matchbox State of the Market-June 2023
Hello everyone and welcome to Summer 2023. Coming back from the MBA Secondary conference, I have many thoughts that I wanted to share with you about the state of the market. I also want to share some subsequent information that has made me want to write about some key thoughts on my mind; some of which I find so challenging from my vantage point.
Secondary Snippets
The conversion to Ginnie Mae’s new single family pool delivery module (SFPDM) is finally among us. The Ginnie Mae file extract functionality is now available within Encompass via their PDD form but is not without some challenges or questions that have been learned through testing and ongoing releases. We have learned a bit about been helping clients with these updates and making their transition to this new portal less stressful and much more efficient. Let us know if you are having any trouble with automation, workflow or validation errors/edits. We are now in a mandatory testing period and an extended cutover is only 5 months which will be here in no time. Ginnie Mae is without question monitoring testing efforts in their validation portal and calling lenders out if they’re not active.
LLPAgony Part II – The much maligned DTI component of the FHFA LLPA changes was cancelled a few weeks back. While widely cheered and a great thing for the industry, it does not speak to many clients who were proactive with the updates to be ready and spent time and money that was for not. While we know these changes are not easy to implement (and roll back), it is also very difficult for lenders to be proactive and invest real time and money on supporting these changes, especially in this market. The impact of this specific change was very challenging as it impacted workflow, various departments, systems, and would have had dramatic impact on Clients/Members. These were not just programming time and effort here, it is valuable time in internal meetings that employees have spent determining the impact and implementation of these changes.
MSR portfolio sales are increasing and often with a tight timeline and deadlines. To assist lenders, we are deeply engaged in data and documents transfers to the contracted buyer. We have a number of streamlined offerings for those in need of quickly extracting and delivering thousands of loans within a tight window. From data discrepancies to image corruption to server capacity for documents on thousands of loans, there are a good number of unique challenges throughout thee projects.
With large investors shifting or exiting the market and causing irregularity in many areas, Non-QM seems to be making a large impact on lender offerings. We have seen a large increase in requests to assist in adding these products to template sets, business rules, closing docs not to mention the PPE. Many of these products have different requirements, qualifications, and require the ability to support multiple scenarios to help the client truly understand what is available. These are not just new products to add to an LO arsenal; to be successful there’s an entirely different sales approach needed to engage in a successful origination strategy. Additionally, unlike agency product, every investor will have slightly different guidelines and qualification guardrails to follow.
Agency applications seem to be on the rise. Lenders are using this time to submit their Agency application(s) to diversify their offerings and gear up for the next wave of originations. We have helped over a hundred clients with their Agency Applications and can assist you with yours. Fun fact, most companies wait until they are in the height of a volume boom and running out at capacity and then look to submit their Agency application, having to wait behind all others who waited. Now is the perfect time to get your application submitted.
There is a wave of increased Secondary based tech items that can really drive efficiency and reduce exposure with new LOS and PPE options. Now is the time to automate your lock desk and improve your Secondary workflows using these new offerings. We have implemented many new options that have made a real difference for clients. Shifting margins, shifting product, shifting investors, shifting competition, shifting hedge advisors, shifting PPEs and shifting volume and allocation per channel, oh and shifting Secondary personnel; is there anything that hasn’t dramatically shifted over the last 6-12 months? How dialed in is your Secondary? In a market where most lenders have lost money over the last two quarters, it is mission critical to bounce back, and quickly!
Breaking News - Technology Works!!
Amid the current volume reductions and reset to the new normal of origination levels, there continues to be many ongoing discussions about the value of technology within mortgage companies, and a continuous debate of whether the tech that is in place is worth its cost. This is not a new debate; it is just heightened in the valleys of profit reductions and month-on-month expense reviews.
I am continually puzzled as to why, in this market, there continues to be executives spending money to go to conferences to try to find this seemingly elusive answer to whether their current tech or new tech is worth the investment. While I understand the debate, there are multiple layers to it, and I wanted to expand on them this month.
Let me start with the fact that Technology works. It may not be perfect, it may not be widely accepted, and it may not be worth the cost, but let’s start with the initial fact that technology works. It works in all industries and is a growing part of everyday life. For some reason, there is widespread believe that technology within Mortgage is an outlier and does not work.
The truth is that with each mortgage system or application, you will find customers that fall into 3 categories and sentiments:
- It works incredibly well, and it has provided most, if not all, all intended
benefits
- It works ok – does the job but not a game changer, but not willing to make
a change
- It is not acceptable and needs to be removed or replaced
Not knowing the exact numbers, few companies fall into the first category and the majority will fall into category 2 & 3. What is the difference between all three listed above? Most blame the tech and in some cases, that is accurate, but in many cases, it is the user or client that pose the challenge. Many companies do not want to hear it, but it is true. Why does the same tech work well for some companies with the same business model and they can’t live without it, while others cannot get it implemented or adopted.
In many instances, I see where a company is questioning a tech solutions value, there are a flurry of reasons about why the tech is not working. While that question should be asked, I would counter with the following initial questions that could doom a project or system before it gets started:
- Has management made the commitment to the technology, and deemed its
adoption as required?
- Has management provided the right resources to customize and train the
new system?
- Has management really invested time into what the system can or cannot do,
or just become frustrated when the application does not do what it is not
capable of doing?
And most importantly-
- Has management taken the time to educate the staff and the
reasoning for the new tech application and how it will be a benefit
them, or have they left it to the interpretation of their staff which
often is tilted toward a feeling that the new tech is their
replacement?
What is the value of technology? In the simplest of answers,
- It is meant to make required processes easier and more efficient.
- It is meant to help companies scale their business so that can increase
volume with less resources.
- It is meant to create a better Client or Member experience.
- It is meant to be the foundation for your company’s processes, policies, and
procedures.
- It is meant to better support your business and clients and is constantly
evolving.
This should be part of the message to your team when introducing a new system. Quite often, none of this is stated, the tech decision is made in a vacuum, and the staff is left with a message that you have to use this or else. Go anywhere in life right now, and there are influences of tech improvements everywhere. Each part of life is getting easier with some level of technology. Each day companies are implementing new and improved pieces of technology that make them more efficient. Take a sampling of how many things can be done over a weekend that is easier than it was 3-5 years ago due to tech advances,
Tech works and when it does, it makes your life much easier
- Go to store and you can check yourself out
- You can deposit checks with your phone
- You can turn lights on and off with an app
- You can ask questions to a speaker and get information in seconds
Yet we on the mortgage side struggle with seeing the value of having new and innovative applications get implemented. Why is this the case? It is because companies are not looking at tech as a force multiplier for success, but rather an option to stay current. There are multiple instances of this in your daily life, and while some may have been a challenge at first, they become such the norm, we are unsure how we survived before it existed.
Tech works- It just needs to be understood and supported.
The mortgage business, like no other, works in cycles and it repeats itself.
When Volume is down, companies feel they do not have the money to invest in new projects, so they get put on hold. Volume increases and then projects are started in the midst of high volume. In the interim, staffing becomes more challenging and more expensive, and projects do not get fully adapted or implemented due to the high volume.
In the process, contracts get signed that aren’t fully vetted or understood, and staff is overpaid in the areas where resources become scarce, like Processing, Underwriting, and IT. These are the main areas that all companies are trying to automate and upgrade in this downturn. Do you see a trend here? You cannot upgrade and implement tech when you are going to pull the plug on it in a downturn. It is somewhat ironic, isn’t it?
What does this all mean? I have been writing to revisit and review your tech stack. That means doing a full review to make firm (and tough) decisions on your systems. Determine if they are a fit for what you need to scale your business.
Determine if it is able to do what you need it to do more than it is not? Just because it cannot support all aspects of your business does not mean it is not a good solution.
Determine if you have marketed the benefits of its adoption to your staff and ensure that it will make them better and not replace them.
Determine if you have built a strong training process.
Determine if you have built a strong support system so that when your users call, they can get answers easily.
For all of those who are looking for answers, the answer is right in front of you- Tech works.
Thank you for reading and look forward to a busy start to the summer!!
