Winter is coming...

For those that are die-hard fans of the mega-hit Game of Thrones, "Winter Is Coming" is the motto of House Stark, one of the Great Houses of Westeros. The meaning behind these words is one of warning and constant vigilance. The Starks, being the lords of the North, strive to always be prepared for the coming of winter, which hits their lands the hardest.

As it relates to the mortgage business, there has been tons of commentary relating to the coming winter; continued margin compression and lack of profitability, Legal /Compliance impact, increasing costs to originate, and the rise of FinTech solutions that will likely to change the way homebuyers engage a Mortgage Loan Originator.

Are we at a tipping point? Yes....and the change may take various forms.

·        Costs to originate continue to increase as MLO compensation and support demands are at an all-time high. These costs are exacerbated by the commission BPS packages made available by companies that choose to compete on compensation vs. value proposition.  And the compensation offered is not always commensurate with the production history or lift expected by the new hire. Many companies that complain of margin compression and meager revenue or Net Operating Income are right in the mix offering compensation packages that can’t be sustained long term. Is this a growth strategy or a way to take out their competition?

·        Profitability at current (low) levels is not sustainable. Retail Lenders are competing across a very spectrum of lower cost / funding cost competitors today; Credit Unions, Internet and Call Center companies, new entries like Amazon / Zillow are shaking things up. Bottom line – this increased and diverse set of competitors will compete on price thus, making it more difficult for brick and mortar Retail Bank and Non-Bank lenders to survive. Winter is coming…

·        Will Technology in the form of Day 1 Certainty, highly efficient end to end process, Vendor integration and Borrower self-service fundamentally change the role and relevance of the MLO? YES

How? Their value to the company (and to the client and business partner) will have to shift to be more focused on business development, consulting vs. selling, marketing, Lead Generation, and customer retention. MLO productivity should increase for the top-middle producers which will drive down commissions on a per-loan basis. Less proficient or less committed or disengaged MLO's will not have a place in the future mortgage economy.

·        Will the market provide some sunshine?

NO.

Mortgage Banker Association predicts a smaller origination market through 2019; with purchases up 12.6% during this time period while refinances will be off 35% compared to 2017. Higher rates will impact affordability as well.

·        Can companies that do not have the resources or commitment to adopt a Mello / Rocket Mortgage etc. program compete?

YES.

How? By clearly defining their niche or value proposition; and by delivering a more 'hands on' customer experience. Think Nordstrom's vs Amazon or Walmart. Also, by consistently exhibiting deep affection for their customers, creating a ‘real’ customer for life proposition.

The message here is not intended to be negative. Those companies that put their customers first, that are highly flexible and innovative, with a clear and compelling Value Proposition… and that make smart and prudent decisions will thrive. This has been the case during all previous winters….

Best of luck and stay warm.