Even in the best of times, mortgages can be challenging for community lenders. Fannie Mae reduced its 2019 volume estimate, and the 2020 outlook isn't much better. Average origination costs have hit a new high $10,200 according to research by the Mortgage Bankers Association and Stratmor squeezing margins even more. Factor in increased competition and the added tech investment from money-center banks and fintech's, and it's safe to say we're confronting some stiff headwinds. Recently, three mid-size banks examined their situations and concluded exiting the mortgage business was their best option.
As one CEO summed it up:
"We have been in the mortgage banking business for many years and have weathered unfavorable mortgage banking environments in the past. Unfortunately, the current poor operating environment is coupled with fundamental changes in the mortgage banking industry, such as more burdensome regulations, required investment in expensive technology, fierce competition, and razor thin profitability, to name a few."
That's pretty sobering. But, I'm an optimist. There are other options besides walking away from a core product. Interest in outsourced fulfillment is intensifying and with good reason outsourcing can significantly decrease origination risk and costs, increase profits, and enhance the customer experience.
1. Address changing consumer behavior and needs
Today, a growing number of consumers want and expect a digital mortgage experience. According to the Boston Consulting Group, 79% of consumers want to get a mortgage exclusively online and 87% of consumers believe digital is faster. Think of the changing consumer behavior this way: Did you fill out your March Madness bracket by printing, scanning and emailing it? Or, did you receive login credentials to join a group and make your picks on a mobile device? Which technology do you think your mortgage borrowers will prefer? Outsourcing to a partner with an advanced, white-label point-of-sale solution levels the playing field with the offerings of the largest lenders and fintechs all without the investment in technology or additional staff.
2. Maximize operational and cost efficiencies
Outsourcing fulfillment can significantly reduce production costs. It also converts fixed costs processors, underwriters, legal and compliance specialists and closers into variable costs. Lenders can comfortably scale up or down without variable-cost unknowns. And, a good outsourcing partner will scale and grow with you.
3. Reduce compliance risk
An outsourced solution doesn't inoculate you from compliance risk. But, teaming up with a partner that has a richly deserved reputation for compliance, hires the most talented people and backs them up by partnering with best-in-class providers is a formula for success and an approach that can safeguard your compliance and your reputation. The right third-party fulfillment provider also brings consistent, repeatable compliance practices, standardized reporting, enhanced data quality and security and continuous monitoring. A strong outsourcing partner ensures changes in regulations and requirements are updated on time and with full transparency. Lenders also have additional protection against compliance defects in the form of limited reps and warrants. While lenders still own the obligation to maintain oversight of any third-party partners and policies and practices, with outsourced fulfillment, the regulatory weight is significantly shifted off the lender.
4. New and better options
Outsourced mortgage fulfillment isn't new. What is new, however, is the way technology and more-flexible fulfillment approaches are addressing many lenders' past concerns like consistent borrower experience, data integrity and cross-selling competition. A good outsourced solution is built on flexible and scalable best-in-class technology capable of driving efficiency and data quality. A good partner should allow you to set business and underwriting rules and provide complete transparency at every stage. Further, a good partner should also effectively capture your culture in all facets of processes and procedures. When executed correctly, outsourcing fulfillment can create efficiencies and address cost and compliance hurdles previously deemed unclearable. Even more importantly, such a solution enables you to stay in or enter the mortgage business while enhancing the customer experience.