Bruno Pasceri of Incenter LLC on Changing Mortgage Market Conditions

Bruno Pasceri is President of Incenter LLC, Fort Washington, Pa., which helps mortgage bankers optimize processes and improve performance. More information is available at incenterms.com; he can be contacted at bpasceri@incenterms.com.

MBA NEWSLINK: These are interesting times for mortgage bankers. What do you see as the biggest challenges right now?

BRUNO PASCERI, INCENTER LLC: Their two biggest challenges are: 1) reining in their expenses and 2) directing their product, service and marketing efforts back to purchase, and away from refinancing.

MBA’s own research illustrates why cost-cutting is so crucial. As you’ve reported, independent mortgage banks and mortgage subsidiaries of chartered banks saw production profits slip from $1,099 per loan in Q4 2021 to $223 per loan in Q1 2022. That’s a dramatic difference.

When the industry was flush with refis, organizing an all-expense paid sales rally in the Caribbean didn’t make an appreciable dent in the bottom line. Now, every dollar counts and spending must be judicious.

To address the second challenge, mortgage banks should continue to compensate for a shrinking pool of new homebuyers and refinancing candidates, and a lack of inventory, through product diversification. Every new or former borrower is a person to keep close or re-engage—whether with products such as home equity loans, or new services such as assistance with property tax appeals. Bankers also need to be diligent about maintaining close relationships with referral partners, who are their true customers, educating them on their new offerings, and learning more about their ideal clients, as well.

NEWSLINK: How important is improving market share, particularly as refinance share continues to decline? Is it too late?

PASCERI: The business environment has become much less forgiving due to the unprecedented speed with which interest rates have risen. Everyone expected an increase, but moving from 3% to over 5% with little daylight in between was a scenario that even seasoned leaders couldn’t have predicted. It likely contributed to a recent MBA Market Composite Index, revealing the lowest level of demand for purchase and refinancing mortgages in 22 years.

That’s why It’s important to grow market share now as a hedging strategy – both by offering more competitive products and services in existing markets, and by expanding both core and associated product lines into new markets. Those that began doing this last year have a competitive advantage now.

NEWSLINK: Recent MBA Mortgage Performance Reports have shown that lenders and servicers are, in general, doing a pretty good job of cutting costs. Is there room to cut some more?

PASCERI: There is always more room to increase operational efficiencies. One way is through business process outsourcing for managing labor costs during certain moments in the production process. Earmarking the most cumbersome, time-consuming processes, and finding partners with the solutions and technologies to optimize them benefits mortgage bankers in two ways—by minimizing spend and improving customer service levels.

NEWSLINK: This is a difficult time for the mortgage industry, with many reports of downsizing. What should lenders be doing to maintain employees’ motivation and morale?

PASCERI: That’s a question that mortgage bankers should always be asking themselves, even during times of growth. Lenders who remain strong in up and down markets make a collaborative, family-like culture part of their DNA. The mortgage market is W-shaped; we’re sliding from our peak and eventually we’ll climb back. In this industry, people will pull together to keep their organizations strong when their work is meaningful, everyone’s innovative ideas are encouraged, and leadership puts team members’ needs first.

It’s important that our industry institutionalize these values now, because we have a challenge beyond the immediate downturn. A large percentage of employees are nearing retirement age, and we need to attract new generations of the “best and the brightest”. The mortgage industry is a fantastic place to build satisfying and lucrative careers. Once we get new people in place, we need our leaders to maintain their excitement. This is the time to look inward and make needed changes to keep workplaces welcoming and exciting.

NEWSLINK: How important is corporate culture in attracting and retaining employees in this environment?

PASCERI: No matter what the business environment, culture is paramount. The late Jack Welch, who served as Chairman and CEO of GE, said, “In a business, there are two measurements that count. Employee engagement and customer satisfaction.

You get those two things right and then you measure cash flow—and cash flow is the ultimate measurement. You’ll watch your cash flow grow as you engage your employees and satisfy your customers.”

Put another way: In this economic environment, creating an employee-first culture that provides meaningful, tangible benefits and paths to advancement is critical.

NEWSLINK: Where do you see the market in the next six months? The next year?

PASCERI: The industry will be in a purchase market for the next three years. Some of the early volatility with interest rates will subside, giving bankers a chance to regroup—looking harder at what they need to do to maintain their momentum.

(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.)