The housing market is quite fickle. It’s impacted by economic factors that are often difficult to understand, and typically leaves consumers and lenders alike on the hunt for information in an attempt to make sense of how it will impact their financial decisions.
Earlier this year, the market began to show symptoms of softening, something unseen since 2012 when home prices began to rise again. However, when the S&P Dow Jones Indices released June 2019 data in August, home price increases were on a downward decline. So very fickle.
Experts agree that the current favorable mortgage interest rates coupled with a nationwide housing inventory shortage support refinance activity. An estimated 11.7 million U.S. mortgages have become eligible for a refinance simply due to the current low mortgage rates, according to Black Knight. And, according to Freddie Mac, the average rate for a 30-year fixed-rate mortgage in the U.S. fell to an astonishing three-year low of 3.49% as of the first week of September.
Low delinquencies, low rates
Likewise, loan delinquencies and charge-offs remain low. According to CUData.com’s 2Q 2019 CU Industry Statistics and KPI Trends Report, delinquent loans totaled only 0.63% of credit unions’ total loan portfolio as of June 30, 2019.
With low mortgage interest rates and low delinquency risk, credit unions have the opportunity to capitalize on the current rate environment to increase their mortgage portfolio size. By either leveraging your existing portfolio of customers or deploying targeted marketing efforts, there is certainly a large pool of candidates available and interested in their refinance options. In fact, August 2019 refinance volume expanded by 150%, year-over-year according to the Mortgage Bankers Association.
Create a plan for now and later
When loan volumes peak, it’s a key opportunity to tweak what you can and go full steam ahead. Regardless of how busy things become, it’s important to continue to nurture your network of realtors. You can also identify the most inefficient parts of your process and take note for future improvements.
Here are a few strategic changes to consider when things slow down to allow you to reach more borrowers when the market heats up:
Review your current portfolio lending policies to see if they are linked to your pain points— expand or tighten up as necessary.
Review your valuation requirements for portfolio and second lien products. There are many hybrid valuation products that are less expensive, complaint, and faster.
Identify technology deficiencies. Document your “workarounds” that require your staff to take multiple steps and consider programming changes to offset technology inefficiencies
Educate your borrowers at point of sale of the changing of the marketplace. Set expectations upfront. When the market changes drastically, ensure your staff is setting expectations with the borrowers on turnaround times.
When volume slows, here are a few tactics you can quickly deploy to attract refinances, home equity, and prospective buyers
Ensure mortgage and home equity lending is prominent on your website
Make sure your mortgages and home equity loan options in your phone tree get potential borrowers to the right lenders that can address their needs
Create and promote educational content on your website or newsletter informing readers about the potential cost savings of a refinance
Create email campaigns to your database for those on e-statements
Advertise on statement envelopes for borrowers that receive paper statements
Update your digital road signs at the branch level to inquire about your mortgage programs
Place signage throughout your branches advertising rates, offers, and/or promotions
Increased applications, increased need for efficiency
If your financial institution begins to see an increase of first mortgage or refinance applications, it increases the need for efficiency. If manual or antiquated processes or a general lack of technology slows down the application, underwriting, and/or appraisal process, it can directly impact your bottom line—as well as your borrowers’ overall satisfaction.
The valuation process specifically can be quite arduous and costly, and frankly, a traditional appraisal isn’t always necessary. Of course, it’s critical that you demonstrate to regulators your portfolio’s equity is accurate and compliant with all appropriate regulations. For financial institutions competing with large banks and fintech industry disrupters, it’s important to find creative ways to leverage technological advances, unique product offerings, and strong partnerships to streamline aspects of your loan-origination process.
Download our ebook to learn how incorporating hybrid valuations into mortgage lending program can help your financial institution reduce your loan origination costs.