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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2013

Planning for the Return of the Purchase Market

Don’t ride into the purchase-loan arena without adequate preparation

Planning for the Return of the Purchase Market

Current market trends indicate that a change is on the horizon of the mortgage landscape. Historically low interest rates have driven a heavy dose of refinancing throughout the downturn, but rates have begun to increase, reducing the number of homeowners looking to refinance the mortgage on their properties. The steady boost of available purchase inventory, as demonstrated by higher housing starts and increased sales of existing homes, is quickly moving the market toward a return to a purchase-focused environment. This is furthering the country’s ride to mortgage-market stabilization, but it’s doing so amidst a smaller pool of eligible refinance candidates.

For many banks and brokerages, making the transition back into the purchase business won’t be without its bumps and bruises. Nonetheless, as the market speeds up from a trot to a gallop, proper preparation can ensure that your company’s purchase business gets off and running.

Although a return to the purchase market has been viewed as an expected and positive next step toward overall recovery, many in the industry are wary about losing the stability that refinancing activity has provided throughout the downturn. According to Reuters and Wells Fargo & Co., refinances made up more than 70 percent of mortgage-lending volume in the first half of this year, but since then, that percentage has been diminishing quickly and may continue to do so in the coming months.

Transitioning from this refinance-driven market toward a purchase market means that mortgage originators must shift their organizational mindset, retool certain back-office processes and increase their sales efforts. This won’t be easy, however, given today’s highly regulated environment and the financial implications of originating purchase loans with higher operational costs.

Industry professionals may not all be happy about this shift, but now is the time to start preparing for a return to the purchase market. Accepting and embracing the transition early will allow you to smoothly move into the next phase of market recovery and again find success with purchase applicants.

Make the shift now

Data shows that a transition to the purchase market may be happening sooner rather than later. Interest rates are beginning to rise, and 30-year fixed-rate mortgages increased to 4.8 percent late this past August, according to the Mortgage Bankers Association (MBA). With these rate increases, the number of refinance applications is now beginning to decrease significantly. This past August, MBA reported that its refinance index was at its lowest level since April 2011.

Meanwhile, purchase demand has been improving, with existing-home sales up 4.2 percent this past May, according to the National Association of Realtors. As home prices continue to appreciate, the number of underwater borrowers also has declined. CoreLogic reports that the number of properties with negative equity is down from 21.7 percent in fourth-quarter 2012 to 19.8 percent this past first quarter.

This decrease in underwater borrowers combined with the consistent increase in interest rates and purchase demand does not look to be leveling out any time soon, meaning that a purchase market is no longer a distant destination, but a rapidly approaching reality. Those who prepare to support the needs of a purchase market by implementing processes and starting to generate new business will be far ahead of those still on the fence about moving away from a reliance on refinance volume.

Preparing for purchases

With all of this noted, what can originators do to prepare for a purchase environment? Diversifying your origination channels is a good place to start. Many originators have been successful in the refinance market by leveraging technology resources that enable quick execution and promote service in existing channels. To succeed in today’s changing market, however, originators must look at new sources of business, as well.

Overall loan-origination volume likely will decrease throughout the next few years. As a result, it will be important to identify new origination channels by establishing relationships with homebuilders, Realtors, relocation companies and other potential application sources. Along with finding new avenues for purchase originations, focus also should be placed on building new relationships while strengthening old ones that could lead to new purchase business.

Originators should begin reaching out to determine how best to service these channels and how to compete in a rapidly shrinking market. Originators should consider: What is your organization’s competency? How confident are you in your level of service? What can you offer as far as loan products, programs and pricing? You must be able to effectively communicate these value propositions when looking to establish relationships with new companies.

Transition strategies

In contrast to the inbound inquiries, Web-based application requests and incoming calls that mortgage professionals enjoyed in the refinance boom, successful purchase originators will be known for sales and marketing strategies that attract consumers to new loans. Any change in purchase focus also should include a long-term strategy that encompasses marketing, sales and industry influence.

Marketing today goes well beyond the outbound snail mail of yesteryear. The use of marketing applications through the Internet, particularly social media, have risen exponentially since the most recent purchase market. Whether marketing is outsourced or handled in house, the potential purchase business that can be found among the more than 1.5 billion users of sites like Facebook, LinkedIn and Twitter is too significant for originators to ignore. Begin forming a social media strategy that allows you to attract eligible homebuyers as well as measure the number of purchase applicants coming from those social media channels.

Along with social media outreach, originators must reinvigorate their traditional marketing efforts. Although it takes time and money to create and maintain professional-looking print marketing materials, those who are the most creative with traditional marketing outreach will attract the most business. Leveraging e-mail and other communication channels also will increase distribution and reach more potential clients.

Additionally, a strong marketing base will provide a solid foundation for lead generation as originators tighten up internal sales efforts. Begin by evaluating the strengths of the current sales force based on key performance metrics, including prospecting activity, customer satisfaction and share of purchase business. This will help identify strong performers who may have the competency to navigate through a more aggressive environment and also help develop best practices for other originators. Measure the purchase share using units, rather than dollar volume, as Home Affordable Refinance Program originations may distort the amounts.

In addition to fine tuning the sales team, loan fulfillment and operations departments also should reevaluate processing efficiency in preparation for the service-level needs of this changing market. Providing an excellent origination customer experience will be more important than ever when it comes to servicing purchase-origination business and creating relationships that lead to repeat business opportunities and sustained growth.

Along with implementing strategies surrounding marketing and sales, originators also should not hesitate to leverage the training and networking resources available through associations and trade groups. Strengthening ties with local, state and national associations such as mortgage bankers associations, Realtor groups, networking clubs and homebuilder associations can provide a solid foundational resource for originators struggling with a purchase-market transition.

•  •  •

Although it will no longer be business as usual, accepting and preparing for a return to the purchase market now will more than compensate for the heartburn you may feel about the transition. Whether it’s beginning to diversify origination channels through new relationships or tackling your purchase-focused marketing and sales strategies, start making your preparations today. It won’t be easy, but remember that not just anybody will be ready to thrive in this market. Those who adapt early will enjoy success sooner and more often as the industry becomes fully engulfed in the coming purchase market. 


 


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