While the failure of Silicon Valley Bank is in the rearview mirror, its fallout continues to unfold. Pair that with interest rates hovering around 7% and untamed inflation, and it’s easy to see why the mortgage industry is gearing up for a challenging second half of the year.
Recently, the Clear to Close podcast team—including VP of Corporate Development Bryan Traeger, VP of Private Label Origination Alan Parris, and Solutions Director Anthony Ianni—discussed today’s market and what lenders can learn from recent economic happenings. Specifically, they weighed in on what lenders can take away from major events such as SVB’s collapse and how the industry can build better strategies to weather the second half of the year.
Here’s what they had to say.
Relationships are more crucial than ever to lender viability
It’s been said that despite its workforce size, the mortgage industry feels strikingly small and connected. The reason is the strength and longevity of its relationships. Within mortgage, not only are lending professionals interconnected, but many create lasting bonds with their borrowers and members. This is especially true for community banks and credit unions, who tend to serve their customers across several years and multiple product lines.
When SVB collapsed, many Americans, concerned for their money’s safety, reconsidered their banking practices. As a result, the country’s 25 largest banks gained $120 billion in deposits in the fallout of SVB, while smaller lenders lost $108 billion from their accounts.
Understandably, these aftereffects have local lenders and the American public at large worried. Still, for the community banks that have shown resilience, many credit their survival to one factor: strong relationships with customers.
“What I see is that banks generally follow the 80/20 rule,” says Bryan. “Eighty percent of their income comes from 20% of their depositors. So when you have a lot of flight to other banks, those 20% really matter. Community banks have either built those relationships and retain those 20% driving their business or not.”
In other words, adds Bryan: “Relationships are absolutely critical to the longevity of your institution, especially when you’re a community lender.”
Leverage lead generation to build strong borrower connections
In times of economic uncertainty like today, the rapport you’ve built with your borrowers matters—and so do the methods you use to attract new customers. It might be tempting to chase leads in whatever ways you can, but it’s vital to take the home buyer’s perspective into consideration. While your loan officers might be desperate for pipeline, a typical borrower is likely feeling uncertain and stressed about high interest rates, low inventory, and lack of affordability in the market. Instead of pouncing on the prospect of new business, stand out as a lender by taking a borrower’s potential financial stress into mind and serving as a source of education and support through the mortgage process.
In the Clear to Close episode, Bryan recounts his recent experience after he and his wife got pre-approved for a mortgage.
“Within 24 hours of being approved, we got 100 calls,” says Bryan, detailing that the relentless calls stemmed from lenders who scraped data from credit agencies. When he picked up one of the calls, he immediately received a hard sell from a lender who had no understanding of his lending needs, only to be met with contempt when he declined that lender’s services.
While it’s understandable to pursue outside-the-box strategies for leads, it’s vital to remember the importance of relationships to generating business in a down market. If borrowers feel a lender is being predatory, they’ll be turned off from doing business with that lender—and potentially soured from pursuing a mortgage in general.
Instead, lenders should use this time to provide education on today’s difficult market, drive referral business through existing industry and customer relationships, and help those leads navigate through the challenges to homeownership. Doing so will garner business despite low volume and set lenders up for repeat business when the market recovers.
Want to learn more about how to tackle the second half of the year in light of economic developments?