Thoughts and Opinions on Mortgage Banking Issues & Challenges
matchbox State of the Market-January 2023

Welcome to 2023, the year of change, opportunities, and survival. While there are varying opinion about where the opportunities lie and how high or low the annual mortgage volume figures will land; this much is for sure- every person that is running a mortgage company or division is taking hard looks at their business model and changes that need to be made in 2023. Coming off record levels of volume, companies spent the last few years just trying to keep up with demand. To accommodate the volume, companies took many things on over the past 2 years. They took on staff, technology, office space, new products, new vendors, and new contracts. Over the past 6 months, all of this has come to a screeching stop, with many companies unwinding much of the past two years actions to understand the new normal. How companies are faring through this vary from company to company- some have circled the wagons trying to make it through while others are viewing this as an opportunity to right many wrongs that have occurred over the past few years in favor of volume. There is no right answer as each company has different circumstances that they must address and support. Some have a strong Servicing book to offset the drop in volume, some have a strong deposit base to help them offset, and others are making the difficult choices to right size the organization. From our view of the world, there are some items that require review at this time, regardless of size and circumstance, and those are Secondary, Technology, and Training. This newsletter will break each of these down and provide our perspective on how these vital elements should be handed as the New Year gets underway.

Secondary Hurdles – decreased volume, razor thin margins, tougher competition
Over the past few years, outside of the few dips over the past decade, Secondary departments have had a forgiving market. While there were some wild swings that resulted in absurd margin calls, the markets consistently returned a positive position for growth and stability. The markets provided a strong base for continued profits in all areas of Secondary. Hedging revenue was consistently solid, while MSR’s rallied in value as rates continues to drop. You had a consistent Investor base that provided multiple options for pricing and delivery to keep the volume level strong. The biggest challenge that many Secondary Managers had was managing a record level of lock volume and ensuring that their staff and systems could handle the volume. Margin management and basis points leakage were terms that were not mentioned as margins were not an issue and revenue leakage was not a focus if the volume continued to surge. 

Jump to today and you have a vastly different picture; where you have record low volumes, razor thin margins to keep the volume, and a volatile investor base that is reducing offerings, lowering staff, and unpredictable service levels. Secondary departments are being asked to find revenue in ways they have not had to for quite some time. Here are our thoughts on what should be done from a Secondary standpoint:

-Perform a full review of Secondary policies and procedures- Inevitably when we do a Secondary Review and perform a comparison from expected to actual, what is listed on paper is rarely happening in practice. Lock policies, extension policies, Purchase Advice reconciliation, Broker Dealer trade review, investor charges, and early delivery opportunities are all areas for revenue that Secondary should be actively looking for right now. There are multiple areas of basis point leakage and this is the time to really dig in and find them.

-Lock desk efficiency- in the midst of the record volume over the past few years, there have been significant technology upgrades and improvements on the Secondary side. Auto Lock functionality is no longer that exception, but the norm. Real time data feeds and pricing updates are no longer a luxury, and data interfaces between hedge partner, the LOS and Investor should be connected. If you are not seeing this, then you should be investing time in learning why not.

-Invest time in product availability and offerings- we know from experience that many new products, investors, or offerings were pushed to the side as they were not needed. Now is the time to investigate all available options. The market has already had some radical changes (Wells Fargo closing Correspondent) that will have ripple effects, both good and bad, so you need to get your binoculars out for these opportunities.

If you are in need of any of these areas, please contact us to discuss our Secondary Special Forces offerings. We have a deep understanding of all areas of Secondary and Secondary technology and we can help you find the opportunities that exist in today’s market.

Practice- We are talking about practice….

In the words of Alen Iverson, practice (aka training) is not a valued part of a mortgage operation. There is significant investment in time and effort in many other areas and yet when it is time to implement and train staff or clients, there is little attention paid. Over the past few years, it was understandable to bring new people and staff on as quickly as possible and have then injected into the production train.

Now with volumes lower and time more available, it is a great time to revisit your training options, update them for all the items that were potentially not fully trained over the past few years (URLA, new processes, new investors, new systems) and invest the time and attention to build a strong training platform for existing and new employees. This would be a perfect time to invest in your training options and offerings. It would not only be beneficial to improve the overall platform, but just as important, it is a perfect time to get undistracted attention from your team and staff.
Many companies have gone through a transition since Covid and have become more remote. The effectiveness of remote training is harder to execute, harder to track, and harder to receive benefits.

The days of having everyone in person in a training center are dwindling so your process has to match this shift. In addition to the stated reasons, most companies are going through dramatic changes as well on opposite sides of the spectrum. Some clients are shrinking systems and costs which will require re-training and others are on hiring surges and will also need a strong continuous training regimen to support these new additions to the team.

Training is important at any time, but you rarely have the time to make it a compelling argument. You have no excuse at this time to not be focusing on training. Make it a priority in this first quarter.

Tech Quandary- lost and confused?
If there is one area that every company is revisiting, it is their Tech Stack. Whether it is cost, effectiveness, ability to support, return on investment, or just outright frustration; companies are trying to make sense of all this technology that they have and if it all worth it said cost. The answer to that question has a number of factors, but the one factor that is not going away if the tech is needed. For anyone that is asking that question, it is. The mortgage industry is growing up from a tech and data perspective, and so is its client base. These newer tech offerings may not all fit, but many of them have a place in the right company. Where they do not fit, is in companies that do not truly understand how and where should be utilized and where it must provide a benefit.

We often see a tech decision is made for all the wrong reasons and the company blames the tech company for its failures. Without going into the multiple reasons that a tech project can fail, the one consistent issue is that there is a high level of attention and focus on the product selection and vetting and very little paid to the implementation, training, and support model. None of these offerings are “set and forget”. Each require an understanding of the base product, how it can be customized for your business model, and how it can be supported. These items are frequently underestimated and the product roll out or customer experience is not what was expected.

As a technology vendor, I also do not want to say we are faultless here as there are many vendors that over promise and cannot deliver on road map promises. Each vendor in this space, matchbox and Ignite included, needs to do a be partner for their clients and help understand the software application, how it should be used, and how it should not or will not be able to, even if it was promised during the sales cycle.

Tech is a hot topic and it will continue to be. The future of the vendor tech space will also continue to change in the coming year. Many of these companies that were based on production based fee models are revisiting to see how to make them work in a down market. Others who were expecting their clients to implement software to replace people - that is happening already, and it is not because of technology.

The tech quandary will continue to be murky and sometimes confusing. You need strong people that understand how to look at your business model and match that up with your tech stack (pun intended). Tech is not going way so you should invest in a Tech review for your future. 
Thanks for reading!
We wish all our clients a happy and successful 2023
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Farmingdale, NY 11735
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