“Just Do It” Won’t Cut It
By Mary Kladde
***Low interest rates going even lower have driven a refi boom in the third quarter and show no real sign of spiking until next year. Although I’m not a confident prognosticator in unprecedented times, I’d guess that at some point in Q2 2011 and certainly by this time next year, rates will eventually trend upward.
****When the shift finally occurs, the tide of borrowers motivated and qualified to refinance will recede and our industry will be staring directly in the face of what will become “The New Normal.” We’ve evaded the real impact of our industry’s new market realities as a consequence of the Fed’s repeated decisions to repress interest rates.
****However, the respite will end eventually, rates will rise, and the reality of a significantly shrunken pool of loan volume will emerge. Then, I believe, our industry will experience another wave of culling among independent mortgage lenders. Unfortunate, yes, but from the evidence I see in working with a broad spectrum of mortgage lending organizations, two traits persist:
****>> A mindset that some aspects of loan quality can be circumvented “when necessary;” and
****>> Unrealistic expectations of “business walking in the door.”
****You would think the first trait would be significantly nullified by the regulations and “cost to cure” on loans stemming from changes enacted the first of the year. It still amazes me, especially during the last days of the month, the quality details lenders are willing to “let slide” just to get a loan closed. I’d wager that nearly every mortgage banker executive within the sound of my voice knows exactly what I mean. They know either because they have allowed/demanded it, or because they have dealt with the repercussions of a loan returned by the destination investor because of it.
****Regardless of why and how and judging from the exceptions we are asked to make among our client base, mortgage loans are still being allowed to close prior to receiving “clear to close.” As we’ve said before, there are elements of total loan quality (such as verification of employment protocols) that, in our opinion, add no knowable value to the loan’s integrity. However, it is in the interest of a mortgage lender’s business integrity and business continuity to apply themselves slavishly to the details – even when there is a spike in volume. Especially when there is a spike in volume!
****It never ceases to surprise me that some mortgage bankers decide to outsource their back office and mortgage fulfillment operations to ensure scalability and mitigate the risk of mishandling loan details, yet ironically expect that we will allow exceptions on demand and assume the risk associated with these exceptions. Our steadfast position on quality has ended some relationships, but those relationships often boomerang after those misguided lenders experience the pain of investor-returned loans or significant “cost to cure” requirements.
****May the words, “Don’t get hung up on the details, just get it done,” be banished from the mortgage banker vernacular now.
****Returning to the two traits above, I’d like to caution mortgage lenders who have been gorging on refis for the last 90 days to look up from the trough. Look up and realize that your more fearsome competition is the lender committed to loan quality and strategic marketing. Here’s my advice – know what your purchase to refi ratios are and spend at least 15 percent of your time each month in creating productive realtor and/or affinity relationships. This focus will help fill your pipeline when the boom ends and positioning you for continued success in 2011.