As a local lender, you’re all too familiar with the challenges of today’s market—and two of the main concerns on your mind are likely increasing competition and tightening margins.
For years, online mega-lenders have been vying for market share. Because they can access economies of scale, they’re able to leverage highly competitive rates across loan offerings. This ability fuels increased borrower interest, business growth, and outsized profits.
Meanwhile, as loan costs rise, lenders industry-wide are seeing thin margins that are only likely to shrink in 2022. This pressure means smaller players need to scrutinize their mortgage processes to unearth efficiencies and preserve their bottom line.
But with so many possible areas to enhance and operations to hone, where should lenders focus for the best result?
A chief element local lenders need to compete with these lending institutions is simply more attractive interest rates—and to offer competitive rates, they need efficiency and profitability within their capital markets process.
To compete in the secondary market space, local lenders need to leverage both mortgage expertise and technology. Here are the most important steps these lenders should take to remain competitive.
1. Create a standardized, efficient process with technology
When it comes to the secondary market, all loan buyers want the same thing: consistency and accuracy. They want to know exactly what’s going to be in the loan file—that specific data will be contained and that the data contained will be precise. The key to achieving that accuracy is creating a consistent process.
Until lenders leverage technology that helps to eliminate or reduce errors in the loan file, they’re going to have trouble competing in the market. Smaller lenders need to leverage technology to streamline their process. They need to create a consistent loan file and set of data that people trust.
By leveraging technology to create a standardized experience, smaller lenders reduce the risk that their loan files are inconsistent or inaccurate, creating trust in their data and allowing them to sell their loans for higher rates.
2. Expand economic scale
A major reason smaller lenders lack access to secondary markets is simply because of their size in the eyes of loan buyers. With relatively little capital on their balance sheets, they lack interest and trust from buyers and investors.
By partnering with a dedicated investor like Maxwell Capital, local lenders can access economic scale by tapping into the collective power of Maxwell’s network. These economies of scale, in turn, allow lenders to pass more competitive rates on to their borrowers, enabling them to increase market share.
3. Ensure data accuracy
For loan files to be valuable, they need to include highly predictable information—and that includes accurate data. By offering consistently reliable loan files, lenders create a track record of success that opens opportunities in the secondary market.
How can local lenders achieve this kind of accuracy? Here again, improved systems, the use of technology, and strategic partnerships can be game-changing.
By partnering with a secondary market investor, lenders can create a trusted process where data isn’t changing through the life cycle of the loan creation, producing a process that gives those lenders the best avenue.
Ultimately, data accuracy, efficiency, and reliable processes impact borrowers and rate sheets in two ways: If lenders are spending less money creating loans, the economics improve, producing savings for borrowers. And if lenders are able to sell loans for more money because investors trust the data and are willing to pay more, that translates into better margins for lenders and better rates for borrowers. Combined, these forces can transform profitability for local lenders.
Hone your secondary market process now
Innovative, passionate, forward-thinking leaders need to act now. By leveraging technology and partnerships to regain their economics, access scale, and retain nimbleness, all while staying true to who they are as a company, local lenders will create a strong chance for success in coming years.
Maxwell Capital provides more competitive rates, faster speed, and better execution for lenders of all sizes.This powerful solution is available exclusively to Maxwell Point of Sale users.