Is now the time, To invest in a new Mortgage Origination Platform?
February 3, 2023
By Andrew Weiss – Partner, Technology Practice at BlackFin Group
It is no secret the Mortgage Origination business has hit a tough patch. Total originations this year are expected to be just over $2 Trillion, 50% of the 2020 high. Refi’s are way down from the historic highs of 2020 with 2023. Refi’s projected to be only one fourth their previous volume. Layoffs and major companies pulling back from the market have been splashed all over the news. So, with that backdrop, is it time for Lenders to invest in new technology to make their Origination Platform better?
The appropriate answer is “it depends”.
But to make an informed decision, let’s start by looking across a broader sweep of time. 30 Year fixed Mortgage rates were at their peak roughly 40 years ago at an unbelievable 18.28%. Between the turn of the millennium and 2019 rates have been between 4.0% and 7.5%, putting our current rate of around 6.25% well within historical norms (see chart, below). Furthermore, 2023 Origination volumes are projected to be higher than any year from 2008 to 2019, and longer-term forecasts see volumes rising.
Those of us who have been in the industry a long time have been through what I will term the “boom and bust cycle” more than once; when times are busy, we’re all too busy to make major changes and when times are lean, we’re afraid to spend the money. And while the demands of consumers for a better online experience and the demands of Loan Officers/Mortgage Consultants for better tools to land Prospects have led to more technology spending, the fundamental process of originating a mortgage hasn’t changed that much since the advent of Automated Underwriting in the mid 90’s.
But, despite having been here before, there are some fundamentally different forces at work in today’s market. The burgeoning population of today’s homebuyers have grown up with technology enabled business from Amazon retail shopping to self-service airline reservations to online banking. Clearly the complexity of the Mortgage process, particularly for first-time buyers, has suppressed the demand for an end-to-end online Mortgage origination experience, but consumer sentiment is moving towards online transactions across the board, including car buying, tax preparation, and lending. COVID-19 has only hastened that transition. Furthermore, the rapid development of mortgage technology and the availability of personal information like Credit, Income, and Assets have created the potential for a new Borrower experience while eClosing has enabled more efficient operational capabilities. Also, it is clear that Borrower satisfaction and the referenced Prospects that it can generate is critical for sustained success.
So, back to the question: is now the right time to invest in a new Origination platform? For most Lenders, investing while volumes are relatively low makes sense from the perspective of enabling the organization to accept the change. Additionally, if a Lender has not significantly updated their Platform in recent years, there are likely a host of new capabilities that will make the process more efficient and Borrower friendly. With that said, a Lender’s platform may not need to be totally replaced, as there are opportunities to significantly update the technology and process by strategically injecting major new components.
Lastly, there is no way to get around the fact that it takes time to implement a new or enhanced Platform and absorb those process and skill changes into the organization, so to be ready when the next “Boom” hits, the time to prepare is now. Understanding that any major investment comes with risks and material financial outlays, if the goal of a Lender is to be in the Mortgage market for the long haul, then serious consideration should be given to investing in a new Origination Platform.
Andrew Weiss, Partner, leads the Mortgage Technology Consulting Practice at BlackFin Group. Andrew has been consulting mortgage technology for over 35 years. Project engagements include advising lenders on selecting the right technology, implementations and optimizations of technology stacks. He has led operational and technology teams ranging from five people to thousands. Weiss previously served as SVP of Platform Strategy at Origence, prior to that was Principal at STRATMOR Group, leading the technology practice with industry legend Len Tichy. He was also CIO at New Penn Financial, SVP of Strategy for Bank of America and an Executive Consultant with Newbold Advisors and designed Fannie Mae’s DU platform. For more information contact firstname.lastname@example.org