An opportunity During the Downturn

Expanding Credit Unions' Natural Purchase Market Advantage

While the traditional credit union mortgage lender’s natural priority on member service provides an edge in a purchase market, there’s still more that can be done to enhance member experience.

The good news for credit unions dependent on mortgage lending is that 2023 will be a year driven by the purchase market. Fannie Mae’s revised origination volume forecast calls for $1.34 trillion in purchase mortgages this year. Additionally, competition for that business is expected to be fierce. But while commercial banks and non- bank mortgage lenders are only now shifting their service focus to winning purchase business, many credit unions hold the advantage of always having their member service experience at the forefront of their priorities — even when refinance volumes tend to make service an afterthought for the largest of lenders. Thus, it would seem credit unions have an inherent edge in the client service arena at a time when interest rates will likely not be the best of sales approaches.

However, credit unions cannot afford to become lax in the presumption that their built-in competitive advantage will hold. If anything, the Achilles’ Heel of some credit unions, especially smaller lenders, is a lack of budget or strategy for automation. In years past, that trait was shared with commercial banks and non-bank mortgage lenders. But the past three or four years have revealed a trend toward streamlining and automation among credit unions’ larger cousins. Pressed by thinning margins, technology implementations have soared in the mortgage lending sector as a whole. In fact, while overall spending cuts were the rule of the day for many lenders at the end of 2022, quite a few continued on with their selective technology purchases and implementations.

LENDERS AND BANKS ARE TO AN EXTENT

The most prescient of lenders, in fact, aren’t simply going digital with POS or LOS platforms. Mindful of the fact that borrowers tend to consider things like days-to-closing (still hovering around 50 days) and ease of closing experience in addition to payments and interest rates when evaluating their overall mortgage experience, more than a few mortgage lenders have been diligently seeking to “automate anything that’s automatable.”

That said, there’s still a long way to go for non-bank and commercial lenders when it comes to digitalization of the mortgage process. If anything, the priority has tended toward the origination, point of sale and application process, known as “consumer-facing” technologies. A Fannie Mae Lender Sentiment Survey focused on mortgage lenders’ views and priorities for automation offered some insight.

All told, 41% of the lenders’ surveyed identified ‘consumer-facing technology’ as the most important business priority to maintain competitiveness. However, we have not yet seen the same importance placed on “back end” or “settlement” technology, even though the closing process in most markets is one of the most intense and consumer-involved phases of the transaction.

The fact is that many lenders that don’t have the same commitment to the member experience simply tend to prioritize closing the sale over ensuring it’s done with the borrower’s comfort in mind. So while many mortgage lenders have come a long way in streamlining the application process through the underwriting process, it tends to be some time after approval that bolted-on technologies and manual processes start to bog down the consumer experience. This is especially true when it comes to communication (not only with the borrower, but with associated realtor, loan officers, appraisers and the like) in the late stages of the transaction, not to mention the delay to closing, both of which historically sit at the top of the list of borrower frustrations with the process.

In spite of the prioritization of sales and origination-focused automation, it’s clear that non-credit union mortgage lenders are leveraging technology at a far greater rate than before. Inevitably, those investments will spill into the back end of the transaction, benefitting the consumer experience. However, now is the opportunity for credit union mortgage lenders to widen their advantage when it comes to the member experience.

THE PATH FORWARD STARTS WITH A LOOK IN THE MIRROR

Increasing and improving any operation’s usage of technology starts with a comprehensive assessment of the existing process or approach. As rudimentary as this might sound, it’s a principle that’s ignored far too often. It’s also important that such a process be objective. Is the LOS being used now doing what it was supposed to do when it was first implemented? What are our biggest pain points in the life of the transaction, especially as they impact our members? If needed, an experienced, objective (well-vetted) third-party consultant could be warranted.

Most credit unions are much more effective at assessing the needs of their membership than are their counterparts with commercial banks or non-banks. They tend not to make assumptions as to member needs and elicit far more frequent and effective feedback instead. That understanding of their clientele and target markets can be a real advantage in this stage of the process. But this is only one element of the streamlining process. Comprehending the needs of a credit union’s members is not the same as understanding where the credit union might be able to improve in its own operation, which is equally as important. Here again, it’s critical for decision-makers in the process to be as objective as possible in order to maximize ROI.

From there the objective should be established. How must the new investment assist our business process, in this case, the member experience, in order to be deemed successful? Determination of need is at the foundation of automating the member experience, but a failure to align that need with the best and most appropriate technology can lead to the same potential sunk costs.

Then, and only then, is it time to carefully examine all options for addressing that business need. Mortgage technology is not inexpensive, although there are far more flexible options today with the rise of the use of tech stacks instead of focusing on onesize-fits-all, globally focused solutions. Regardless, multiple options should be reviewed and vetted. Third party consultants involved in the process who are unable to recommend multiple options should also be viewed with caution.

Far too often, we see lenders of all sizes fall in love with a demo or a shiny new technology. The remainder of the process, what process there is, tends to be chaotic and difficult to measure. Like any tool, technology needs to be chosen based on the business need and its effectiveness solving that need. A failure to take that step tends to lead to unused features, poor training or implementation, and, eventually, a failure from the employee end to embrace or effectively use that technology.

Finally, the time to establish clear metrics and a timeline is as early as possible, rather than after implementation. How will we know that a new automated solution will truly improve the borrower experience? Staff buy-in, replete with training and two-way communication, are also integral to ensuring a new technology will be successful. Unfortunately, there are too many examples of the best tool for the job, carefully selected and implemented properly, coming up short of the objective because the staff refuses to or is unable to make use of that tool properly.

AN OPPORTUNITY IN THE DOWNTURN

Thinking about making expenditures during a time of depressed origination volume is a challenge in and of itself. But there will be real opportunity in the mortgage market for lenders willing to adapt. The fact that virtually all of the volume seen in the next 12 to 18 months is likely to be purchase volume gives member-focused credit unions a distinct advantage. But the opportunity to widen the gap with non-credit union lenders using carefully implemented, CX-focused technology will only be fleeting as mortgage lenders of all sizes begin to scramble for revenue.

Jim Paolino, CEO & Co-Founder of Lodestar Software Solutions, has more than a decade of experience developing software solutions specifically for the mortgage and title insurance space. He can be reached at jpaolino@lssoftwaresolutions. com.

Jim Paolino