How to Successfully Launch Loan Products, According to a Manager at Optimal Blue
With interest rates and home prices rising, volume in the mortgage market continues to slow. The MBA recently revised its 2022 forecast, now predicting $2.58 trillion in mortgage volume for 2022. The bulk of that volume is anticipated to come from purchases, as 90% of existing mortgages are at or below the 5% mark, cooling the refinance market. And with 79% of would-be homebuyers believing now is not a good time to buy, local lenders may be looking to get creative to drum up volume and salvage basis points.
“There’s a lot of chatter out there about a lot of different things and about how lenders can do more loans. The industry is asking, ‘How can we keep the machine rolling?’” observes Anthony Ianni, Maxwell Capital’s Solutions Director, regarding the sentiment of lenders in today’s market.
Jeff Shearer, Team Manager at Optimal Blue, an industry-leading product and pricing engine, joined the Clear to Close podcast to discuss new loan products and creative strategies he sees from lenders as they look to bolster profitability in 2022. As lenders are asking how they can drive volume, Jeff sees they are looking to strategies and products that are perhaps unfamiliar and inherently a bit more risky in the current market.
Diversify product mix with caution
How many lenders are looking into new loan products? Simply put, everybody. Lenders are turning to different products—HELOCs, ARMs, non-QM, “lock and shops”—as a means to generate volume in both the refinance and purchase markets. While these products aren’t necessarily new, they may be products that are unfamiliar to lenders who have focused on conventional and conforming loans in recent years. Still, these unfamiliar products may be worth it if it means giving your loan officers more flexibility and more opportunity to meet market demands and serve every borrower that comes through the door.
When evaluating the feasibility of a specialty product, lenders should review what their peers are selling as well as what investors would be willing to purchase. They should also look internally to make sure that a given product is right for them specifically. Refresh yourself on products that have been used in the past to see if they may be a good fit, or speak to your teams and partners about other available options that may be more in line with your risk tolerance and business model.
“It comes down to who you’re working with to say, ‘Does this make sense and can it be profitable?’” Jeff notes. “We can pretty much build and supply any product that [lenders] want to see, but it comes down to the economics of the deal. How much volume is this going to bring in and how much maintenance?”
Cash flow vs. portfolio
When looking at loan operations, both for origination and the secondary market, you have to understand if you are looking for cash flow or portfolio with your strategy. This pertains both to the loan itself and the mortgage servicing rights (MSR). Once you’ve originated a loan and have sold it to an investor, especially to the GSEs, you still need to decide how to handle the servicing rights.
“Because the GSE’s don’t own servicing and are not in that business, you have to sell it elsewhere or retain it yourself,” advises Bryan Traeger, VP of Customer Success at Maxwell.
Especially for independent mortgage bankers, it may make sense to build a strategy around cash flow. By selling the MSR instead of retaining the rights and servicing the mortgage yourself, you can generate cash now to go after additional volume while carrying a lighter long-term portfolio.
On the flip side, some local lenders may specifically be looking to bulk up their portfolio. This may mean retaining MSRs or originating more portfolio products at more aggressive rates with the intention of keeping those on the balance sheet long term. For depository institutions such as banks and credit unions, maintaining the portfolio can keep volume up for the institution even when the market volume is decreasing.
If you can’t beat ‘em, sell to ‘em
So, how can an independent mortgage banker compete with these lower rates offered by their depository competition?
“Sell to them,” says Anthony. “You have to do the heavy work. You have to go out and find those lenders and see if you can establish a relationship and sell them some loans.”
For IMBs, the potential is there to sell to banks and credit unions with the liquidity and appetite to purchase loans for their own portfolio. This can apply to both the loan and the MSR, giving local lenders additional options on the secondary market.
“There are definitely things you have to think about because you want to make sure your borrowers are being taken care of,” notes Anthony.
Among those considerations are:
- Does the institution have the proper infrastructure to ingest the loan?
- Do they have appropriate risk controls?
- Can they effectively provide a daily rate sheet?
- Do they have a lock desk?
While these institutions likely aren’t advertising they are open to this, the previous relationships you’ve built in the industry can come in handy when reaching out to discuss the potential for these types of deals.
Lean on your relationships
“We’ve been preaching about leaning into what makes the mortgage industry the mortgage industry, and that’s relationships,” Bryan says. “It’s incredible how more and more relationships are important and really are the lifeblood of the whole industry.”
In an industry built on relationships, it’s vital that you leverage your contacts, especially your partners, for advice and guidance when looking into new strategies. Your partners can model different strategies to compare profitability, help you make sense of the options available to you, and inform your decision. The relationships you’ve forged can lead to new business and can uncover new opportunities to build towards success.
Ultimately, there is a difference between “can” and “should.” While lenders can deploy creative strategies or offer new and different products, they still must weigh the risk and reward to determine their own comfort with any given strategy. Understanding what your borrowers and investors are looking for is crucial to deciding the path you take. Having partners such as Maxwell Capital can help to clarify your options when it comes to the secondary market and work with you to keep your business headed in the right direction.
For more on this topic, check out the latest episode of Maxwell’s Clear to Close Podcast featuring Optimal Blue’s Jeff Shearer.
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