Written by Bill Corbet, Managing Director - Strategy
The mortgage market has moved in cycles over the past forty years, and, while we are focusing on COVID-19 and the devastating effects to our economy - the pendulum of mortgage lending is now swinging back in favor of Community Banks and Credit Unions.
These local organizations used to represent a sizable portion of the origination base. However, going all the way back to the late 90’s, early 2000’s, after accounting changes moved servicing values onto the balance sheet, they simply could not compete with the outsized SRP’s being paid by the aggregators.
As a result, Community Banks and Credit Unions were generally left with two bad choices; sell the servicing and lose the customer relationship or retain the customer but loose competitiveness and watch the volume and profitability decline over time.
Even as many folks were predicting the demise of the aggregator model during the 2008 housing crisis, it survived due to the pull back of the large banks and the steadily declining interest rates over the past ten, plus, years.
More recently, over the past year or so, local lenders began to clawback market share by focusing on their core competencies. As this trend was gaining momentum, COVID-19, and specifically their success with PPP, is turning out to be the catalyst that is leading Community Banks and Credit Unions back to market share levels that they have not seen in decades.
Community banks and Credit Unions who recognize this and who can efficiently and effectively blend their core strengths of local distribution, local decision making, strong capital, and have a core regulatory framework in place, they will have a solid foundation for growth. Moving forward, access to digital lending tools that enhance the customer experience, manage risk, and drive efficiency are no longer limited to the largest lenders. Couple by the fact that Community Banks and Credit Unions have a natural tendency to manage strong operations, maintain capital, and adhere to an exhaustive regulatory framework make them ideal to partner with the GSE’s and optimize sale and delivery options. And finally, Community Banks and Credit Unions are now in a stronger position to create a more effective, blended, sales model that reduces the cost of origination.
Like the several Community Banks and Credit Unions BlackFin Group is currently engaged with, now is the time for their peers to design, build, and implement a more effective and optimized mortgage lending strategy. Respecting a client’s request for anonymity, the SVP of a Community Bank in the Southeast region gave us permission to highlight their recent proclamation, “it’s clear, the pendulum will not be shifting back any time soon and that’s why we recognized the need to bring in lending experts who can help us optimize and re-shape our strategy. This will allow us to more effectively serve our customers, while ensuring maximum profitability.”
Community Bankers and Credit Unions, are you ready?
Bill Corbet is Managing Director of Blackfin Group’s Strategy Consulting Practice. A 30-year veteran of the mortgage banking and financial services industry, Bill has held numerous executive leadership roles overseeing Capital Markets, Technology Deployment, Product Development and Risk Management. Bill’s executive leadership background spans from community banks and independent mortgage bankers to a Top 15 nationally recognized bank.