Mortgage lending isn’t for the faint of heart. While the benefits are many, mortgage lending carries a lot of risks that could cost institutions hundreds of thousands of dollars, possibly more.
Community banks looking to enter the mortgage market or expand their mortgage activity are wise to take precautions to prevent any unnecessary strain on their budgets.
Though there are risks, there is also a highly worthwhile upside to offering mortgage services. First, it’s a good way to retain a loyal customer base. Community banks generally have closer personal relationships with their customers, and those relationships are a prime advantage. When the customers’ favorite bank doesn’t handle mortgages, it is effectively driving those customers into the arms of another institution, and risks losing them entirely. Mortgages also offer a significant additional revenue stream. Done correctly, mortgages can boost revenue in both the short term and long term, with very little risk.
While entering the mortgage market can be a smart decision, entering without preparation can seriously drain the bottom line. Getting into this industry takes serious commitment. If you’re getting into the mortgage market, take the time to address the details. You need to cross your t’s and dot your i’s, especially in the new era we are entering, with additional regulation looming on the horizon and a new focus on the details in each loan file.
Making A Wise Choice
Probably the most important factor in ensuring compliance, avoiding fees and fines and providing a superior customer experience is the solution you use to manage your mortgage processes. Some community banks opt for outsourcing. Others prefer to manage the process in house.
Either way, it’s the bank’s responsibility to ensure they’re transacting high-quality, compliant loans. If your outsourcer is in compliance violation, it’s you that will be held accountable. Choose wisely.
If you prefer to manage mortgages in house, you’ll need a good mortgage management technology. If you want to stay competitive, you’ll need the functionality the bigger players get, but on a community bank’s budget. Find a true technology partner whose solution helps you manage your customer relationships before, during and after the mortgage cycle. It should help you stay in compliance by working alongside your staff to ensure that every state, federal, institution and investor guideline is followed. It should anticipate issues before they arise, offering alarms and reminders as safeguards.
While you’ll need a high-grade system, you’ll also need an economical one. Community banks, for all their advantages, lack the huge IT budgets of their “big box” competitors, who can afford to build whatever technology they need. Fortunately, mortgage management technologies come in a variety of models that provide what amounts to big bank sophistication without the big price tag.
There are traditional licensed models, which are usually used by the larger lenders. Licensing may be more cost effective for large volumes, but it also comes with higher start up fees, requires a significant IT department, and is unlikely to be the most cost effective solution for the average community bank.
Community banks, by virtue of their smaller volumes and budgets, will be more suited to a software as a service – or SaaS – model. SaaS models are hosted solutions, which means the solution provider will maintain the technology, while the client’s staff access it online. SaaS models can be priced on a “seat” basis, meaning per user, per month; or a success-based model, that charges only for each loan closed. They are a great way for many community banks to access a solution that might otherwise be out of their price range. The range of pricing structures has virtually lifted the financial barriers to entry for community banks, and transformed costs that were formerly fixed into variable and predictable expenses.
One more caveat: Make sure you’re getting the system you think you’re getting. If your technology doesn’t match your expectations, you could end up finding out the hard way – with fines, fees or worse.
Questions To Ask
Ask questions of technology providers. If you choose a hosted system, ask if the data centers are certified to meet SAS70 auditing standards. Find out about their redundancy. Ask what happens if the main location goes down. Find out how the company ensures that your data is safe. Make sure that your employees will be able to continue operating, even if there’s a failure of some sort.
Some technology providers claim to have SaaS or cloud computing models, but they don’t provide the robustness in features, services and reporting that you need to get the job done right.
The devil is in the details. How will the system adapt to quickly changing guidelines and regulations? Does it have controls for current guidelines like HUD-1 requirements for consistency, or is it relying on silo-type systems? Look for an open architecture to allow integration into other business applications in your bank.
Getting into the mortgage industry and ramping up volume takes commitment and dedication. Mortgages are not a high risk/high reward business. In order to be competitive, community banks need solutions that save costs and prevent hefty losses.
We’re in a time where there’s a mortgage management solution to match virtually every company’s needs, from the individual owner/operator, to the community bank, to the large enterprise lender. By making sure you have a proper fit, your mortgage operations can boost revenue and customer loyalty virtually immediately, while continuing to provide opportunities as your operations grow.
Jonathon Corr is chief strategy officer for Ellie Mae. He has been awarded Mortgage Banking magazine’s prestigious IT All-Star Award for his contributions to the field of mortgage technology.
