“To invest or not to invest?” is the question that most lender IT departments are asking themselves as the mortgage industry continues to face headwinds.
Technology roadmaps written for 2023 are currently being pulled apart and reevaluated as mortgage rates fluctuate, hammering home sales and shrinking lender profit margins. One chief information officer noted that out of 16 projects planned for next year, only eight remain in their plans.
The main focus for IT departments going forward is to find solutions that will beef up volume while shrinking expenses. Lenders are moving away from technology initiatives that were implemented during the pandemic — mainly those that helped them process loans. Instead, they are investing in data collection, robotic process automation, and migrating their systems to the cloud. Also, they’re looking at business analytics tools that will help them to make decisions on personnel cutbacks.
“A year ago, when rates were low and everyone was buying a house and everyone was refinancing, the constraints were in a lender’s process, so underwriting, closing, and funding,” said Louis Zitting, CEO of MonitorBase, a firm that specializes in data mining and client retention technology for lenders. “Now it’s focused on efficiency and tools to help originators get a new loan in the pipe.”
As origination volume has continued to shrink, the top five lenders combined trimmed close to $1.5 billion worth of expenses in the second quarter to keep their shops afloat, according to SEC filings.
The reprioritization has caused certain projects — including upgrades to telephone systems, adoption of e-Notes and remote online notarization (RON), and any other digital transformation projects — to float to the bottom of tech to-do lists. Vendor agreements are also being dissected, lenders say.
Priorities for 2023
In an environment where lenders are starved for business, they are looking for avenues to generate more origination volume.
Zitting’s company MonitorBase, which provides software that identifies borrowers who are exhibiting in-the-market behavior, is one of the companies profiting from lenders reprioritizing their technology initiatives.
“That turns out really well for us, we’re busier onboarding lenders than we’ve ever been,” Zitting said. “They need tools like ours, (our mining tool is) an efficiency tool. The only place that loan officers are going to get deals is from their current database.”
At a time when potential buyers are holding off from making a purchase, mining data that can result in home purchases is a worthwhile investment for lenders.
“If you look at the big players in our industry, they do a couple things better than most, and one of those things is aggregating, analyzing, and leveraging data to engage customers quickly,” said Mark Langhans, chief information officer at Union Home Mortgage. “We certainly are looking at (data collection).”
One of those big players is Rocket Mortgage, Langhans said.
In its second quarter earnings, the company’s executives said that going into 2023 they’re “putting a big chunk of capital (into) internal investment in technology” to save money in the long term.
“(Going forward,) we have to invest in the capturing of the data and then integration of that data into our marketing services cloud,” Rocket’s CEO Jay Farner said. “So we can be advertising the right product to the right client at the right time.”
The buzzword going into next year is “efficiency.” Lenders are currently looking for ways to cut costs and run a slimmer shop through automation wherever possible.
“Servicers and originators primarily are looking at where they can initiate cost efficiencies across departments,” said Souren Sarkar, CEO of Nexval, a fintech provider. “This has led to the adoption of process automation technology, called robotic process automation (RPA), which can improve workflow and decrease the need for excessive numbers of human operators.”
Some lenders, such as Wisconsin-based Waterstone Mortgage, are turning to bots to automate their processes, per the company’s chief information officer Thomas Knapp.
“We are looking right now to implement bots that would automate some of the more routine processes,” Knapp said. “And we’re going to continue to invest because there’s a return on investment (ROI) in terms of headcount.”
Robotic process automation is implemented in part to rely less on humans. And when the market picks back up, it’s likely that lenders won’t have to scale up drastically to keep up with demand, said Michele Buschman, vice president of information services at American Pacific Mortgage.
“I’m looking at where I can plug in automation so that it makes my folks more productive,” she said. “When another refi boom happens, we won’t scale with so many people. We’ll scale with technology.”
Moving operations to the cloud is another tech initiative that is floating to the top of lenders’ priorities.
“The few projects that you see that are still moving forward are those where lenders can eliminate costs, one such solution is moving to the cloud,” said J-T Gaietto, chief security officer at Digital Silence.
“A lending firm that I worked with that had a lot of physical IT equipment and a couple of different data centers has continued to spend the money to get into their cloud infrastructure,” Gaietto said. “Because they know they’ll be able to eliminate those costs, both of the data center bill, but also, the various hardware refreshes and other support contracts that they were under to maintain that environment.”
What sinks to the bottom
Technology initiatives that in 2020 and 2021 rose to the top, must come down – especially if they are costly or not urgent for an origination shop.
According to numerous CIOs, the implementation of new phone systems have been temporarily shelved.
“We need to replace our phone system, but it wasn’t urgent this year, so we said that we’ll take that back up later,” said Knapp. “If there are investments or projects that are not critical or don’t have a significant impact, we have delayed those.”
The past two years saw many lenders embark on digital transformation projects, “but they are pumping the brakes on anything like that right now,” Gaietto said.
Many lenders have also paused the roll-out of a single sign-on portal and have stepped away from platform consolidation.
“Some lenders have multiple CRMs, or a lot of different business apps that they’re working towards merging into one platform and they’ve just stopped because, again, the individuals that are needed to help run those projects, they’ve been let go,” Gaietto said.
Vendors are likely to also share the pain of razor thin margins, as lenders start to reevaluate contracts and products for which they’re paying.
Rocket Mortgage is in the process of “looking at vendors and ensuring that every agreement is the best in the market because now is the time to focus on what value they’re bringing to us, or we’re going to have a conversation to re-explore the arrangement,” said Farner of the Michigan-based lender.
Another CIO who works for a direct-to-consumer retail lender, who asked to remain anonymous, said that his company is “looking at all vendor agreements, to make sure that there isn’t any deadweight or unnecessary costs.”
“The mentality in the industry right now is that you’re really going to hunker down, focus on limiting costs, limiting expenses, canceling subscriptions, canceling vendors,” he said.