How Automation Can Help Lenders Manage Market Shifts in 2023

The last two years have posed intense challenges for the mortgage industry. First came the boom: Mortgage originations hit a historic high of $1.3 trillion in Q1 2021 amid rock-bottom interest rates, with refinance accounting for 70% of the total. Refi volume stayed elevated, totaling $2.8 trillion for the year. Then came 2022, which saw the fastest adjustment in interest rates since the 1980s. Volumes plunged as mortgage rates hit a 16-year high. On February 1, the Federal Reserve boosted its benchmark federal funds rate again, by an expected quarter percentage point, to a range of 4.5% to 4.75%, marking the highest level since October 2007.

These whipsawing trends created two different problems for the industry. The historic refinance volume required lenders to process, underwrite and close loans in numbers no one was staffed for, resulting in massive hiring pushes and signing bonuses to meet demand. The subsequent rate hikes dried up loan application pipelines, forcing lenders to reduce the staff they worked so hard to hire just months earlier. The resulting shift from an incredibly robust market to a near standstill has put budgeting restrictions on mortgage lenders, forcing them to be more selective with where they are spending their dollars—technology and human capital alike.

“As the industry finds a new normal, we have an opportunity to become less reliant on manual processes and embrace automation to be able to better handle these market shifts in a rapid and cost-efficient manner, and cause less disruption to staffing levels,” said Julia Curran, SitusAMC Senior Director, Product & Client Solutions. “Implementing tech to automate certain processes will also free up staff to focus on their best use and overall deal making. 

In the rising rate environment, originators have had to get more creative with their loan products. This variety helps with volume but puts a strain on the underwriting team to be familiar with multiple guideline nuances, Curran noted. Technology that can absorb data and run calculations and test thresholds in accordance with guidelines will prove useful. 

“These rules engines can be used independently or in conjunction with data taken electronically from primary sources and fed directly into these engines,” Curran explained. “This automation reduces the need for human capital while minimizing errors and increasing efficiency.”

In 2023, lenders would be wise to invest in technologies that accommodate automated review of applications to varied guidelines, and technologies that support home equity line of credit (HELOC) lending. Consumers who currently have very low rates on their home mortgages will not want to refinance, but in the coming year, HELOC volume will likely increase dramatically. 

“As the market shifts from closed-end, high-interest-rate products, origination systems that manage the necessary documentation for HELOCs and correspondingly servicing systems that can handle draws and repayment on these products are two forms of technology that will be in high demand,” Curran said. “We’ve seen our own offering in this area – BRES Automated Underwriting System – help support numerous lenders.”

Learn more about BRES AUS here.