WE'RE HEARING some people will tell you that there is plenty to fear in the modern mortgage lending business.
You could fall out of compliance and receive a visit from a government regulator, they’ll warn. You could be a victim of fraud and have your closing agent abscond with your escrow funds, they’ll suggest. You could authorize a technology upgrade only to find yourself branded a robo-signer by the mainstream media and imprisoned, they whisper. Unlikely. If you’re a fan of statistics, as I am, you’ll find that the numbers don’t speak to an uncommonly high level of risk. But that’s not to say that there is nothing to fear.
One fear more lenders are taking seriously is that interest rates will continue to rise, spinning up out of control like a Midwestern cyclone, blowing the refinance business away and leaving ill-prepared lenders sifting through the rubble for purchase money transactions. If that happens, it could force lenders to face what may be their ultimate fear, perhaps the sum of all fears: that they must compete with each other for a consumer who does not want what they offer.
If this happens, gone will be the days when lenders could work side by side to mow down an endless supply of refinance borrowers, like a herd of buffalo lazily munching grass on an endless plain. Too often, those plains end at a cliff. In a rising interest rate environment, lenders will face off against each other to determine who is most fit to earn the remaining business.
Even now we see news that interest rates have “shot up” to nearly 4%, slowing down refinance volume even as the government works to push more HAMP business down the pipe. Stratmor is already fielding requests for information from our customers who are eager to know how their peers are doing in an effort to determine if their overall volumes have fallen too far.
For those of us that have been in this business for more than a year or two, interest rates at 4% serving as a damper for new business is laughable. That’s cheap money! But not if you’re talking to the wrong borrowers. In mortgage, like anything else, marketing is a battle that takes place in the niches.
We’ve all read stories about mortgage companies that succeeded by identifying a niche market and then specializing in servicing it in an excellent fashion. Most often, those stories appeared with a subhead about “emerging markets.” As the refinance business goes away—and I’m not saying it will today or even ever go away completely, as some estimates put the number of borrowers with loans above the current interest rate at about 20 million and new investors could enter the market any day—purchase money borrowers will be revealed as a patchwork quilt of niche markets. Those borrowers that can still refinance constitute another niche. The lender that can serve the most of these niches will earn the most success.
Previous customers that are back in the market, whether for a new purchase loan or a refinance, are often the best customers to win. Using advanced data mining techniques is one of the best ways to do this.
In short, it will be a race to see which originator can get those “sums-a-niches” to fill out the apps first, thus locking in the relationship with the borrowers. This will separate those who understand marketing from the order takers, those who hunt the buffalo from those who get turned into fur coats. What are the keys to winning this game? Glad you asked. I’ll be talking about things the best mortgage loan marketers do in the next few posts.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.
