(The New Normal) Garth Graham: Shifting Teams at the Speed of a Pandemic

STRATMOR Group Senior Partner Garth Graham heads the company’s mergers and acquisitions activities, providing strategies for Independent and Bank-owned mortgage lenders. Graham has more than 25 years of experience in mortgage banking ranging from Fortune 500 companies to successful startups, including management of two of the most successful e-commerce platforms. For more information, visit www.stratmorgroup.com or garth.graham@stratmorgroup.com.

Garth Graham

(This is part one of a four-part series, “The New Normal,” in which STRATMOR Group Senior Partner Garth Graham, NewDay USA Senior Vice President Pooja Bansal, Clarifire CEO Jane Mason, and Superus Careers CEO Larry Silver examine how industry employment changed last year and the pros and cons of moving forward with in-office, work-from-home or hybrid platforms.)

Necessity is the mother of invention, as they say—which pretty much explains why the mortgage industry workforce underwent such massive changes over the past year. We had no choice.

Between stay-at-home orders, historical levels of refinance activity and the big increase in forbearance requests, mortgage originators and servicers spent the past year continually creating and re-creating ways to get things done. Here’s some of the things we saw.

Remote Work Hits Overdrive

In some ways, the COVID-19 pandemic accelerated changes that were already taking place. Long before March 2020, mortgage lenders began pivoting two major functions toward remote work – sales and underwriting.

In retail lending, for example, which accounts for 70 percent of the mortgage origination business, loan officers have historically worked remotely. A great deal of a loan officer’s job involves hitting the road and meeting Realtors, visiting builder sites and open houses, and meeting borrowers for applications and to collect documents.  And over the last few years (pre-COVID) borrowers increased their likelihood of applying for a mortgage with online tools, so even less reason to meet in an office. 

Underwriting functions were also already shifting to remote work as well, but that is even more the case today. Underwriters are generally the scarcest commodity for lenders, so if you need underwriters, you’ll hire them wherever you can find them.  

During COVID, the UW functions and the sales functions were already part of the way there (or pretty much already closer to work from home). So, the initial challenges during COVID were the other fulfillment pieces, primarily processing and closing, which are typically performed in offices. At first, the issue was technical, as many of these employees  didn’t have the technology  to work from home – no laptops, no virtual private networks (VPN), limited necessary bandwidth, and only one monitor at home (the horror – working from ONE monitor?) The sheer volume of effort it took to enable all these staff members to get online at home in April 2020 was followed by the onslaught of volume in the second half of the year.  It was hard to keep up, in fact, in our February Operations Workshop poll, processing remained the biggest bottleneck for lenders in the first quarter of this year, with underwriting a close second.

As challenging as it was for originators to adjust to remote work, the impact on mortgage servicers was staggering. Servicing is generally performed through call centers, which is about as non-remote as you can get. In addition to adjusting their teams to be work from home, the CARES Act was implemented, imposing new requirements on servicers that resulted in over 3.5 million forbearance agreements that no one planned for. 

Then, two months later, refi volumes began crushing servicers, which lasted throughout the remainder of the year. The big challenge with refis is that every transaction creates two workflow events – existing loans being paid off, and new loans being onboarded. As a result, in 2020 servicers processed five times the number of units they expected at the beginning of the year. For the most part, servicers weathered this level of change remarkably well.

Compensation Skyrockets

The shortages of underwriters and growth in remote staff also had an impact on compensation. Toward the end of 2020, we saw a huge acceleration in the amount of money being paid to processors and underwriters. A big part of this was supply and demand—lenders were struggling with capacity and needed to ramp up staff. But the other factor is that it became much easier for people already working remotely to be lured away to other companies.

In many cases, staff form emotional connections to their place of work and the people they work with.  They don’t look for a new job because they feel comfortable with the one they have. But with everyone working remotely, that connection was reduced. Suddenly, an underwriter making $90,000 a year would get calls from recruiters offering them $120,000 to do the same work—and they would sweeten the offer by promising the underwriter they could work from home forever.  Some took that offer or accepted the counteroffer from the current employer to stick around. The result is an increase in cost for certain critical function. 

IMBs Take Charge

One of the biggest shifts we saw during 2020 was dramatic growth in market share of independent mortgage bankers (IMBs), which was a function of how quickly these companies were able to ramp up staff to manage capacity and technology.

IMBs that decided to retain servicing increased dramatically in 2020 as well, which is a continuing trend. Normally in refi booms, the largest servicers gain market share, and historically the largest servicers were banks. During the pandemic, however, banks lost more of their share of the servicing business to IMBs, which is testimony to how quickly IMBs made the decision go to 100% remote work, ramp up staff, and to adjust their processes to the new market climate.  Often IMBs are more nimble, more capable of changing course quickly, while banks might take longer to adjust. The banks also had to react to the ‘other’ business pressures, meaning that the mortgage unit was competing for mortgage resources with the other bank units, including the poor teams handling the PPE loan applications and those trying to figure out the impact on the bank’s balance sheet.    

Moving Toward ‘E’

At STRATMOR, we’re of the position that lenders should be as “e” as possible—that is, they should embrace digital technology wherever they can to make the mortgage process more efficient and satisfying for their customers. One of the most impactful ways to do this is through having an effective eClosings process. 

Although the industry has been moving toward eClosings for some time, the pace accelerated tremendously during the pandemic. According to our most recent Technology Insight® Study, the number of lenders with live hybrid eClosing capabilities grew from 18 to 43 percent last year. And in November of last year, 95 percent of respondents in our Operations Workshop poll were prioritizing RONs as a key initiative.

The ability to close loans electronically has more to do with a lender’s ecosystem than any specific technology. In some cases, lenders couldn’t close loans electronically because they were limited by their counterparties, the jurisdictions they did business in, the title company the borrower chose, or the limitations of their own systems.

This is where hybrid electronic closings came in. Ensuring a smooth closing process has always been a competitive differentiator for lenders. The best mortgage bankers that were already performing a version of hybrid eClose before the pandemic performed much better than those that weren’t. When COVID hit, they simply ramped up adoption. This involved sending borrowers a “skinny” loan package before closing that contained all the documents they had to review, so when they got to closing, they already saw everything and there were no surprises.

At the end of the day, the lenders and servicers that perform best are those that invest in people, process and technology. These are the elements of what we call the three-legged stool. Lenders and servicers need to focus on not just one of these elements but all three, or else like a stool they will wobble. While the pandemic exposed some wobbly stools, we learned a lot more about how to make them solid.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)