Lenders Who Fail and Thrive in a Down Market

The downward market is causing mortgage lenders to rethink their strategies. Who will fail and who will thrive in these uncertain times?

Mortgage lenders struggling and lenders thriving in a difficult market

Recent increases in interest rates, shrinking demand and tight margins have forced some lenders to close shop. But in this market, staying in the fight means making tough decisions to right the ship.

Some experts say to expect the worst, which means you should prepare accordingly – which will be the difference between the lenders who fail and thrive in this down market.

What’s Happening in the Mortgage Market?

While it’s true that the market can be unpredictable, Freddie Mac reported a downward trend in mortgage rates for a fourth week in a row as concerns about slow economic growth expanded. Mortgage rates fell by three-quarters of a point in the last four weeks, which has been the greatest drop since 2008.

Despite drops in interest rates, homebuyer sentiment remains low. Mortgage application volume fell 1.9% at the beginning of December compared to the week before, according to the Mortgage Bankers Association’s seasonally adjusted index.

Lower mortgage rates have pushed up refinancing rates, CNBC reported, but not enough to offset the drop in demand from buyers. Because of economic uncertainty, potential buyers remain wary, and there are no clear signs that this pattern may change soon.

The Fannie Mae Home Purchase Sentiment Index (HPSI) increased by 0.6 points in November – the first in nine months. However, this is only slightly above the all-time low and significantly lower than the same time last year. 

Doug Duncan, Fannie Mae’s senior vice president and chief economist says that consumers expect mortgage rates to rise and prices to fall, which is believed to contribute further to slowing home sales. Fannie Mae also expects diminished mortgage demand due to affordability constraints.

Why Are Some Lenders Failing?

Although natural fluctuations in the market are common and often rebalances itself, the real estate market is now suffering from a lack of demand and increasing interest rates. This has always been a problem for buyers throughout market ups and downs, but the financial difficulties mortgage lenders face are what truly make the difference.

Some of the top reasons why lenders are failing include:

Not taking any action: Experts have been warning of a possible down market for months. By not taking action, lenders are just sitting ducks.

Focusing heavily on refinances: The refinance market was booming last year, but now that refinance activity is drying up, it’s forcing some firms to exit the industry. As long as mortgage rates remain high, refinance activity will continue to be low.

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Relying on non-QM loans: Non-QM loans allow home buyers who may not otherwise be eligible for a mortgage to purchase a home; however, this leaves more room for borrowers to default on their loans. Some non-QM lenders are also less likely to work with the GSEs, which could provide government-backed emergency relief.

Cutting costs early: When firms hear the possibility of a down market, many are quick to lay off a large portion of their workforce and cut costs wherever possible. Battening down the hatches and waiting it out won’t always work. You never know how long a down market will last.

Not adapting processes: The use of automation and new technology has significantly impacted mortgage lenders. Robust mortgage point-of-sale (POS) and loan origination system (LOS) implementations link front and back-end operations, allowing for greater efficiency and the ability to serve more customers in less time. With all of the mortgage tech available today, the lenders that are failing didn’t use it to their full advantage when the market was booming.

Lenders Who Thrive in a Down Market

Mortgage technology is a key differentiator between lenders who thrive and lenders who fail in a down market. Suppose you use outdated systems and processes that predate the 21st century in your business. In that case, you are far behind the lenders that put significant investments into their mortgage technology over the last several years.

Many traditional mortgage lenders are reluctant to use new technology due to concerns about the learning curve and the impact on their operations. However, this reluctance can be detrimental since adopting automation is one of the key reasons lenders can prosper in a down market. 

Inflation and increasing interest rates have depleted the refinancing market and reduced new mortgage applications, allowing fintech businesses to accelerate development that can endure the down market with the help of cutting-edge technology. Especially in light of all the layoffs that have occurred this year, it is clear that using such methods makes it possible to do more with less, particularly if you’re already tiptoeing on edge.

Benefits of Fintech Partnerships

Although the prospect of change might be daunting, particularly for those who have worked in their field for decades but are now faced with learning new methods, it is ultimately beneficial to push through and adapt. The end-to-end connectivity and eliminating outdated, time-consuming procedures that are no longer needed in today’s fast-paced market are two main advantages of collaborating with fintech companies. 

Following these steps will help your company weather the current economic downturn:

  • Focus on providing improved customer service and experiences 
  • Offer increased transparency and greater accessibility that allows your clients to compare rates, decrease discrimination, and increase financial transparency
  • Respond to needs with products and services quickly through emerging technology that you could otherwise not achieve
  • Avoid costly in-house developments to meet the needs of your clients
  • Take advantage of market opportunities and react to market changes lightning fast
  • Streamline any existing processes that are working and just need an overhaul
  • Improve your outdated compliance and risk-management framework
  • Cut out draining manual tasks and make use of more with less

It’s Time to Thrive

It can be exhausting to deal with both market declines and internal financial crises. Still, fintech partnerships can help you access fresh opportunities and position yourself as one of the lenders that succeeds in failing economies. This may seem like a leap into the deep end to some, but it may help you weather even the worst market storms and gain longevity, credibility and the opportunity to expand.

BeSmartee is ready to help you implement the right digital mortgage technology for your lending business. Contact a BeSmartee mortgage technology expert to learn more about how we can assist.