Marvin Chang of Mortgage Hippo: Three Reasons Lenders Must Lean Into Innovation

Marvin Chang is Chief Commercial Officer with Mortgage Hippo, Chicago, responsible for the company’s go-to-market and customer initiatives. Before joining Mortgage Hippo in January, he held executive positions with with Caliber Home Loans, Fiserv (First Data), CitiMortgage, Morgan Stanley, Microsoft and Sun Microsystems.

Conventional wisdom in the mortgage industry holds that during a downturn, management must consolidate resources, reduce staff and costs, and avoid adoption of new technology. That hasn’t worked out so well in the past.

We’re seeing reports of mortgage lenders laying off entire teams in the face of the lower loan volumes that MBA told us to expect last year. Many will follow suit, cutting to the bone to trim costs in the short term. That’s a critical mistake.

The truth is that the lenders that hunkered down during the last two major industry downturns are no longer in the business, while those that leaned in and innovated during the same period emerged as industry leaders.

Now is not the time for timidity. In fact, leading lenders are leaning into innovation now. There are at least three good reasons to do so.

Growth will come at the expense of competitors

The most recent mortgage volume forecast from the Mortgage Bankers Association shows a drop in industry volume from $4+ trillion in 2021 to $2.4 trillion this year. The only way to grow market share in a declining market is to take it away from your competitors.

How will lenders accomplish that this year? Though better customer satisfaction, both for the borrowers they serve and the real estate agents who refer them purchase money business. That takes good people and a streamlined experience enabled by the right technology.

We know that when consumers consider multiple lenders when purchasing a home, they start by shopping rate, but they will stay with the lender offering the best experience. That means those who innovate now at the Point of Experience will be better positioned to emerge as the lender of choice.

Better technology can drive gains in both efficiency and agility so that those lenders can adapt, retasking their staff into roles that will allow them to gain market share from the lenders pulling back.

The government is driving the industry toward innovation

This year is shaping up to have a bumper harvest of consequential announcements making it clear that the GSEs and federal industry regulators intend to nudge lenders to continue to innovate through the downturn.

A precursory look at the new initiatives we’ve seen coming from Fannie Mae and Freddie Mac, or the comments coming out of the CFPB will show this to be true. Consider:

• Appraisal innovation coming out of the GSEs
• Attorney title opinion letters being accepted in the place of title insurance
• Freddie’s decision to start considering rent payments for underwriting

While some of the moves we’ve seen the GSEs make over the past few years have been to streamline their own processes and reduce costs, most are aimed at providing consumers with a better home loan borrowing experience. Regulators will expect lenders to keep pace.

The pressing need to reduce costs

Every mortgage lender reading this article will agree that the cost to originate a new loan is too high. It has been for years. While technology has clearly not been a silver bullet, neither has it been the cause. MBA’s own research indicates that most lenders only spend about 7% of their cost to originate a loan on technology.

The real expense in mortgage lending is the people, especially the salespeople. Top loan officers are worth a great deal and lenders are paying it, now more than ever. The problem is that they are not investing in technology that will make each loan officer they hire more efficient.

But this isn’t a question of digital or not digital. Good lenders still have to be both because there are borrowers in the market that prefer one over the other. It’s really a question of finding a platform that has the flexibility to offer both.

With better software at the Point of Experience, each loan officer becomes more productive, reducing the cost of each loan originated. The right software will also have a marked impact on the borrower’s and the agent’s experience.

Success will depend upon the right partnerships

One challenge some lenders will have with this strategy is that when the market turns, many technology partners will also dial back their own efforts to innovate in favor of cutting their own costs. That’s also a critical mistake.

What lenders don’t need during a downturn is a time-consuming and expensive new technology implementation, which is often the outcome when technology vendors themselves hunker down.

How can the lender tell whether their technology partner is ready to innovate? There are two clues that point to an innovation-capable partner.

First, the vendor becomes aggressive in terms of tightening relationships with lenders, offering support proactively through the downturn. Secondly, the vendor continues to add new innovative capabilities to its platform.

Finding a vendor that is willing to innovate with the lender through the downturn is the surest way to emerge from this part of the cycle with more market share and a stronger competitive advantage. Doing less is a sure way to be left behind.

(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.)