3 Ways Small and Midsize Lenders Can Combat Today’s Biggest Market Challenges

In recent years, the industry’s approach to mortgage origination has begun to shift. While direct-to-consumer lending had been growing for years, 2020’s pandemic led to a surge in shopping online for a mortgage. Today, 36% of Americans are willing to buy a home entirely online, with that number likely to rise as the digitally savvy millennial and Gen Z generations flood the market.

The truth is, these large online players represent an imminent threat to local lenders across the country. With a smaller proportional spend on sales and stronger margins, consumer direct lenders are able to quickly grow their market share during low-rate environments like 2020 and are naturally resilient when volume subsides. Plus, with large budgets to invest in marketing and technology, these lenders boast the modern borrower experience and outsized online presence that resonate with today’s consumers.

Competing with direct-to-consumer lending institutions will be a major challenge for local lenders in coming years. Still, if smaller lenders double down on their natural strengths and invest in the right business areas, they can retain their loyal customers and referral relationships in the coming purchase market.

The steps small and midsize lenders take now will largely predict their ability to thrive over the next few years as the industry evolves. Here’s the path most likely to overcome those challenges.

3 ways small and midsize loan originators can better compete today

1.  Attract and retain talent by understanding modern LO needs

A crucial part of competing with the industry’s largest lenders is recruiting and holding onto top mortgage talent. In today’s market, local lenders may find this increasingly difficult: Big players are able to offer impressive signing bonuses and other incentives to get volume. These shiny financial perks leave many smaller lenders scrambling to fill openings and power business growth.

On top of financial benefits, smaller lenders also contend with evolving employee motivations. Specifically, loan officer expectations and concerns have expanded beyond salary: Today, they expect flexibility in their roles, high-tech tools that augment their productivity, and stability in their company’s future.

For local lenders to build a lineup of talented, loyal LOs, they need to create a deliberate company culture that empowers top producers and embraces industry evolution. A part of that comes from supportive management and systems that encourage and reward learning and success. Another piece of building that culture is providing leading technology that helps LOs focus on what they do best: prospecting leads, nurturing connections, and capitalizing on relationships. Maxwell Point of Sale, for instance, helps LOs close over 15% more loans per month by engaging leads and automating communications and busy work.

2. Merge technology and people-led support for a top borrower experience

In many ways, COVID-19 solidified a trend that had been building for years: Borrowers now see technology at the mortgage point of sale as a necessary convenience. The days of lagging behind other industries and holding onto antiquated practices are over. There is no future in which innovative technology doesn’t play a major role in driving mortgage lending forward.

A technological shift is transforming mortgage lending, modernizing the process and sending borrowers online to complete applications and upload documents. According to ICE Mortgage Technology’s 2020 Borrower and Lenders Insight Survey, the pandemic marked a permanent change in the way borrowers view and seek out mortgage technology. Today, nearly 60% of borrowers say the availability of an online application impacts their choice of lender. That statistic is up almost ten percentage points since 2018.

On the other side of the transaction, lenders are similarly embracing a tech-forward approach to the mortgage application process. An overwhelming 90% of lenders surveyed believe in the benefits of technology, with 74% citing a simplified process and 70% enjoying less time to close. Maxwell Point of Sale, for example, shaves over 13 days off the closing timeline.

Small and midsize lenders need to access the obvious advantages technology-powered lending offers, including efficiency, speed, and accuracy. And yet, as the mortgage process becomes increasingly tech-heavy and impersonal, borrowers long for human-led support and service. ICE Mortgage Technology’s survey, for instance, shows that the majority of borrowers prefer a hybrid experience, including an equal blend of digital and traditional communication methods. Smaller lenders, with their local connections and rapport, make a natural fit for these modern customer needs—as long as they embrace available technology.

3. Leverage strategic partnerships with industry experts

As a smaller lender with limited resources, it can be easy to fall into a survival mindset: In times of high volume, you’re too busy capturing business and fulfilling loans to think ahead, and in lulls, you’re scrambling to survive until the next boom. While it might seem impossible to carve out time for forward-looking strategy, the ability to plan beyond the here and now will only become more important. As the industry evolves and well-funded competitors leverage data to get ahead of trends, local lenders need to move beyond reactive mentalities.

But how can small and midsize lending teams reliably allocate time, effort, and personnel to ensure long-term planning remains a priority? 

For any lender with limitations on resources, strategic partnerships with industry-leading providers are vital for staying ahead.

In other words, why stretch your focus and sink precious resources into forecasting market trends when you could simply join forces with a trusted provider? A strong technology partner like Maxwell will keep a pulse on the industry, using data insights and analytics teams to innovate solutions and help you take advantage of opportunities your competition doesn’t see. In turn, the partnerships you leverage will allow your team to focus on what they do best—building relationships, impressing customers, and growing the business. 

If you don’t have a trusted partner with deep mortgage and technology expertise, now is the time to seek one out. If you do, use this opportunity to lean on your provider for increased value and insight as the market becomes more competitive. If they respond, they’re a valued partner. If not, they’re a commodity.

Want to stay ahead of industry trends and arm yourself for challenges ahead? Download our new eBook, “Future-Proof: Industry Insight to Help Local Lenders Thrive” to gain access to:

  • 12 tips from industry veterans to help you optimize your mortgage process from loan application to the secondary market
  • Insight into challenges and opportunities local lenders will experience in coming years
  • 4 solutions that give local lenders efficiency, scale, and flexibility through market cycles
  • Advice from Maxwell’s leadership team on how to leverage technology, partnerships, and competitive advantages to better compete

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