by Curt Tegeler, CEO and president at WebMax
We all remember the 2008 crash that affected the housing market as a whole, but what has been done to prevent it from happening again? As many lenders already know, there is a looming threat that another crash could be coming soon. The last one hurt the housing industry so severely that this is obviously a large concern for today’s economy. In order to prevent your mortgage company from taking a hit, it’s important to prepare your business as a precaution. This includes understanding the causes of the last crash, and then taking the necessary steps to prepare in order to avoid the aftermath. A well-developed mortgage company will have a strong digital platform in place to help them save money, save time, and grab millennials with a digital system. Therefore, this is the time to start formulating a plan as a safety measure in case the idea of another crash become a reality.
As alarming as it sounds, we all know the main reason for the housing crisis of 2008, but still continue to make the same mistakes. To start off, many homeowners began to refinance their homes in order to cash out the house’s equity. While some borrowers spent this money wisely and put it back into their homes, others used it for unnecessary items, or sometimes everyday necessities to compensate for income. Many lenders then started approving unqualified borrowers for excessive loans. For example, some of these borrowers had very low credit, were in a lot of debt already, or had little documentation. Regardless, these individuals were being approved for loans that mortgage companies knew they could not afford to repay. Once borrowers began to default on payments, banks, lenders, and investors all began to lose money. They stopped giving out loans in fear of never getting paid back, which is what eventually led to the economy crashing. After the long recovery of the crash, one would think that we learned our lessons. However, here we are, staring down the barrel of another crisis that could potentially be on its way.
Fast forward 10 years, and here we are again, possibly facing a similar catastrophe tied to the current economic climate. In fact, two-thirds of the National Association of Business Economic’s economists believe that a recession could show its head as early as 2020, while 18% of its economists think it will hit as early as 2019. As the mortgage industry has become increasingly aware, we recognize that recent borrowers are mainly consisting of millennials. Millennials in particular are overwhelmed with large sums of student loans and are drowning in debt as it is. Now they are deciding that they want to make large purchases such as houses, and lenders everywhere are approving them for much more than what they can afford. According to Northwestern Mutual’s 2018 Planning and Progress Study, millennials between the ages of 25-34 have an average of $42,000 in student loan debt. Pair this with car payments, phone bills, and other everyday necessities and these student loans will surely take a long time to be paid off. Lenders are then giving borrowers unnecessary high mortgages, for homes that they simply cannot afford.
Avoid the Hit
Since millennials are dominating the buyers market, it’s important to direct efforts towards them as well. In order to do so, one of the most important things to do is implement a digital point-of-sale application. Origination fees and closing costs are continuing to rise which adds to mortgage companies’ insecurity, so lenders are fighting to keep them under control. The solution is quite simple; implementing a digital POS will not only save on closing costs and origination fees, but will also appeal to the majority of buyers. The lender will be able to save a large sum of fees while going through the approval process, and the borrower will be approved in the comfort of their own living room. In turn, the lender will be avoiding inefficient procedures and saving money and time in the process. Time and energy can then be redirected elsewhere, hopefully towards next steps in avoiding another crash. Of course, the lender must also be mindful when it comes to giving out loans, how much they are lending, and the type of borrowers they are accepting. There is simply no reason why a borrower with a 610 credit score, little documentation, and student loans should be approved for a $275,000 loan. Overall, even after implementing a new digital point-of-sale application, it is still important to be mindful.
All in all, lenders should be taking every necessary precaution to start preparing for a possible crash in the future. This threat has been hanging over the industry for quite some time now, and action needs to be taken. In short, the chances of being severely affected by a possible crash can be drastically decreased simply by implementing a strong digital platform. Looking ahead, the implementation of new digital processes could help save you whether it be tomorrow, or ten years down the road if the inevitable occurs.
Curt Tegeler, CEO and president at WebMax is responsible for providing direction for action to all employees and business initiatives. Tegeler’s main responsibilities include communicating and implementing the company’s vision and mission; leading, guiding, directing, and evaluating the work of executive leaders; formulating and implementing the strategic plan; forming, staffing, guiding, leading and managing WebMax; evaluating organizational success; and represents WebMax in civic and professional activities.