Here's how lenders can win (or lose)
The next wave of mortgage refinance boom might not be the guaranteed solution many struggling lenders are hoping for, according to STRATMOR Group.
STRATMOR’s latest report highlights significant changes in the industry since the last refinance wave and outlines strategies for lenders to prepare for the upcoming shift.
“I’ve talked with many lenders who believe at the core of their beings that as soon as the next wave of refinances hits the business, all of their problems will go away,” STRATMOR senior partner Garth Graham said in the report. “But that isn’t guaranteed.”
Graham explained that the mortgage industry has changed significantly since the last boom. After enjoying COVID-era profits, most lenders are now experiencing difficulties.
“The data shows that the typical mortgage banking firm has been taking on water, with the industry showing losses for eight quarters in a row,” he said.
Graham noted that lenders who opted to sell servicing rights for immediate cash, severing ties with many potential refi customers, may be at a disadvantage when refinance opportunities arise.
”Lenders that retained servicing, on the other hand, will hold an advantage when the next refi wave hits as they can leverage existing relationships instead of relying on trigger leads,” Graham said.
Large consumer direct lenders will likely fare better due to their staffing and advanced technologies. Additionally, Graham pointed out that outdated compensation structures could hinder competitiveness.
“Traditional comp plans are serious impediments to any lender who wants to be competitive,” he said. “Optimized compensation plans typically mean paying less for refinances and in-house deals.”
STRATMOR data revealed that over 60% of no-cash-out refinances are originated through consumer direct lenders, who offer lower commissions compared to independent mortgage banks and retail banks.
To prepare for the upcoming refinance wave, Graham suggests several strategies:
- Develop strong retail or consumer direct channels
- Adjust compensation structures
- Improve lead generation efforts
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Mike Seminari, customer experience director at STRATMOR, emphasized the importance of adapting to changing trends in the mortgage industry. He noted that traditional marketing methods like SEO and testimonials are becoming less effective while short-form video content is gaining importance.
“TikTok, Instagram stories, Facebook reels, and the like are becoming the preferred method of consumption for a quickly growing majority of the population,” Seminari wrote in his article.
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