Navigating a challenging market? Discover five expert tips for mortgage lenders to thrive and succeed amidst uncertainty.

5 Tips for Mortgage Lenders in a Challenging Market

Nexval Infotech

Nexval Infotech

As we come out of a turbulent few years, the mortgage industry – and the national economy as a whole – isn’t entirely out of the woods. Housing prices continue to remain high and changing home buying patterns among emerging demographics present new challenges. In this climate, lenders need well-articulated, technology-supported strategies to successfully navigate economic volatility, the risk of delinquency, and even rising foreclosures.

1. With more banks exiting, you stand to gain from less competition and greater profitability

Challenging market conditions are causing many banks to exit the mortgage space, as economic volatility and fluctuating demand add to lenders’ operational overheads. Wells Fargo, Chase, Republic First Bank, and Bank of America (BOA) have all stepped back from mortgage lending, opening the market up to both incumbent and new-age competitors.

This brings new opportunities for mortgage companies – especially ones that can find new ways to optimize operations, increase efficiency, and minimize overheads through tactics like partnering with the right, best-cost offshore vendors. With careful consideration, lenders will even consider expanding their operations in 2024, supported by the right partners and technologies that do not add to their fixed-cost expenses. With interest rates stabilizing and demand slated to recover in Q3-Q4, the scale you achieve can act as a launchpad for growth for several years to come.

Read More: Effects of Rising Mortgage Rates on the Housing Market

2. Faced with economic volatility, you need to pay more attention to servicing

The servicing aspect of the mortgage value chain – whether you’re an integrated, end-to-end mortgage process owner or a dedicated servicing firm – is coming under greater scrutiny in 2024. This is because, during complex economic conditions, borrowers turn to their servicers to help quell doubt, provide relief, and offer viable options. A strong servicing function also reduces the risk of foreclosures, thereby assisting in loss mitigation.

That is why the next strategic tip for mortgage lenders in a challenging market is investing in a modernized borrower communication system and a centralized knowledge base to inform your servicing function. A smooth servicing operation is as important as achieving origination efficiency. Here too, outsourcing some of the cost and labor intensive parts of servicing can help you scale without adding overheads.

3. As economic conditions fluctuate, adapt your credit and risk models

Ever since the 2008 financial crisis, the mortgage industry has always been on the lookout for the next imminent industry threat or downswing that could throw a curveball to your operations. The fact that it would come from an act of God and not cyclical, boom-and-bust market conditions was unprecedented, and since the pandemic, mortgage lenders have struggled to adapt.

On one hand, inflation and mass layoffs are cutting into borrowers’ ability to save or down payments, shrinking origination demand. On the other hand, Gen Z home buyers and the country’s growing single-female population are showing increasing interest in home ownership. To keep up with these complex and fluctuating trends, mortgage lenders need far more mature credit models than traditionally used.

Fortunately, technology advancements like big data analytics and artificial intelligence are enabling smarter statistical modeling of borrower data, thereby powering more accurate credit risk assessments. In 2024, lenders need to make the right investments (such as in data fabrics) to capitalize on this trend.

Read More: Reimagine Mortgage Data Analytics with Power BI

4. Cyber threats call for stronger security and compliance measures

Even as a volatile economy makes matters difficult for lenders, new cyber threats are also knocking at the gates. In the last one year alone, companies like Loan Depot and Mr. Cooper have suffered major breaches impacting millions of borrowers. Title firm Fidelity has also been hit by a ransomware attack.

With time, cybercriminals recognize that mortgage lenders and tile firms are attractive targets since they house large volumes of sensitive data, employ large human workforces (a weak link), and have multi-layered software supply chains. Like any industry, the mortgage sector has also embraced digitization in a big way since the pandemic, which only adds to the attack surface area available to these criminals.

Timely cybersecurity assessments can protect lenders from the regulatory scrutiny, financial loss, and damage to reputation that come with any cyberattack. Implementing measures like adaptive security can ward off severe threats that could disrupt operations and erode your bottom line.

5. Changing borrower preferences necessitates AI and touchless experiences

While the pandemic led to today’s volatile economy, it also resulted in another crucial change – an increasing preference for digital experiences. Research by Fannie Mae shows that borrowers today want a mix of in-person and online experiences when it comes to buying a home. More than half (54%) would like the use of technology to learn about the mortgage process. Investing in digital tools can help lenders cater to these new forms of demand and obtain a competitive edge in a volatile economy.

Particularly, artificial intelligence (AI) can help streamline borrower experiences by recommending tailored products, simplifying data conversion, and enabling conversational search. AI techniques like optical character recognition (OCR) not only satisfy this need for digital transformation but also reduce backend workloads, which, in turn, lowers your overhead costs.

Read More: The Impact of AI on the Mortgage Industry

At Nexval, we recognize the challenges and opportunities you face in 2024-25’s post-pandemic volatile economy and are continually invested in deep research on national and global geopolitical trends that could influence the US mortgage sector in the upcoming quarters. Our tailored technology and process outsourcing solutions open up effective and reliable avenues for navigating complex economic conditions and achieving bottomline growth.

Speak with our tech experts to know more.

Nexval Infotech

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