In a recent MBA webinar, economist Mike Fratantoni made the point that the mortgage banking industry has had 45 years of refinancing volume and would not see another wave like this for many years. Fratantoni estimated that moving forward, origination will be 65% purchase money and 35% refinance — nearly a reversal of what it has been in the past, i.e. 65% refinance and 35% purchase. In my view, this shift is a game-changer of monumental proportions for the industry that will impact everything.
While I don’t think that this information is news to anyone in the industry, Fratantoni’s next comment certainly was: He said that one of his main worries is that management has not seen this type of marketplace in a very long time and may not have the experience or skill to manage in these more difficult times.
He also said that quality of leadership at mortgage companies in tougher times is a big risk factor for the industry. Coincidentally, a recent report by the Collingwood Group published August 9, 2015 said that the mortgage industry is ripe for disruption since “no fundamental changes to origination processes have been made in decades, growing regulatory hurdles, high cost and low profits.” Not a rosy outlook.
The economist’s concern about the quality of leadership was right on because what else would explain why companies act irrationally: paying outrageous guarantees to loan officers; ignoring high turnover percentages; failing to install a structured hiring process and provide consistent professional sales and managing training. Even more troubling is the industry’s failure to address an aging sales force (average age 54 years old) and recruit younger people. Granted there are a few firms making an effort such as Academy Mortgage, but as a whole, most lenders believe that correcting the issue is too costly and demands too much in resources.
For a current employee to state these issues can be hazardous to one’s career. The dose of reality is not easily accepted at many firms. The truth is that when interest rates are low, there doesn’t seem much motivation to address these problems and the future looks bright. As Collingwood’s white paper suggests, long-standing inefficiencies keep building and setting the stage for major disruption. Have you made the changes needed to succeed in purchase money marketplace? Time is running out.