do to support new homebuyers, as well.
Many of them have spent considerable dollars on their tech stacks, only to find out they aren’t using them to their full potential. There are ways to integrate competitive property and casualty quotes through their loan origination systems. This kind of embedded insurance service can also help lenders prevent closing delays for homebuyers who have insufficient coverage.
An annual declaration page review may also be advisable since the insurance market has been faced with unforeseen risks that have caused annual premiums to vary greatly. Nowadays, many view these premiums as similar to a one-year adjustable-rate mortgage: Count on payments increasing.
All these kinds of services do not have to require the hiring of in-house staff, especially given banks’ profitability pressures. Outsourced, technology-enabled solutions by experts offer a variable-cost model to support mortgage lenders’ continued diversification – and help them grab onto new opportunities to bolster borrowers and themselves.
Nick Costas is the Boston-based executive vice president of enterprise business development at Incenter Lender Services, which focuses on helping lenders and depositories improve their financial and operational performance. He can be reached at nicholas.costas@incenterls.com.
