2022 was an extremely dynamic year for the mortgage sector. Rates started relatively low at less than 3% but saw a historic rise across the year, reaching nearly 6% by December. Meanwhile, even as rising mortgage rates put off home buyers, a new generation of digitally native consumers – spurred by the pandemic – showed growing interest.
Studies suggest these trends will continue into 2023, making it important for mortgage servicing companies and lenders to learn from the past. Here are the top five lessons for mortgage servicing providers and lenders based on what happened in 2022:
1. The era of cheap mortgages has ended; you need new tactics to stand out
During the pandemic, COVID-related regulations meant that home prices remained affordable and supply was higher than demand. However, federal rates have been rising through all of 2022, deterring both buyers and sellers. Sellers are afraid to put their properties on the market, fearing delinquency later on due to the currently high rates. Buyers are priced out of the properties they selected only a few months back.
What does this mean for lenders and mortgage servicing companies? First, it will become increasingly harder to offer competitively priced products in 2023. Instead, one must leverage mortgage data analytics and market intelligence to personalize products as per individual borrower needs. Analytics will also help find upselling and cross-selling opportunities, now that the refinancing boom is officially over.
2. Mortgage demand will dip, which means that you need better customer experience capabilities
As demand dips in 2023, lenders need to look at new ways to hold onto their existing customers and provide a winning experience. At the end of 2022, mortgage demand plunged by 13.2% compared to the preceding weeks; new applications reached their lowest-ever levels since 1996. This is not expected to change any time soon.
As a result, you need an agile mortgage lending process that can realize any opportunity, without the borrower losing interest, unprecedented delays, or process bottlenecks. Mortgage approval cycles are typically protracted, lasting anywhere between 30 and 90 days. In 2023, mortgage companies need automation to shrink this timeline and boost the customer experience. Digital lending platforms may also help offset the decline in demand a little bit, by keeping prospective borrowers engaged.
3. Margins will be tight, and mortgage lending process automation has to be the new normal
Several factors are contributing to narrowing margins for the mortgage sector. Changing regulations have made mortgage servicing more complex and labor intensive, increasing your overheads. Further, declining demand has led to a dip in overall revenues, compounded by a decrease in refinancing volumes. Amid these complexities, you need tools that help keep the mortgage lending process lean and efficient – that is where automation comes in.
Mortgage automation can reduce the human effort needed for data entry, document management, compliance checks, and other repetitive tasks. It can also increase your capacity to handle business volumes. For example, 72% of borrowers who secured a mortgage in 2020-22 were contacted within 12 hours of submitting their application. This is only possible when a system of automated triggers, alerts, and actions streamlines the mortgage lending process.
To unlock further efficiencies amid tight margins, mortgage businesses may choose to partner with an offshore outsourcing vendor. This is particularly helpful when the vendor you select is conversant with both the mortgage lending process as well as digital enablers like AI and automation.
4. Human relationships and soft skills continue to be important, necessitating upskilling
One might imagine that with the introduction of online platforms, there would be a decline in the need for human interactions – but that is not the case. In 2022, most home buyers (68%) found their mortgage provider through some form of personal relationship, whether it is through their realtor, bank contacts, or friends/family.
This does not mean that you have to forego the gains of digitization in favor of a large, costly human workforce. Instead, lenders (particularly mortgage servicing providers) need to work on soft skills, communication capabilities, and relationship building to be able to nurture lasting human connections. This will only complement your platform and digital tools since borrowers will be confident about receiving human support if ever necessary.
5. MSR purchases will remain popular; servicers must work to alleviate admin challenges
Mortgage servicing rights (MSRs) are a good investment, which is why their demand is rising in a less-than-bullish economic climate. But servicing rights transfers can lead to administrative headaches and hurt customer satisfaction. Research found that over 4 in 10 borrowers who went through a transfer found the process “not very easy.”
Therefore, to maintain borrower experience and trust among all parties, mortgage servicers must streamline processes and remove bottlenecks. This entails proactive communication, above all, as well as clarity around documents, which can only come from a single source of truth. As a result, the mortgage sector will see an overarching centralization of servicing data and a breakdown of silos in 2023, in order to keep up with MSR transfers.
2022 was a period of challenge and change, and you can expect a few more curve balls on the road ahead. In addition to these five key lessons learned from last year, an experienced mortgage lending process outsourcing partner can help you navigate the landscape and its complexities. At Nexval, we provide our clients with tailored technology and outsourcing solutions to streamline every step of the mortgage value chain.
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