Jorge Ponce of FirstClose on Bringing Profit Back to Mortgage Lending
By MBA Insights Staff
November 19, 2018
Jorge Ponce is Director of Business Development with FirstClose, Austin, Texas. He has more than 15 years of experience in bank operations, mortgage and risk-based consumer lending and is responsible for driving adoption, client communication and product development.
MBA INSIGHTS: We're finally starting to see some improvements in housing inventories. What does this mean for the housing market?
JORGE PONCE, FIRSTCLOSE: The first thing to be expected is increased activity. With more inventory, the market revives itself, which means more demand is suddenly placed on lenders. This is generally great news; however, it can also be a drawback if lenders are not prepared for such demand. Lenders must be well-equipped for this increase in activity, because preparedness is what will set them apart from their competitors. If a borrower approaches a lender who is not prepared and ends up taking too long to turn a loan around, the borrower will likely go to another lender who is faster and better equipped to do the job.
So, what is it that can help lenders prepare themselves to act quickly and efficiently? It all comes down to having a streamlined process. Lenders must have the right processes and tools in place to help them move quickly and efficiently. For example, if lenders are able to access all of the information they need in one place, it saves them valuable time by eliminating the need for them to round up all the information themselves. This helps them turn their loans around quickly, which keeps their borrowers satisfied.
INSIGHTS: The real estate finance market is also transitioning from a refi market to a purchase market. How do you see this most affecting lenders' business models?
PONCE: The answer to this question comes back to inventory. Improving the housing inventory drives the purchase market, simply because there is more to purchase. As far as how this change in the market will impact lenders, there is no single answer to that question. The market swings back and forth all the time. There are times when rates are down and there's a refi boom, and times when inventory is great and borrowers are constantly purchasing. The best thing that lenders can do is to be prepared for both situations. If lenders are equipped to adapt to whatever the market looks like, they will remain successful and profitable.
INSIGHTS: With tighter competition, is cutting costs one answer?
PONCE: The issue doesn't come down to cost as much as to which lender is best equipped to handle the current landscape. When it comes to traditional mortgage lending, the lender does not usually absorb any cost. Most, if not all, of the costs are passed on to the borrower. Lenders have been known to play with these costs slightly in order to make themselves more competitive in the eyes of the borrower, but for the most part, cost is not the issue. Again, it comes back to who is most prepared to do their job. The lender who can turn a loan around the quickest will generally be the one that gets the business. This is why it is so important to have streamlined processes in place to help move everything along. I think it's less about cost and more about efficiency and competency.
INSIGHTS: What about home equity loans? Are there pitfalls to this line of business?
PONCE: The answer to this question depends on the needs of the borrower. Six months ago, I probably would have had a different answer to this question, simply because the market changes so often. There is plenty of equity out there at the moment, but of course this does not necessarily mean that the equity market is going to boom. The HELOC market ebbs and flows just like the rest of the market. Prime interest rates are going up, which will impact the HELOC industry a bit, but the bottom line is that home equity loans are usually a great way to go depending on consumer needs. Reinvesting in your current home is always a wise choice.
INSIGHTS: What technological developments are you seeing that can help lenders cut costs and improve profitability?
PONCE: There are plenty of quantifiable costs in lending, but there are also a lot of unquantifiable costs. These soft savings make it pretty tough to say if there are specific technologies that have been proven to cut down on costs. Once again, it comes back to streamlined processes. There are plenty of technological developments that allow lenders to work faster and more efficiently. This is where the profitability lies. Focusing on efficiency helps lenders turn loans around faster. Usually, the longer a loan sits, the chance of it being withdrawn gets higher and higher. When the turnaround time is lessened, lenders lower their chance of losing both borrowers and money.
There are many different processes and technologies that aim to help lenders in this regard. There are lenders out there doing really creative and innovative things to optimize their lending processes. Take income verification, for example. Typically, with a first mortgage, the borrower has to provide documents such as pay stubs and W2s in order to prove they have a steady income. Many lenders are now using income verification services to complete this process electronically. A practice that used to take up to 10-12 days now can take as little as 2-3 and remove the burden from the borrower.
Another example of new technology for lenders are Hybrid Appraisals. Hybrid Appraisals use traditional methods as well as new electronic methods in order to arrive at a value. Instead of waiting for an appraiser to physically inspect the property and complete the report, this can be done by multiple parties therefore shortening the time it takes to complete. Once again, something that used to take weeks can now be completed in the matter of days.
The lenders making the biggest impact in the industry are the ones that are bringing all of these technologies and automation services together. Utilizing a solution with capabilities to deliver information like title, flood, valuation and other important data elements in one place, can often be what sets lenders apart from their competitors. The ability to consolidate the loan approval process is what keeps lenders productive and profitable.
INSIGHTS: Looking ahead, what do you see? Are things going to get worse before they get better?
PONCE: Currently, a shift is happening in the way lenders do business. What they will, and will not, accept is changing, which is making the landscape that much more competitive. Another factor that is making everything more competitive is technology. With more information, and easier access to that information, things are moving faster than ever before. This ultimately exposes a gap between those who embrace technology and those who do not. Lenders that adapt to changes in fintech will be set up for success, while those who do not can expect to have a hard time competing in the years to come.
Of course, it is not easy to make specific predictions for the mortgage industry because there are so many moving variables, but an understanding of these variables can help lenders in their quest to bring back the profit. Lenders must understand how these variables affect them in order to be successful. Contemplating factors such as what borrowers are looking for, how competitors work, what the current inventory looks like and what the market is doing will only benefit a lender's understanding of how to increase profit.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)