This article originally appeared in the February 2025 edition of MortgagePoint magazine, online now.
The mortgage industry has experienced significant contraction over the past two years, adjusting operations to align with the reduced demand for refinance and purchase financing. This decline, primarily driven by mortgage interest rates, which have more than doubled during this period, may soon be reversed. There are promising signs that the market could rebound in 2025 if interest rates moderate significantly, bringing new opportunities and growth potential.
According to the latest data, the U.S. inflation rate peaked at 7% in 2021, and recently declined to 2.7%. While the real estate and mortgage industries have experienced challenges thus far, a reduction in interest rates could inject new energy into the market for Q4 and into 2025.
A Glimmer of Hope in Interest Rates
In an August 2024 address from Jackson Hole, Federal Reserve Chairman Jerome Powell made a hopeful statement, saying, “The time has come for policy to adjust. Further, we will do everything we can to support a strong labor market as we progress toward price stability.” He indicated that Federal Open Market Committee (FOMC) participants were targeting the federal funds rate to be at 5.1% by the end of 2024, 4.1% by the end of 2025, and 3.1% by the end of 2026. These rate projections, if realized, could lead to a significant reduction in mortgage interest rates, potentially stimulating the housing market. Powell also noted that the Federal Reserve would act more swiftly on rate cuts if strong recessionary trends emerge, further indicating the potential impact of the Fed’s actions on the mortgage market.
If rate cuts occur faster than anticipated, the pent-up demand across multiple fronts could bring a welcome surge in mortgage market activity. This surge could be particularly pronounced in the refinance sector, where the gradual increase in adjustable-rate mortgages (ARMs) is expected to boost refinance orders in the coming years. Additionally, there remains inherent demand for refinancing for reasons such as debt consolidation, college education financing, and home renovation—which needs to be stalled due to borrowers’ reluctance to swap their 3-4.5% interest rates for the current 6.5% rates.
Rising Housing Inventory and a Potential Flood of Buyers
With housing inventory rising 30% over the past six months and new and existing homes currently topping 4.7 months of inventory, lower interest rates could entice a wave of new homebuyers who have been waiting on the sidelines for the past two years.
The Lender's Challenge: Strategically Preparing for a Market Recovery
As the market recovers, lenders must craft strategies to ensure they rise. This includes upgrading technology to serve tech-savvy young buyers better, hiring additional staff, and developing a robust training program to prepare new employees for the increased volume of customers.
Filling in the Gaps
When volumes are low, the slower pace often obscures system flaws. Now is the time to dive deeply into what works and what doesn’t. Use this slower period to survey your staff, host brainstorming sessions, and create focus groups to identify areas of improvement. Involve the technology team and end users as they offer unique insights into the intersection of process and technology. From this feedback, set actionable goals to streamline operations for the future.
- Upgrade your technology: Once problem areas are identified, research solutions that can improve processes, whether software that saves time, enhances security for customer data, or improves communication through robotic process automation (RPA) or artificial intelligence (AI). A hidden benefit of upgraded technology is that it can also be a potent recruitment tool, attracting experienced loan officers who are drawn to sophisticated tools that help build their businesses.
- Know your customer: Engage with your existing customers to gather feedback and regularly review comments to identify areas for improvement. Customer focus groups can provide invaluable insights, especially from potential first-time homebuyers who can shed light on their struggles, educational needs, and incentives for entering the market. Understanding customer expectations, particularly regarding the use of technology, will be critical in meeting and exceeding their expectations.
- Evaluate third-party providers: Review new loan applications to assess which third-party providers offer excellent service and which are causing delays. Assembling your best support team now, with the capacity to grow with increasing volumes, will ensure you can meet future demands.
Strategic Staffing for the Future
While technology and processes can be refined at current volumes, hiring additional staff should coincide with increased business. However, developing a well-thought-out plan for scaling your staffing levels is crucial.
- Clearly define your ideal candidate: Outline what you’re looking for in potential candidates, considering that technology has shifted the focus of a loan officer. Your staffing strategy should encompass a range of expertise, from entry-level trainees handling repetitive tasks to experienced professionals focusing on complex financial assessments, marketing, sales, and customer relationship management.
- Brand your recruitment efforts: To attract top-tier loan officers, understand what environment fosters their success. Cultivate this culture within your company and highlight it in your recruitment materials.
- Share a vision for career growth: Loan officers may quickly lose interest if management does not offer a clear pathway for growth. Focus not only on immediate results but also on long-term career potential. Map out a success pathway, outlining the education, effort, skill training, and mentoring needed to achieve it.
- Establish a sustainable pipeline: Forward-thinking lenders create their staffing pipeline by partnering with colleges and universities to develop lending-focused curricula, offering internships, and establishing temp-to-full-time opportunities.
- Offer a comprehensive benefits package: Companies that provide robust benefits are more attractive to loan officers seeking new positions. A well-rounded benefits package might include financial incentives, health benefits, personal growth opportunities, and lifestyle perks. Tailoring your package to the needs of your candidate pool will help you craft a competitive offer.
Commitment to Onboarding and Training
Finally, a solid commitment to onboarding and training is essential. New employees often need help in their first few months due to inadequate training and guidance on where to seek help. Ensure your training program is comprehensive and provides ongoing mentoring and support. Survey your current loan officers to identify any gaps they encountered during onboarding and make necessary improvements.
Preparation Breeds Success
Race car driver Bobby Unser once said, “Success is where preparation and opportunity meet.” By fine-tuning your processes, upgrading your technology, and laying the groundwork for an effective recruitment program today, you’ll minimize operational delays when the market rebounds, setting your team up for success.
