Takeaways for the New Secondary Mortgage Market
By Eric Wilson
August 7, 2018
Eric Wilson is Senior Vice President Business Leader/Mortgage with SLK Global Solutions, Dallas, responsible for the company's suite of technology products. He has more than 20 years of industry experience; he previously served as Vice President and Sales Leader for Mortgage with Genpact. Before that, he was Vice President of Private-Label Sales and Account Management for PHH Mortgage.
This past May, the industry came together in New York City for the Mortgage Bankers Association's National Secondary Market Conference & Expo. Some key takeaways will give you a quick update of what's happening in the mortgage world.
High Costs, Low Volumes
One of the biggest stories to come out of the event was the impact the first quarter had on mortgage lenders. With origination costs still more than $8,000 per loan and significant margin compression, the first quarter was brutal tough for loan originators. The fact that volume was down was icing on the cake. Many lenders in attendance were discussing ways to weather this storm and if it makes sense to consider consolidation and acquisition. As it is, experts are predicting that some mortgage bankers won't survive this year on their own.
The Road to Survival--Potential Solutions
Some of the solutions we heard mortgage bankers and technology firms considering at the show were
(a) Selling portfolios to offset originations;
(b) Buying smaller/niche mortgage companies to increase market share; and
(c) Vendors looking at reducing their fulfillment services business and focusing on services that support the acquisition activity, like due diligence.
The Gap Between Idea and Availability
Those that were dedicated to remaining in the business as they are now were primarily discussing technology. There was some hand-wringing over the fact that no silver bullet could be found to take a lender fully digital overnight. Lenders still felt there is a large gap between the ideal automated solution, one that both reduces risk and reduces costs, and the solutions that are available in the marketplace today. While they may just be telling themselves this, as there was an underlying tone to these discussions that indicated a hesitation to jump into full automation.
The Fear of Lower or No ROI
Every lender seems to want--and need--what digital lending promises; it's just that the perceived consequences of failure (fines, reputational risk, loss of upfront investment) are significant enough to hold them back. A cycle of failures can easily knock some of the technology companies out of the business, especially if lenders see significant penalties for missteps.
Lenders felt that the big tech play will come from one of the Top 10 firms and is farther down the road. It's just not here yet.
All Technology, No Services--a Definite No
The buzz is that many service providers are pulling out of the space entirely. Most of these players had invested in both on and offshore operations and they just could not generate a sufficient return on those investments.
Overall, I felt very secure in the offering my team has for the mortgage industry today. Yes, technology is the way to go, but not alone. It has to be packaged well with optimum business process management solutions to lower costs, enhance operational agility and also reduce risk. Our ability to introduce new technology and provide the expert staff to deliver solutions lenders need now is what makes us different.
After coming through one of the toughest quarters yet, lenders are still positive about the future. They still see the opportunity, they just need good partners to help them reach it.
(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.)