The US is going through an unprecedented period of inflation, which can be a double-edged sword for mortgage businesses.
On the one hand, inflation reduces purchasing power, which, in turn, can increase the demand for loans of all types, including mortgages. This means you can grow your business, acquire new customers, and position yourself at favorable rates. On the other hand, mortgages availed before inflation essentially go down in value, and it then becomes imperative for lenders to recoup expenses and not overextend themselves.
This is precisely where the US mortgage sector finds itself right now, making it vital to leverage cutting-edge technologies like mortgage automation services as well as mortgage outsourcing solutions. These can help tackle the challenges of this period effectively and take advantage of any opportunities to strengthen the foundations of your business.
Read more: Do You Know These 8 Bottlenecks Holding Back Current Mortgage Systems?
The Impact of Inflation on the US Mortgage Businesses
In June 2022, US mortgage rates saw a record-high jump, the most significant single-week increase in 35 years. This is in keeping with ongoing economic trends such as rising inflation, a decrease in purchasing power, and concerns around a looming recession. The rise in rates has negatively influenced demand, as new mortgage applications dropped to a 22-year low in July. However, mortgage providers can expect steady revenues from customers that do convert, simply due to higher interest and steady demand for commercial loans.
During inflation, it also becomes important for mortgage businesses to not overextend themselves – for example, by refinancing loans at previous rates. Further, if the situation was to continue for a longer period of time, there is a possibility that home buyers would be compelled to opt for mortgages to meet essential needs. Amid growing applications and rising prices, credit risk management becomes more important than ever before.
Mortgage automation services and mortgage outsourcing solutions can help in these areas by reducing the cost and effort burden you would incur to tide through economic volatility.
Read more: Rising Mortgage Rates: How Automation Can Help Lenders Maintain the Margin
4 Ways Technology Can Help Mortgage Providers Navigate Inflation Successfully
There are several ways you can prepare for inflation (and even recession, if that does come to pass), by investing in the right technologies. This includes:
1. Mortgage automation services to limit risk exposure
The parameters for assessing borrower risk constantly shift during a period of economic volatility. As purchasing power decreases, borrowers may decide to reprice their offerings to more competitive rates, which could invite a flood of applications. While this is definitely an opportunity for business growth, one must have an accurate, scalable, and preferably automated borrower assessment system in place to select the right customers.
Mortgage automation services can help in key junctures of this process – from recalibrating long-term fixed rates to alleviate the impact of price hikes to managing documents, checking borrower data, transferring information between systems, and more. In other words, automation can help balance growth with risk mitigation during these uncertain times.
2. Artificial intelligence for mortgage servicing
Loan servicing during inflation is a complex task. Mortgage providers need to accommodate changing rates, fluctuating regulations, and the complex personal circumstances of borrowers without letting any of these factors impact the business or its profitability. For example, new forbearance laws may provide borrowers with some relief in a recession, which adds to borrower workloads.
Mortgage providers can make use of artificial intelligence and a variety of automation technologies to streamline servicing. AI chatbots can also shorten response times and provide customers with quick and easy access to information, thus improving the customer experience (CX). Indeed, a superior CX can prove to be a competitive differentiator and attract customers even without lower-than-market-average mortgage rates. In this respect, artificial intelligence can fast-track the application process, automate data checks, and speed up approvals – providing home-buyers with much-needed reassurance and certainty.
3. Business intelligence that powers better decision making
Data analytics and business intelligence are indispensable when dealing with complex market conditions. Data on previous recessions and inflationary periods can offer valuable insights on how to navigate current challenges. Business intelligence tools can also be tailored with near-real-time and hyper-local data to generate recommendations that are highly specific to an area of mortgage operations.
Should a lender offer non-competitive products to avoid a deluge of applications? Is it smarter to pull out of a market region altogether, where purchasing power is very low? How do you predict mortgage defaulters and recoup the losses? These are questions that you can answer with business intelligence, particularly when using a modern platform like Power BI instead of legacy technologies like Excel.
4. Mortgage outsourcing solutions for scalability and flexibility
Finally, digital transformation can become overly complex – and often unsustainable – when tackled completely in-house. Amid inflation, mortgage businesses will want to keep administrative costs and internal expenses to a bare minimum, which is why it makes sense to partner with a mortgage outsourcing solutions provider. Your partner will look after iterative processes like data search, document management, compliance, and borrower servicing, even as you focus on strategic and timely decisions.
Ideally, mortgage outsourcing solutions should combine industry expertise with technical know-how. For example, you may want to work with an outsourcing partner that builds an end-to-end AI-powered digital learning platform using DevOps principles. They will also help you outsource application maintenance, and take care of data management.
Read more: Property Preservation Support Services: How to choose the right partner to outsource it?
Our Tech Gurus can help You Stay on the Right Side of Inflation
Inflation has pushed mortgage rates up steadily in the last few quarters, and it shows no signs of stopping. Mortgage businesses must prepare at the earliest by becoming more flexible, agile, and adaptive to market movements. At Nexval, we employ a team of 1000+ subject matter experts with decades of experience in the US mortgage industry as well as technology teams proficient in DevOps, Lean, cloud-native development, and cybersecurity. This makes us well-positioned to deliver competitive mortgage outsourcing solutions to meet your urgent as well as future needs.
Speak with our Tech Gurus to learn how!