The current state of the mortgage market is changing.
Everything is shifting. Rates are going up. Inventory is flying on and off the market in record time. Refinances have been in a slow decline since the beginning of the year. Change is simply what is happening in every facet of the mortgage industry. However, there are still ways to ensure that your mortgage program can remain profitable during this volatile time. Here are a few things to consider:
RATE AND MARGIN
Economic principles teach us that these changes are swinging the pendulum back to a more moderate market. For many years, we’ve been working with extremely low rates. Low rates bring buyers to the market. More buyers bring more sellers. Then, we reach the point where rates increase and it throttles back the number of buyers and sellers in the market.
In the early stages of this shift, it can be really difficult for credit unions with in-house mortgage services to adjust and maintain profitability. The margin of available mortgages to win gradually gets smaller because less people are buying and fewer people are refinancing or selling their homes. It may be time to consider increasing your rates to ensure you are getting a healthy margin on your loans.
COST AND STRUCTURE
The biggest question is how to remain profitable when the market shifts this way. One thing to consider is decreasing your variable costs. This isn’t about cutting costs to increase profit margin; it is a strategy to remain steady during the frequent highs and lows of writing mortgages for members. The goal is to make the majority of the costs associated with mortgage services variable. When volume is up, revenue is up, when volume is down, the program still maintains sustainable income.
The first cost most credit unions examine is typically people. Who is essential, who is not? Most credit unions with an in-house mortgage department cannot afford to operate this way. Their departments are too small to lay people off at the first sight of volume decline. Instead, look at processes. What can be more efficient? Can software support the team and increase efficiency? If so, this is a great time to take on those efforts. As volume slows, teams have more time to spend on improvement. Ideally, this should help costs go from general tasks to a per loan cost structure and level out expenses.
REVENUE GENERATION
When rates are low, and buyers flood the market, there is no shortage of originations. Low rates also contribute to that steady stream of refinances. The marketing strategy is to pretty much answer the phone. Of course, that changes as the number of available mortgages decreases. One of the keys to a profitable mortgage portfolio is reallocating resources. The resources previously spent on answering those calls can become the budget for marketing in a competitive market.
Remember that mortgages in your portfolio are likely refinances later. Think of new originations as front-loading the refinance pipeline. Now is not the time to cut costs from the marketing budget. Start by asking why members are choosing other financial institutions for their mortgages. Keying in on that and building a marketing strategy to keep them can increase volume and thereby revenue. Everything from rates to service could be impacting their decision.
Building an in-house mortgage department is hard work. A mortgage service line structured to withstand the inevitable highs and lows of the market is worth the effort. The mortgage industry is a rollercoaster and sometimes no matter how good the strategy is, credit unions need a partner to help them weather the storm. We were there supporting our credit unions when volumes went to record highs and we’ll be there to help them on the ride down. To learn more about how TruHome Solutions can help you navigate the current shifts call us at 913-981-1700.
By TruHome Solutions
