Joe Zeibert of Nomis Solutions on the Upcoming ‘Great Reshuffling’

Joe Zeibert is Managing Director of Global Lending Solutions with Nomis Solutions, Brisbane, Calif. He works closely with clients around the world to identify new mortgage and other consumer lending opportunities. He brings deep expertise in innovation of pricing models for lending products. He joined Nomis from Ally Financial Inc. where, as senior director of product, pricing, credit and analytics, he helped lead the build of Ally’s mortgage business from the ground up. Before that, as senior vice-president of consumer products and pricing at Bank of America, he led home-equity pricing. For more information, visit www.NomisSolutions.com.

MBA NEWSLINK: A recent MBA report stated IMBs’ production volume and profits hit record highs, with an average profit of $4,202 on each loan they originated in 2020, up from $1,470 per loan in 2019. What role should these record numbers play in how lenders formulate their strategies for 2021?

JOE ZEIBERT: While the projections for overall origination volume in 2021 are expected to be the third highest on record, lenders know they cannot count on achieving 2020-level profits this year. As we know, 2020 was driven largely by refinances and given that purchase transactions are inherently more expensive to manufacture, a larger portion of lenders’ revenue in 2021 will likely go toward manufacturing costs and production expenses as the market shifts to purchases. Thus, as the industry prepares for tighter margins in the coming months, mortgage lenders will need to adjust their pricing strategies to maximize profitability where they can.

One way to do this is to get more granular with their pricing strategies and to take advantage of states or MSAs that are less price sensitive. With upwards of 662 million price points affecting mortgage pricing, lenders who only look at these metrics once a day are risking a lot in a market like this.

NEWSLINK: With the housing inventory remaining low and refinance applications tapering off, what effect will this have on the mortgage market in the next few months, and what adjustments should lenders make to minimize the impact of these two factors?

ZEIBERT: Experts predict 2021 will be a purchase-heavy year, but with housing inventory low, the competition among lenders will be fierce. Mortgage lenders will not only compete with a few others for each borrower – it is far more likely to be 12 to 15 lenders that are vying for the same borrower. However, no two mortgage markets are the same. Knowing which markets are more elastic in terms of price will help lenders optimize their strategies to take advantage of extra margins in less price-sensitive markets, helping balance the scales when pricing in those that are more competitive. By ensuring they are priced both competitively and sensibly, lenders can compete without engaging in a “race to the bottom” on rates, which chips away at profitability and ultimately leads to negative morale when compensation plans must be scaled back to make the numbers work.

Lenders with a competitive insight into pricing and margin management can not only build a better mortgage business but also establish better relationships with their borrowers. Today’s borrowers are coming to the table already having conducted their own research, but they are still looking for guidance and expertise from their lender. Lenders who can offer borrowers the right product at the right time, explain all the options available and become a trusted source of knowledge will fare far better than mortgage lenders who simply try to implement a one-size-fits-all mentality on their pricing strategies.

NEWSLINK: Some analysts predict the “Great Reshuffling” from 2020 has really only just begun. How should lenders prepare to meet this shifting demand?

ZEIBERT: Pricing is key. Whether the reshuffling has just begun or is in full swing (who is to say?), lenders can and should always be looking at their pricing in different geographic areas. For example, if you need more volume, do not just lower your price and kill P&L. Identify the areas with different price sensitivity and lower as needed, then raise your prices a little bit where it is not as price sensitive. Conversely, if margins are the area of concern, find areas of non-price sensitivity and increase as needed.

At the end of the day, it is all about meeting your business goals without compromising P&L. Anyone can get more loans, but can they do so profitably? We continue to see housing booms in areas that have never had those booms before and if lenders are not pricing accurately and effectively in these areas, they could be leaving money on the table or even pricing themselves completely out of those markets – neither of which is the optimal outcome.

NEWSLINK: As price optimization and pricing science become increasingly popular in the mortgage industry, how can lenders leverage these strategies to compete more effectively in the market?

ZEIBERT: The first thing to understand about price optimization and pricing science is that these are meant to complement the Product, Pricing and Eligibility engine. At the most basic level, a PPE will input, aggregate and adjust data on the backend and then seamlessly produce pricing outputs. With price optimization and pricing science, lenders can see and leverage real-time, granular pricing information for the competitors they go head-to-head with on a daily basis. With this data at their fingertips, mortgage lenders can easily determine their competitiveness at any given moment in time, based on a particular location, a specific dollar amount, credit score, etc., and then use that information to make informed decisions about how they are pricing to manage margins more effectively and maximize profitability.

Price optimization and pricing science are not only used for competitive intelligence. They can also be used to determine where marketing efforts need to be focused or for loan officer recruitment and retention. Lenders can leverage these tools to show loan officers, in granular detail, how they are supporting them with optimal pricing in comparison to the marketplace. As the saying goes, “Knowledge is power.” The more lenders know about exactly how their pricing stacks up against their competition, the better equipped they are to compete effectively in today’s dynamic mortgage market.

(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.)