The universe of mortgage products is expansive. With so many options, it may be tempting to attract borrowers by taking a wide-net approach to product offerings. However, setting up and maintaining unique mortgage products requires significant initial and recurring investments in time, resources and expertise, so it's best to be strategic in your initial product selection. But, with so many available options, it may be difficult to know where to start.
When determining which mortgage products to offer, consider the needs of your local borrowers first. Listening to your existing customer base and analyzing competitor offerings, deposits and banking data will give you tremendous insight into the loan products that may best meet the needs of your current and prospective customers. Because mortgage products are not “one size fits all,” you may want to consider several additional factors when determining product mix.
Real estate isn’t the only area where location matters. The physical placement of your bank can influence the types of loan products you offer. For example, rural banks would be well advised to offer USDA loans, which are specifically intended for properties located in rural areas.
While today’s mortgage loan programs are more highly regulated and scrutinized than ever, the amount of risk banks could face varies among loan products. Knowing what those risks are and how those align (or don’t) with your overall risk appetite can help determine which products would be a good fit for your organization.
In addition to physical location, the makeup of residents in your community should also factor into the product mix decision. For example, VA products are a strong offering for banks located near military bases while banks in areas with significant numbers of first-time homebuyers may want to consider programs with down-payment assistance. Aligning your product decisions with the needs of your community helps ensure the appropriate mix to drive demand and meet volume and profitability goals.
Macro- and micro-economic trends, as well as consumers’ perceptions and preferences, should also factor into your decisions about what products to offer. Although 30-year, fixed-rate mortgages are probably the most well-known loan products for consumers, rising interest rates have many of today’s borrowers looking at the lower interest rates seen with shorter-term fixed-rate loans or even adjustable-rate mortgages (ARMs) with an initial, lower fixed rate period. However, “hot” housing markets may not be quite as price sensitive, and you may need to look at loan programs that help your customers compete with all-cash buyers and institutional investors.
Even with all things being equal from a product perspective, the ultimate“price” offered to consumers in the form of interest rate and closing costs for the same loan can vary between lenders. While “competitive” doesn’t always equal “lowest price,” significant gaps between your price for a particular loan product versus your competitors may be an indicator of fit in terms of your overall mix.
Many loan programs (FHA, for example) require underwriters who possess specialized knowledge about those products to even be eligible to offer them to consumers. Others are simply more complex, necessitating more staff than you may have to execute them effectively.Thus, your internal staffing mix is another factor that can help you determine whether a product is a good fit for your bank.
You will also need to consider if the initial and full product mix will focus on purchases, refinances or both. This is another factor influenced by current trends and market demand. For example, the rate environment in 2020-2021 drove a significant increase in demand for both 15-and 30-year refinances, whereas 2022 is significantly more purchase-dominant.While the combination of higher interest rates and home prices has made niche purchase products like down payment assistance programs and ARMs more attractive as compared to traditional 30-year fixed products, these borrowers may eventually want to refinance into a more traditional loan product. Higher home prices have also created enormous levels of home equity in some markets that can provide significant opportunities for HELOCs. Thus, you need to consider all these factors when determining what your initial and long-term product mix will be and the appropriate timing for launching those products.
By evaluating products that make sense for your geographic footprint, local community and current market conditions, you can whittle down the list of product options before refining the list further with the additional considerations of risk appetite and staffing ability and expertise.
While all of this may seem overwhelming, it doesn’t have to be. Promontory MortgagePath works with banks looking to grow their mortgage business. In addition to its comprehensive digital mortgage and fulfillment solutions, Promontory MortgagePath’s seasoned experts help banks evaluate product mix and launch new products to meet the needs of their borrowers and communities.
To learn more about building your mortgage product mix, download our free eBook: The Complete Guide to Entering the Residential Mortgage Business.