Michael Coar of VirPack: Successfully Navigating the Margin Compression and Market Volatility Wave
Michael Coar is CEO of VirPack, Tyson’s Va., a product services company offering a document management/imaging platform for the mortgage industry, which includes fully indexed imaged loan delivery to the investor community. https://www.virpack.com/.
Margin compression is one of the most critical factors impacting business efficiency and profitability for mortgage lenders. According to Fannie Mae’s Q1 Mortgage 2022 Lender Sentiment Survey, most lenders expect near-term profitability to decrease due to rising mortgage rates and declining refinance activity. Not surprisingly, additional key findings from the same report show that the lenders’ profitability outlook has stayed negative for six consecutive quarters.
In addition to the expectation of lower profits this quarter, there are other contributors to the decline in overall profitability. These factors include market volatility due to increasing mortgage rates, ever-changing regulatory oversight, lack of homes in the supply chain, changing consumer preferences, and increased competition from online-only lenders.
While profit margin compression impacts all lenders, smaller lenders often feel the impact more significantly. These lenders may not have the same resources or volume to bear the impact of squeezed profit margins. The question is, in the face of these obstacles, how can mortgage lenders successfully navigate the margin compression and market volatility wave?
Two Strategies for Fighting Compression: Efficiency and Cost Savings
Lenders often focus on two primary strategies to mitigate the impacts of margin compression: improving efficiency and reducing expenses. Lenders tackle efficiency by automating processes and using technology to streamline the mortgage process. Lenders primarily look to reduce expenses by cutting overhead costs or eliminating non-essential services.
The digital revolution has provided lenders with many tools to work more efficiently. The challenge now is sorting through all of the options to select the right tools to work effectively, provide thorough internal and external communications, and reduce turnaround times. Lenders will also need to ensure that any technology they invest in can keep up with changing compliance demands. Lenders can rely on mortgage support service companies to help them find innovative ways to streamline processes, optimize staff and vendor performance, and provide a better customer experience.
One of the best ways to make the loan process more efficient is to be hyper-focused on eliminating friction in the loan pipeline by getting borrowers the information needed quickly. According to a study conducted by McKinsey in 2021, 60% of purchase and refinance borrowers would be open to completing the entire mortgage application online, indicating that more borrowers are expecting digital mortgages. Millennials, the fastest-growing segment of homebuyers and representing 37% of the total national market, have come to expect a digital experience in purchasing through many aspects of their daily lives.
Modern technologies are reshaping the real estate industry. Digital innovations such as virtual showings and e-closings have made it easier for millennials to buy homes, while the rising influence among instant buyers has allowed these companies to streamline the home-selling process.
On the cost-savings front, using the appropriate processing technology can help keep costs lower by reducing the need to pay for expensive manual processing. Staff can be more efficient and increase the revenue per loan by relying on automation to handle the time-consuming tasks that can easily be handled by a document centric workflow automation platform.
Applying workflow automation and loan delivery automation by partnering with a mortgage processing support company that understands the impact of margin compression with a streamlined system will increase loan velocity, deliver more value to the customer and enhance profitability for the lender. When considering support companies, lenders should expect the company to offer accurate and automated uploading and indexing of documents, integrations that allow document content and data to seamlessly flow with little or no user interaction to reduce process gaps, the boost of data accuracy without the manual “stare and compare” data validation.
Reducing the cycle time from origination to closing by increasing production allows lenders to grow relationships and referrals, increase customer satisfaction as well as attract and retain talented and reputable originators.
(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.)
