Are You Zigging When Others Are Zagging?

In every conversation I’ve had regarding the 2022 mortgage banking forecast, it’s clear that the year ahead will be challenging for lenders and originators.  For those new to the industry, this might be a shock but experienced producers are all too familiar with the industry’s boom-or-bust cycles.

To be sure, interest rate fluctuations, housing supply limitations, gain on sale and a million other factors can contribute to a tougher marketplace environment. While many of these issues are beyond an individual’s control, there are definitive steps managers and sales professionals can take to win in a difficult year.

From a leader’s perspective, controlling production costs and establishing the right company culture will be critical to successfully overcome the challenges ahead. During a refinance market, company culture often takes a backseat to an all-hand’s-on-deck mentality. But in a difficult marketplace, every employee must be on board with the organization’s mission and values. This translates into a workforce willing to collaborate, go the extra mile and innovate to improve the customer experience. In essence, everyone needs to be on the same page. Anything less can derail an organization’s best efforts to keep its hard-won market share and grow.

For originators, it boils down to executing their daily sales activities well and staying top of mind among prospects, past customers and referral sources. Granted, this is easier said than done amid a steady stream of notifications and interruptions on any given day.

In a more difficult market, originators are tasked with generating new business in an environment where market share is decreasing or staying the same. This means producers must adjust their sales strategies accordingly to align with the needs of consumers and referral sources and therein lies the rub.

If Zillow’s exit from iBuying says anything, it tells us that even heavy-hitters can make colossal mistakes in reading market conditions. This should be a warning sign to everyone else including originators.

The truth is that the vast majority of lenders and sales professionals don’t bother to refine their sales models when interest rates rise. At best, sales leaders cut expenses haphazardly. The good news? This can be a significant opportunity for producers who are willing to change and adapt.

It should be no surprise that top lenders continue to do well when times get tough as others shy away from making hard decisions in a volatile marketplace.  Similarly, top producers take advantage by getting a bigger market share as others fall by the wayside.

The High Cost of Maintaining the Status Quo

What is holding back lenders and originators from making important changes? Status quo bias strikes again.

Status quo bias is evident when people prefer things to remain the same and do nothing or stick to a previous decision in lieu of making a change. While status quo bias is frequently considered to be irrational, sticking to choices that worked in the past is often viewed as a “safer” option due to informational and cognitive limitations. For example, status quo bias is more likely to happen in situations where there is choice overload or high uncertainty and deliberation costs.

Whatever is causing resistance to change, the end result is that lenders or originators will lose out to a competitor who has made the changes and adapted to a new market environment.

Case in point: In its recent earnings presentation, Rocket Mortgage referenced Dan Gilbert’s 1998 quote, “we must take this great technology to the internet.” Fast forward 23 years and Rocket is the nation’s number one lender with 10% market share. The company’s goal is to have 30% market share, something unheard of in an industry that is a mature business.

It is clear that Rocket doesn’t suffer from status quo bias. Other lenders and originators shouldn’t either if they want to win in a more challenging year.