Editor’s note: The mortgage market is shrinking and more lenders and mortgage brokers are turning to online lead-generation services and automated systems to stay ahead of the curve. In this three-part series, Inman News explores what online channels and automated processes the mortgage industry is using to attract customers and streamline lending in a tightened market. (See Part 2 and Part 3.)
As growth in consumer lending slows, technology will be a “key weapon” lenders can use to win profit share and succeed in the marketplace, an analyst said in an online seminar last week.
“Growth in baseline consumer lending is slowing,” said Bobbie Britting, senior analyst, consumer lending at the Tower Group, in a Webinar Thursday.
“The major players in the market such as Fannie Mae, Freddie Mac and the Mortgage Bankers Association have estimated that it will be down anywhere from 14 to 20 percent this year,” Britting said. Her own estimate is that growth will be down 8-1/2 percent, Britting said.
In this environment, “you’ll succeed at the expense of your competition,” Britting said.
The analyst targeted portfolio management as one of the areas that could benefit more from automated solutions. “I don’t think people have used them enough,” Britting said. “It’s common to focus on marketing and origination, all of which there are new and exciting things to be doing; but historically, lenders have not been as good at supplying technology to their current portfolios,” she said. “I think they could benefit a lot from that.”
“In a rising-rate environment, portfolio management can present a difficult situation,” Britting said. “Consumers have less disposable income and are often strapped to make payments.”
Britting presented a case study in which a Top 25 mortgage lender got a 96 percent increase in payment on loans by automating its collection process for home equity loans.
The lender was using a collection agency, but “there was a great deal of agent turnover, which made for expensive training and retraining costs. The company didn’t feel they had the control over the agents they needed to perform the customer service they wanted. And this was leading to higher costs,” Britting said.
To solve the problem, the lender decided to take back control of the collection process, testing an automated collection system. The company didn’t build its own system, but turned to outside vendors instead.
According to Britting, the research revealed that collection is one area in which impersonality is an asset. “There’s less negative impact of talking to a human being. There’s less incentive to lie.”
The company chose PAR3 Communications, a Seattle-based company that provides automated, interactive notification solutions, including collections.
“In this case study, the results were significant. There was a 96 percent increase in payment within 5 days of the contact and a 65 percent increase within 10 days,” Britting said. “It improved performance and brought costs down.”
During the question-and-answer session, Britting was asked about outsourcing business process technology, as opposed to lenders building their own systems.
“I think it (outsourcing) allows the lender to be more nimble than if you build everything in-house,” Britting said. “Often there is a cost savings. You want to look at the specific processes you need assistance with to decide if it’s a good idea, but a number of lenders are seeing great positive benefit. There’s often a time saving with outsourcing versus building. You are potentially saving time and money and also achieving the latest and greatest technology.”
In the “buy versus build” question, the analyst said, “it depends on the particular problem you are faced with,” referring to the dilemma of whether a company should use another company’s services to perform a function or create its own in-house department to handle it. Many times, though not always, the determining factor is the size of the company, she said.
“A major player will want their own system, they need sophisticated systems for their special and unique needs,” Britting said. “If your volume is 200-500 loans per month in any particular segment of the consumer lending industry, it would probably be more in line to buy the technology than build your own. Your volume won’t support the cost of building.
“If you are a top 10 or top 20 lender in your industry, you are going to want to build, and if you are more like top 50 or below, you want to look at buying,” the analyst said.
According to Britting, “quite a few lenders are finding themselves in a hot spot right now because they’ve spent a lot of money and time over the last several years focusing on the origination side and putting all the proper systems in place. Now with such a competitive market, with rates rising and borrowers borrowing less or looking to pay down loans, lenders are scrambling to put the right customer retention strategies in place.”
The analyst said that if volumes are down, “it’s a great time to look at new technology. There is much less risk if you have smaller volumes. If your system is overwhelmed, it’s not a good time to be pulling out a loan origination system. Now is the time to replace systems and upgrade systems.”
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