Originators voice concerns in survey

by Kimberly Greene05 Mar 2019

Risks and challenges were the highlight of the recently released Altisource State of the Originations Industry 2018 survey, which was recently released. The biggest challenge identified is the current economic environment and how mortgage professionals will deal with it into the near future.

“Other significant challenges included competitor innovation through automation, margin compression through compliance costs and mitigation of regulatory risk, and rising rates,” writes Justin Vedder, Altisource COO, in the report.

Twenty-nine percent of decision-makers surveyed found that increased purchase business competition was the biggest challenge in today’s market. The result of tightened inventory of both existing and new construction has resulted in fewer loan transactions floating around. That and rising interest rates have made consumers hesitant to update to more expensive housing, which has in turn limited the inventory for would-be borrowers who want to get into the housing market for the first time. “Capturing this business relies on the ability to quickly respond and originator loans faster, with more accuracy,” the report reads.

Not surprisingly, costs are top of mind for originators. The second greatest challenge is that of margin compression due to regulatory mandates, and 78% of respondents indicated that they were concerned that production expenses will continue to increase, even as volume drops off.

Originators have been voicing these concerns for the last year, and have identified various ways to overcome these concerns.

In order to help be more efficient with time—and therefore, money—64% of those surveyed said they have increased their use of automation in some way. Other reasons vary, including improved security, faster turn times, accuracy, and improved collaboration.

“Advances in technology in the areas of smart document capture and the integration with employment and depository databases reduces ‘man hours,’ increases accuracy of data, decreases time-to-close and improves productivity. In addition, automation goes beyond cost efficiency. As a new generation of millennials enter the mortgage market, lenders need to focus on usability and convenience. Providing online platforms allows tech savvy users to manage applications on their own schedule, and make the process more efficient and transparent,” the report reads.

The two biggest challenges of bringing tech-based solutions into the origination process is the length of time it takes to implement and understanding when is best to make the shift. There are many areas of automation, and only 23% of originators say they’ve maxed out the efficiency of their automated processes.

Other ways that mortgage professionals are coping are through diversified loan options. Construction loans hold the most promise, according to 25% of respondents, with non-QM loan products in second place. Even though construction is expected to increase in the coming year and relieve some of the housing shortages, material and labor costs combined with increased mortgage rates will mean that builders will be somewhat limited in their ability to raise prices, and might even be more cautious, the report reads.

Originators obviously want to take advantage of these promising options, but of those surveyed, 30% believe that the experience level of underwriters limits their pursuit of new types of loans. The report cites an aging workforce and the high cost of onboarding new, inexperienced underwriters as the reason behind their choice, the latter of which could be addressed through outsourcing. More than half said that they’ve consolidated staff and diversified their loan options. 45% have outsourced some of their back office operations or tasks in order to create a more variable cost model.

The survey also found that increased regulations have been one of the factors behind inefficiencies and costs associated with underwriting and quality assurance.

“The most expensive non-managerial operational employees are generally underwriters and most are averaging less than two loans a day per underwriter for non-GSE products and only slightly more than two loans a day per underwriter for GSE products.

This has led to inefficient and increased cycle times, affecting not only secondary execution, but customer satisfaction.”

The report also suggested other strategies to see originators through the current landscape, such as joining a peer network to gain knowledge, develop partnerships, and save money; continue looking for new talent while focusing on the retention of top performers; considering piloting programs that will generate savings; and investing and redirecting saved capital into growth strategies for the business.

Over the next two or three years, 70% of those surveyed said that the growing costs of playing in the market will mean that smaller lenders will either close altogether or be acquired by larger companies. Altisource itself predicts that purchase business will continue to decline, followed by a “steady state rate environment.”

“That’s not to say smaller lenders can’t survive; in fact, they can flourish if they work with a provider that can take on the ‘heavy lifting’ for them, like document prep or quality control,” the authors write in the conclusion. “To stay successful, strategic decisions will need to be made regarding which internal services are critical to sustaining business and driving new growth.”

The survey was conducted of originators who had five or more years of experience and are currently working at a company with at least 100 employees.


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