The mortgage industry is heavily impacted by the changing tides of the economy. Global conditions and fluctuations in federal loan rates lead to opportunities and risks.
Lenders with a sound strategy can adapt more quickly to changes to maximize revenue during peak times and minimize risks caused by economic downturns. Speed, agility, and data access are key factors to success.
Challenges Caused by Market Fluctuations
Over time, central banks adjust interest rates to strike a balance between encouraging growth and mitigating inflation. To promote growth through financing, banks lower rates, occasionally even to the level of a zero-percent basis.
Lower borrowing rates drive demand in the consumer-lending market. Home-buying goes up due to drops in interest rates. Existing homeowners also look to refinance or borrow against equity.
During these peak demand cycles, mortgage lenders have to operate efficiently to handle significant increases in application volume. These boom periods allow banks to build up their lending book.
When inflation rears its ugly head, central banks raise interest rates. Often, rate hikes occur gradually. However, if inflation has become especially burdensome, the Federal Reserve may boost rates more rapidly to stem the tide.
As interest rates climb, home-buying and new loan applications decrease. Similarly, demand for refinancing and equity loans diminishes. During these lean times, lenders shift their focus from handling volume to managing risk and controlling costs.
How Successful Mortgage Lenders Thrive During Economic Downturns
Many mortgage businesses come and go because they don’t navigate murky waters effectively. In contrast, the companies that endure figure out ways to thrive even in the face of market turmoil or uncertainty.
The following are some of the specific strategies used by mortgage firms to adapt to economic downturns:
- Better risk management. Declining revenue means less money to invest in mortgage financing. Therefore, lenders have to ensure the money they do allocate is spent wisely. Each loan takes on greater importance and greater risk. However, reduced revenue also means hiring more people may not be an option. The key is to figure out how to operate more efficiently. Risk assessments come into focus, as banks carefully assess which borrowers are most profitable and most likely to keep up with payments.
- More stringent underwriting processes. Underwriting processes become much more stringent as part of the effort to manage risk. However, even while managing risk, it is important to make timely application decisions. Organizations that do not prioritize timely decision-making risk losing good prospects to competitors. In a tight market, inefficiencies and delays prevent mortgage firms from capturing an opportune customer.
- Greater emphasis on data and automation. Data is crucial to risk management and accurate assessment of a borrower’s loan request. How do financial institutions make better use of comprehensive data without increasing human resources? The simple but profound answer is “automation.” Lenders want to automate as much of the decision process as possible without losing sight of personalization and professional judgment.
- Optimized operational capacity. Increased automation and clear processes contribute to optimized operational capacity. The goal is to handle the right loan volume regardless of whether demand is heavy or slow.
- Improved customer experience. An optimized customer experience is necessary to beat out the competition for a limited market of highly qualified borrowers. To achieve a great CX, lenders need to make fast decisions, communicate effectively and offer competitive rates.
How Instabase Helps Mortgage Lenders Succeed During Economic Downturns
Instabase, the Automation Platform for Unstructured Data, has proven a huge success with mortgage lenders. Its intelligent document process capabilities, fueled by deep-learning technology, allow lenders to balance speed and accuracy in a scalable manner.
Changing demand is a critical challenge for mortgage lenders with economic volatility. In periods of high volume, lenders need to expand operational capacity without increasing costs. Adjusting personnel in response to volume shifts can lead to a “hire and fire” cycle that is costly and bad for morale. It is also dependent on steady access to talent, which isn’t always the case.
Instead, Instabase automation allows lenders to easily scale with rising or falling volume, while maintaining stability in their workforce and budget. Instabase automation enables mortgage lenders to accurately extract critical data from the unstructured, complex, variable documents received from applicants quickly and accurately. The gains in efficiency and accuracy allow lenders to focus on interpretation, timely decisions, and customer-centric communication.
Additional benefits of using Instabase to adapt to changing market conditions include:
- Accelerated timeline to automation with unstructured documents. Deep learning processes take time. From scratch, it typically takes 6 months or longer for a bank to implement an effective automated solution. Instabase’s intelligent document processing platform dramatically accelerates this timeline. With a limited number of document samples, such as bank statements, tax documents, and deposit slips, Instabase is able to apply an effective model to your business rapidly. As you run more applications through the system, accuracy and efficiency continue to improve.
- High scalability. Scalability with volume fluctuations is necessary for long-term human resources and cost stability. Instabase is able to transition from handling a very low volume of documents to handling a very large volume with little change in lender effort.
- Better insight into your existing loan book. Access to unstructured data isn’t just useful with new applications. Instabase allows you to gather deeper, more comprehensive data from your existing loan book. Insights gained help you to improve targeting with refinances, upselling and secondary-market mortgage sales in response to market changes. The results are better profitability and optimized customer retention. Expanding business lines to enhance diversification also helps with risk management.
Instabase Use Case Examples
The ability of Instabase to help mortgage firms achieve the benefits described are far from theoretical. They have been proven in the mortgage sector, other consumer and commercial loan sectors, and across many other industries.
The following are two specific use cases in which Instabase intelligent document processing fueled improvements in risk management and operational efficiency:
Leading Tier 1 UK Bank
A leading bank in the UK implemented Instabase and achieved the following results:
- 63 percent capacity uplift
- Underwriter capacity increased by 40 FTEs per year
- 30 percent increase in accuracy via deep learning ecosystem
Tier 1 US Bank
A Tier 1 bank in the United States implemented Instabase and achieved the following results:
- 40 percent capacity uplift
- 65 percent effort reduction across processors and underwriters
- 40 percent reduction in cycle time
Leverage Instabase to Thrive
It is easily predictable that interest rates will swing up and down perpetually over time. The amount of time rates will hold steady at any point is less predictable, as is the time you have to adjust to rising or lowering rates.
A reactive approach to handling economic downturns creates a major disadvantage. Mortgage lenders that thrive have a versatile system in place that scales to market demand without a significant cost burden.
Instabase has helped many top mortgage businesses automate document processing to achieve better results in all market conditions. It isn’t just mortgage firms that can benefit either. The advantages of Instabase apply to products across the consumer lending sector!
Learn more about how lenders use Instabase in the real world. Download The Big Book of FSI Use Cases today.