What are lenders’ primary pain points heading into fall 2020?

In May, when COVID-19 was reaching what then appeared to be its peak in terms of infections and economic disturbance, originators and lenders had an awful lot of awful on their minds. A necessary shift to a remote work model left many worried about productivity and maintaining long-established business processes. The forbearance guidelines contained in the CARES Act meant new and ample resources would need to be allocated to ensure borrowers were making informed decisions about the future of their loans, while the resulting rush of homeowners entering forbearance ate up most lenders’ capacity.

With the hysteria of the pandemic’s first wave having given way to an unexpectedly bananas real estate market – Black Knight calculated origination volume in the second quarter to be $1.1 trillion – loan providers still have plenty to worry about, but according to a new report by STRATMOR Group senior partner Jim Cameron, their major pain points have shifted considerably.

After conducting its August 2020 Operations Workshop, an online event for mortgage executives, STRATMOR surveyed attendees and found that previous concerns like remote work and forbearance had moved from the top of the list of lenders’ priorities to the very bottom and were replaced with issues related to summer’s white-hot sales activity.

Unsurprisingly, capacity management was the number one pain point discussed. With so many borrowers and homeowners looking to purchase or refinance their properties, underwriting, processing, and closing these transactions created capacity constraints for a whopping 47 percent of survey respondents.

Recruiting and retaining qualified staff was an issue for 24 percent of lenders, who noted a particularly desperate need for underwriters. The headhunting of operations teams has also posed challenges. “Staff are being lured away with massive bonuses and they are being promised no overtime,” one exec told attendees.

Affecting 16 percent of respondents, low morale and employee burnout was the third most common worry.

Potential solutions

In handling their capacity concerns, lenders told STRATMOR they were hiring temporary staff and adjusting their workflow processes, but their most frequently used strategy was increasing overtime. It’s the most obvious method, but not necessarily the most effective over the long-term.

“[E]xcessive overtime is never an acceptable long-term solution,” Cameron writes, “and the levels being worked in today’s environment come with collateral damage in the form of decreased morale, burnout and fatigue,” which one attendee said makes employees more prone to outside offers.

One specific strategy used to free-up capacity has been increasing refinance lock periods and cycle times. (For refi’s, cycle times rose from 45-50 days in February to 60-75 days in August, Cameron says.) But doing so comes with risks. When turn times surpass 45 days, STRATMOR’s Mike Seminari explains, a lender’s Net Promoter Score falls from 88 to 70. It falls to 60 when turn times surpass 60 days.

“Borrowers who have been promised a sizable monthly savings start planning in their head how they will spend the extra money,” says Seminari. “So, a delayed closing – which often forces them to make another payment on the old loan – can feel like you’re actually taking money away from them. And that’s not a recipe for delight.”

The most widely accepted methods for maintaining staffing levels were “grow-your-own” strategies, including providing additional training for existing staff, mentorship programs and the hiring of recent college graduates to take advantage of the lack of bad habits that comes with a clean slate.

“Recruiting inexperienced staff and training them can be an uphill battle in our industry,” Cameron admits, but he says it should still be “part of a comprehensive staff development program.”

At a time of intense volume, helping staff avoid burnout may be a lender’s best strategy for both maintaining capacity levels and retaining talent. Some of the ideas for alleviating worker stress shared at the Operations Workshop included:

• Virtual happy hours where talk of work is prohibited

• One shorter day of work every week

• Financial assistance for childcare, housekeeping, and pet-sitting

• A four-day week of 10- to 11-hour days

• Rolling over or selling back vacation days

• Blackout weekends – no OT allowed

Spring 2020 was a justifiably horrifying time for the U.S. mortgage industry, but now that the calamitous housing and stock market crashes some feared would result from the pandemic have been avoided, the worst appears to have either passed or failed to materialize.

“[T]here is far less uncertainty, just the daunting challenge of how the industry is going to handle the volume,” Cameron says, “which all would agree is a great problem to have.”