The Number 1 Strategy for Surviving the Refinance Decline


Last week, the MBA adjusted its 2022 forecast predicting that refinance lending will account for just 25% of total loan volume vs. the current percentage of 53%. This will be a 28% drop, a significant decline that could put many mortgage lenders on the ropes. While the last two years generated record profit for lenders, the next couple of years will test management’s skills as senior leaders try to keep their firms afloat. So, how are lenders responding to the challenge?

I find that now more than ever, senior executives are turning to technological solutions to help them succeed in the face of changing consumer behaviors and a difficult financial marketplace.

While adopting new technology is certainly important, the record shows it has done little to reduce sky-high loan expenses. According to the MBA, expenses per loan are $8,300 with approximately 65% of that amount going toward personnel costs.

With the grim reality that a majority of loan costs are related to personnel, commissions and benefits, managers often cut sales staff in an effort to stay profitable.

This strategy reinforces mortgage banking’s reputation as a boom or bust business that has difficulty adjusting to a changing interest rate environment. When refinancing declines (as those who invested in this year’s mortgage companies’ IPOs learned), lender performance can become disastrous very quickly. Buying a new CRM or operating system doesn’t generate that much of a financial lift when the marketplace shifts.

This isn’t a new issue. External events that firms have no control over are an ongoing threat that can drastically impact a company’s performance. The profitable can become unprofitable in an instant. The COVID-19 pandemic has demonstrated that life and business can change in a heartbeat.

Survival Strategies for Long-Term Success

What separates companies that survive these events from those that do not? In the Harvard Business Review article, “The Top 20 Business Transformations of the Last Decade,” authors Scott D. Anthony, Alasdair Trotter and Evan I. Schwartz, analyzed S&P 500 firms based on amount of new growth, repositioning their core business to new life, and financials profitability and stock prices. In their initial review, they found only 3% of public companies were able to match these benchmarks and make progress toward strategic transformation.

The authors found that after extensive analysis, “In an era of relentless change, a company survives and thrives based not on its size or performance at any given time, but on its ability to reposition itself to create a new future, and to leverage a purpose-driven mission to that end. That’s why strategic transformation may be the business leadership imperative of the 21st Century.”

So, what holds companies back from transformative change? Anyone in mortgage banking will no doubt recognize this common roadblock to sustainable success: “That’s the way we have always done it.”

Instead of wiping the slate clean and putting everything on the table, managers make decisions based predominantly on what worked in the past. At best, they might implement incremental changes when what really needs to happen is an honest assessment of where they are and embracing potential solutions that require fundamental changes to how the company does business.

For example, in nearly every conversation I have with senior managers, the most frequent complaint I hear is that they are paying loan officers too much in compensation. Yet, when it comes to implementing a transformative new strategy, they say,  “If I don’t pay up, my competition will.” This is a safe answer and one of the reasons why hiring rookies and segmenting the sales process rarely happens. Playing it safe isn’t always the best option.

I would argue that now is the time for senior executives to re-think how their company markets and generates volume as well as the quality of the borrower experience.

As noted in the Harvard Business Review article, a new strategy starts with looking objectively at trends and adjusting to meet them. Sometimes this requires thinking out of the box. This isn’t easy but it is what 3% of the top firms have done to refocus their companies to reach the next level and create a foundation for long-term success.