The US mortgage sector is not new to market volatility. Ever since the 2008 recession, lenders have been wary of volatile markets and responding with stop-gap measures like adjustable-rate mortgages (ARMs). However, in the wake of the COVID-19 pandemic as well as ongoing geopolitical tensions, your business must now acknowledge and respond to market volatility with measures such as mortgage process outsourcing.
What Does the Current Market Volatility Mean for Your Mortgage Business?
To chart the way forward, one needs to first consider what’s causing the current situation. Here is what Sam Khater, Freddie Mac’s Chief Economist, had to say: “Economic uncertainty is causing volatility. As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years. Builders are also dealing with rising costs, meaning this posture is likely to continue.”
In 2022, origination volumes are expected to drop by 40% compared to last year’s $4 trillion. In the short term, however, there is significant market volatility leading to spikes and dips in demand. Mortgage businesses must find a way to be operationally agile by opting for mortgage outsourcing services and other sources of cost savings.
Further, there has to be greater transparency between lenders and borrowers to prevent defaults or even foreclosure in the long term. Some have argued that volatility could actually create a buyer’s market, where borrowers take advantage of favorable rates in the short term to unlock massive savings later. Correct measures are needed so that you can strengthen your business and protect profit margins during this period of volatility.
4 Points of Guidance for Mortgage Businesses Responding to Market Volatility
There are several measures you can take to navigate volatility effectively, such as mortgage process outsourcing, among other tactics. This includes:
1. Exploring possibilities of ARMs
Adjustable-rate mortgages gained a negative connotation during the 2008 housing crisis when unprecedented price flux caused a large number of borrowers to default on their mortgages. However, technology has come a long way since then, and there are checks and balances in place to protect borrower interest.
For example, it is possible to set adjustable-rate timelines of 3, 5, or even up to 15 years and amortize it the same way as a 30-year fixed-rate mortgage (FRM). This would allow mortgage providers to offer competitive products even when rates are high and create new business. Advanced business intelligence and models based on data fabrics allow lenders to configure sophisticated ARM products for time-sensitive borrower needs.
2. Completing Verbal Verification of Employment (VVOE) as early as possible
Verbal verification of employment is among the key steps in mortgage origination and approval, which helps lenders to identify high-risk borrowers who could potentially default on their mortgages. Typically, VVOE is completed within 10 days of the mortgage note date – a practice unsuitable for volatile markets.
Borrowers’ economic situations can change dramatically from one day to the next, and the day of note date issuance should be as close to VVOE as possible to prevent lending to ineligible borrowers. To achieve this, you need a streamlined document management process, which uses automation to fast-track and error-proof employment data checks.
3. Regularly communicating with borrowers
In order to tide over a period of market volatility, governments often roll out relief measures such as temporary forbearance clauses. Unfortunately, borrowers are not always clear about the exact specifications of such laws and tend to overestimate or underestimate their scope. To resolve this, lenders must invest in regular communication and educating borrowers. For example, an artificial intelligence chatbot (a key component in mortgage customer experience) can notify borrowers about forbearance limitations, the due date of the mortgage balance, and the terms of repayment.
4. Outsourcing mortgage processes
Mortgage process outsourcing can prove to be a big help during economic volatility, as it allows you to scale up or down in response to the market. A reliable outsourcing partner will be able to assist you with important areas of operation, from origination and document checks to servicing and title-related processes. Mortgage outsourcing services combined with technology expertise could unlock even more efficiencies – such as automating servicing processes to reduce headcount.
Read More: 5 Ways to Streamline Default Servicing
Come Out on the Winning Side of Market Volatility with Nexval
In 2020-2021, lenders faced a dip in borrower demand and a slowdown of usual processes. The last few quarters have seen a complex transformation, with different patterns of demand in rural and high-value areas, fluctuating mortgage rates, increasing risk of foreclosures, and the need to streamline default servicing. Throughout this period, you need a mortgage process outsourcing partner who combines domain knowledge and prior experience of recession-like events with next-gen technology expertise.
At Nexval, our team of 1000+ SMEs delivers bespoke solutions for mortgage businesses that optimize efficiency with costs. By choosing the best-cost location for mortgage process outsourcing and automating effort-intensive tasks, you can stay profitable and successful even amid market volatility. Are you unsure of how to navigate this ongoing period? Talk to our Tech Gurus today.