Smart Strategies to Manage Rising Mortgage Demand

With originations expected to spike through the remainder of 2024, more mortgage lenders are looking to innovative staffing models, powered by leading technologies, to manage anticipated growth. Mortgage rates are likely to continue their steady decline on the Federal Reserve’s decision on September 18 to lower interest rates by 50 basis points; and cuts are also expected at the Fed’s meetings in November and December. Activity was already on the upswing: Bank and IMB activity jumped 54% and 27%, respectively, in second quarter.  

Outsourcing offers a crucial advantage for market participants in times of high demand, when lenders face challenges in rapidly scaling their workforce, leading to longer turnaround times and compromised quality. Third-party outsourcing firms typically handle non-customer-facing activities, relieving key pain points such as processing time, quality, accuracy and compliance. 

"The customer relationship is crucial," said Jon Gerretsen, Managing Director, Residential New Origination and Fulfillment Services. "Outsourcing allows mortgage originators or aggregators to spend more quality time with their customers and borrowers, and stay focused on their core activities -- product, pricing, deliverables and business development." 

Just as important, outsourcing helps address the variability in staffing, providing the operational flexibility to respond swiftly to market changes by scaling a workforce up or down, and eliminating the administrative burden of hiring and firing.   

Models of Loan Fulfillment: Component Services Support  

SitusAMC has developed two different approaches to support loan fulfillment -- fully licensed underwriting and component services. The latter, modeled on manufacturing processes, breaks the entire mortgage process into 80 to 100 micro-tasks that can be performed around the globe, 24 hours a day. 

"We separated the process into small components so clients understand the breadth of tasks they can outsource," explained Priyankar Ghosh, Managing Director, Shared Services. "We deliver these functions through a global team in both serial and parallel order, around the clock. Like auto manufacturing, our processes are all standardized, so wherever they occur, whether Miami or Mumbai, the work product has the same quality standards.” Those quality standards and delivery speeds are specified in the outsourcing contract, so lenders can easily measure performance. 

The component model gives internal loan processors the ability to handle greater volume, invest more in relationships, or both. "Typically, a processor can manage a pipeline of 25 or 30 loans," said Tracy Landwehr, Director, Lender & Fulfillment Services. "Throughout the day they're trying to triage priorities. Maybe while they're busy doing pre-underwriting, they miss several calls from a borrower who wants to change products, and that person goes elsewhere. By outsourcing back-end tasks that occur throughout the day to a component services support firm, that processor can now balance 50 loan files. More importantly, they can focus on keeping the borrower, realtor and everyone else involved in the transaction happy, so they don't lose the opportunity." 

In addition, component services teams work in pods, so the end product is a consistent output that reflects the client's business inside and out, rather than an idiosyncratic one. "The team advantage is that when people work together for a long time, everyone gets to know each other's habits," Ghosh said. "They complement each other extremely well, and that yields higher quality and greater efficiencies."   

Models of Loan Fulfillment: Licensed Underwriting 

In a fully licensed underwriting model, the external team analyzes the collateral, credit and borrower capacity to pay, and manages the file through closing, funding and post-closing. "It's a partnership," Gerretsen said. "We add value through dedicated teams of subject matter experts with deep experience in a wide array of products and the loan cycle. We stay with our partners consistently and become part of their strategic plan and culture."  

A fully licensed model gives lenders the flexibility to diversify faster into new products, with less risk. "A lender may decide to get into DSCR (debt service coverage ratio) loans to investors," Gerretsen said. "Rather than build out a team, it's much less of risky to work with a firm like ours. Outsourcing offers better efficiency, accuracy and speed of service delivery, because we have experts with deep experience in the product who can ramp up immediately." 

Moreover, fully licensed outsourcing mitigates the risk associated with staff turnover and retention, particularly for highly skilled roles. During peak periods, talent wars erupt as competition for skilled underwriters intensifies, leading to higher costs and potential service disruptions. Outsourcing firms can act serve as a kind of insurance policy, so when spikes occur, lenders don't have to figure out how to hire several dozen underwriters at a time when every other firm in the industry is recruiting as well. 

"Outsourcing licensed underwriting does not replace full-time staff, but supports the client when their employees get hired away by their competitor across the street," Gerretsen said. "We provide immediate lift so that they can retain their staff, doing it with a reliable, ready-to-deploy workforce, who are knowledgeable of the client's product guidelines, practices and culture. The speed to market to adjust to spikes in demand is dramatic, and we ensure continuity, stability and higher-quality service levels. And then when the spikes go away, the lender doesn't have to reduce 40% of their people. We are there, acting as that leverage." 

Choosing the Right Outsourcing Partner for Underwriting 

Selecting the right partner is critical to maximizing the benefits of outsourcing. Mortgage lenders should consider several factors when evaluating potential partners. First, the partner's expertise and experience in the mortgage industry are paramount. Firms with a deep understanding of a wide variety of products, the regulatory environment, compliance requirements and market dynamics are better positioned to deliver high-quality services. 

In addition, lenders should consider a partner's ability to integrate seamlessly with its operations. This includes compatibility with existing technologies and processes and a collaborative approach to working with the lender’s internal teams. Effective communication and a shared commitment to quality and service standards are essential for a successful partnership. 

Third, lenders should assess the scalability and flexibility of the outsourcing firm. The partner should be able to adjust their services to meet the lender’s changing needs, expanding during peak periods and contracting during slower times. Additionally, the outsourcing firm should offer robust metrics and reporting mechanisms to ensure transparency and accountability in service delivery. 

In times of fluctuating volume, traditional staffing can fall short in meeting borrower demands and capturing market share. Outsourcing provides a flexible solution to quickly escalate talent platforms, and successfully manage mortgage underwriting and loan processing.  

For more information on how SitusAMC can help your firm improve quality, accuracy, speed and efficiency in mortgage origination, visit our website or contact Jon Gerretsen at jongerretsen@situsamc.com.  

In addition, SitusAMC recently published a white paper, “Trends, Opportunities and Best Practices in Mortgage Outsourcing.” It examines three areas of opportunity in outsourcing across the residential mortgage lifecycle: loan origination, warehousing administration and asset management, and looks at best practices in each. Download our paper here.