Mortgages act as the strongest pillar of the dreams of thousands of people wanting to own something of their own. It further supports the financial institutions, real estate industry, and, by extension, the broader economy of a country.
Therefore, the performance of the mortgage industry serves as one of the key indicators of overall economic performance. And currently, the industry stands at a crossroads. Market conditions have changed drastically, especially after the COVID period, resulting in tighter lending standards and mobile borrower behaviors.
The following statistics highlight the current state of the mortgage industry:
- 2.5% increase in year-over-year credit tightness (July 2024)
- 386,791 mortgages originated (June 2024)
- $138.3 billion in new mortgage dollar volume (June 2024)
- 12.4% decrease in year-over-year originations (June 2024)
- 8.8% increase in year-over-year inquiries (October 2024)
Challenges of the Mortgage Industry & Strategies to Overcome Them
The total mortgage origination volume will grow to $2.3 trillion in 2025, compared to the expected $1.79 trillion in 2024. That means housing demands can be higher, and lenders should be ready to face every challenge head-on to meet the market needs.
1. Managing High Volume Borrower Data
Clive Humby accurately said, “Data is the new oil.” Can any industry survive without it now? No! The same applies to lenders who often have trouble obtaining, handling, and processing user data in high volumes. This leads to scattered information, duplication, inefficiencies, and errors. All of this results in a slipshod work process that affects the user experience, leading to the risk of losing clients.
The solution? Loan Management Systems! These are equipped with automated underwriting, predictive analytics, data assimilation & analysis, predictive analytics, and machine learning capabilities. They scour the data, flag potential defaulters, and group the best candidates – all without human intervention, thus no chance of errors.
2. Adapting to Regulatory Changes
The regulations change in the mortgage industry, and while managing other crucial tasks, there can be gaps in communicating those changes to the respective teams. You need to ensure that all teams, especially IT and operations, stay aligned with the new rules.
You can use DevOps practice to achieve this objective. Deploy automated compliance tracking tools that flag regulation changes in real time. You can also schedule regular cross-department briefings and integrate compliance updates into workflow automation.
For instance, your organization can set up alerts in your loan origination system to reflect new requirements instantly. Therefore, negligible chances of regulatory troubles at your end.
3. Operation Inefficiency
If your company is using traditional methods, i.e., human resources, for repetitive tasks, such as data gathering, fragmenting, and more, you’re lagging behind in efficiency. It’s time to adopt digital tools like Robotic process automation and optical character recognition.
They expedite the vetting process and document verification by extracting data automatically and mimicking certain tasks. Use AI to automate various tasks, freeing human resources to focus on other crucial issues.
Further, with mortgage origination costs dropping last year, lenders faced tighter margins. However, by relying on automation, you can decrease manual labor, cutting costs while maintaining speed and accuracy.
4. Implementing Early Warning Systems
Identifying potential loan delinquencies before they escalate is very crucial and one of the major challenges for every lender. This can be dealt with by establishing early warning systems. Such systems monitor key indicators such as missed payments, declining credit scores, employment changes, etc.
You can use predictive analysts and AI tools to analyze borrower behavior and flag high-risk accounts in real-time. Therefore, when someone is flagged, automated alerts notify the respective department for proactive intervention. Thus, payment restructuring or financial counseling can be arranged before defaults occur.
5. Addressing Increasing Credit Tightness
Credit tightness periods are unknown and can be difficult to manage not only for borrowers but for lenders, too because they’ve to revise their policies accordingly. Tightness can strain mortgage lenders, reducing loan originations and slowing business growth.
Therefore, mortgage lenders must find ways to stay afloat. To achieve that, focus on finding answers to:
- The organization’s risk tolerance: During credit tightness, redefine your lending thresholds and avoid overexposure to risky borrowers who may default.
- The organization’s goals for growth: Tight credit conditions make aggressive expansion risky. Therefore, focus on sustainable growth, adjust loan products to attract reliable borrowers who qualify for every criterion, and keep your business’s growth steady.
- The risk profile for new and existing prospects: When credit tightness increases, borrower behavior changes. So, keep a check on borrower profiles, including debt-to-income ratios, employment status, and credit behavior. This helps identify prospects who are creditworthy even in increased credit tightness.
- How prospects handle additional credit access: Remember, not all borrowers react the same way to limited credit availability. Therefore, monitoring their spending behavior helps decide if they’re worthy of providing additional credit.
6. Dealing With Concentrated Loan Portfolios
If you’ve not considered diversifying your loan portfolios yet, now is the right time. A concentrated loan portfolio increases the risk of defaults, especially during market downturns.
For instance, if your business deals only with commercial real estate and it starts declining due to credit tightness or regulation change, your loan portfolio will be affected.
However, if it is diversified, you can shift your focus (temporarily) to a better-performing industry. In the meantime, you come up with a strategy to regain momentum in the commercial real estate sector.
Partner With
The mortgage industry has been dynamic and challenging from the beginning, and it will remain so in the coming years. If you’d like to sail through every challenge, it’s advisable to outsource the operations to an experienced outsourcing company such as IMS Datawise.
We at IMS Datawise handle mortgage-related operations, from data collection to data filtration and optimization. We use a combination of automated and human intelligence to make mortgage processing faster and more efficient. We are a data-driven outsourcing partner that uses advanced technology to streamline the company’s operations.
Contact us to learn how we can help you make smarter decisions and strategize your growth, even during difficult times.
