SitusAMC CEO Michael Franco Discusses How Lenders Can Adapt to Thrive in a Higher-Rate Environment

Mortgage lenders facing persistently elevated interest rates and subdued origination volumes need to rethink operating models, diversify products and invest in technologies that improve efficiency and customer experience, according to SitusAMC Chief Executive Michael Franco.  

In a recent podcast interview with HousingWire, Franco discussed the difficult decisions facing mortgage executives and why companies that adapt to current market conditions could emerge as the industry's next leaders.  

“This is not a cycle to wait out—it's a change in the operating environment,” Franco said. “In times like these, the market shrinks, conditions change, but it also brings great opportunities for those who can adjust.” 

With mortgage rates exceeding 7% at the time of the interview and approximately 75% of outstanding loans carrying rates 100 to 150 basis points below prevailing levels, the industry's traditional reliance on refinancing activity remains challenged. Rather than waiting for rates and origination volumes to recover, Franco said lenders must build businesses capable of operating profitably under current conditions. 

“We'd all love to see 14 million units back again, but we're in a market that's going to be about five million units,” he said. “You have to find a way to make your business work in a five-million-unit universe.” 

The shifting environment requires lenders to examine everything from product offerings and capital markets execution to technology investments, staffing models and capital allocation, Franco said. 

Focus on Product Innovation 

For some lenders, expanding into home equity lines of credit (HELOCs), second liens, non-qualified (non-QM) mortgages and other affordability-oriented products may provide opportunities to reach borrowers who are not well served by traditional mortgage products. Others may need to reconsider whether certain business lines or origination channels remain economically viable. 

Product diversification also requires careful attention to secondary market execution. Entering non-agency lending without established capital markets relationships and a clear disposition strategy can introduce significant balance sheet risk. 

“You don't want to originate the product and then it gets stuck on your balance sheet,” Franco said, pointing to the potential for warehouse line haircuts and discounted asset sales when lenders cannot efficiently move loans into the secondary market. The challenge is to align product strategy, underwriting capabilities, funding arrangements and capital markets execution before expanding into new lending categories. 

Looking for Opportunities to Cut Costs, Improve Efficiency 

Franco also emphasized the importance of reducing fixed costs and introducing greater flexibility into operating models through outsourcing, automation and artificial intelligence (AI). For companies with substantial mortgage servicing rights (MSR) portfolios, selling a portion of those assets could provide liquidity to fund investments in business transformation. 

“Business leaders need to be really thinking about hedging the operating model and not just the origination pipeline,” he advised. 

The economics of mortgage origination make these decisions particularly important. Franco noted that the cost gap between the industry's most efficient originators and their less efficient competitors continues to widen, as does the difference between bank and nonbank origination costs. 

Scale alone, however, does not guarantee success. Lenders must understand where they have competitive advantages, which activities they should retain internally and where external expertise could improve efficiency. 

Mortgage companies have historically struggled to invest in efficiency initiatives because of the industry's cyclical nature, Franco explained. During periods of strong origination activity, executives are often too busy to overhaul operations. When volumes decline, limited financial resources make investments more difficult. 

“It's important to realize that the worst times can set the stage for the best times,” Franco said. “But it does take a certain attitude to embrace that change. The people redesigning and making the hard decisions are building KPIs and metrics into their organizations, and they're getting their people aligned with how to create the better tomorrow.” 

Aligning AI Investment With Process and Workflow  

Artificial intelligence and automation are attracting substantial attention across the mortgage industry, but Franco cautioned that technology investments will fall short without corresponding changes to business processes and organizational structures. 

The conversation around AI has shifted from whether lenders should adopt the technology to how they should implement it, Franco noted. But industry research suggests that early investments have produced limited measurable improvements in origination costs, customer experience and risk reduction. One reason is that companies introduce technology without redesigning the workflows it is intended to improve. 

“They introduce a new technology (but) they don't really appreciate the change in the organization, how to rework workflows,” he explained. “And you end up just paying more for the technology without realizing the actual benefits that you thought that you would realize.” 

Successful implementation requires a clearly defined return on investment, effective change management and executive alignment around measurable business outcomes. “Automation can also just make the things that are broken happen faster,” Franco said. 

Franco said lenders should focus on fundamentally redesigning how work gets done, using technology to automate routine activities while allowing employees to concentrate on exceptions and decisions requiring professional judgment. That approach could eventually support greater straight-through processing, with AI agents performing more routine functions. However, achieving those efficiencies requires strong governance, regression and parallel testing, drift monitoring and continuous feedback mechanisms. 

Importantly, Franco argued that technology investments should be evaluated against broader business objectives rather than cost savings alone. For example, an automation initiative that significantly reduces closing times, increases borrower engagement, improves pipeline pull-through and strengthens customer retention could deliver substantial value even if total operating expenses remain unchanged. 

“Frequently, those goals shouldn't just be about costs; it should be about how do you build a better business, and how do you build a business that's going to be properly positioned for when the market does rebound,” he said. 

Build vs. Buy: Choosing the Right Tech Strategy 

As lenders evaluate AI and automation, Franco sees a growing need to make disciplined decisions about whether to build proprietary systems or partner with external technology providers. 

Developing sophisticated AI capabilities internally requires specialized technical expertise, regulatory knowledge, information security resources and ongoing investment. For many lenders, particularly those without the scale of the industry's largest originators, purchasing established solutions may offer a more practical path. 

“For most parties, we believe that they should look to buy versus build, especially for lenders that aren't at the top of the lead tables and can't necessarily afford that big team to build out those technologies,” Franco said. 

The right partner can provide technical expertise while allowing lenders to apply their own institutional knowledge to the design of workflows and customer interactions. Ultimately, the goal should be to integrate structured data into existing systems and business processes in ways that allow lenders to focus on their core competencies and customer relationships. 

But technology capabilities are only part of the evaluation. Franco warned that the rapid proliferation of AI vendors creates potential risks for lenders that invest heavily in solutions offered by companies without sufficient financial resources or long-term viability. “Looking at the financial capacity of your partners, it can be just as important as understanding what the technological capabilities are,” he said. 

Selecting a vendor that subsequently fails could force a lender to abandon a costly implementation and restart the process, even if its original technology strategy and workflow design were sound. 

Appraisal Modernization Creates New Opportunities 

Franco also discussed the industry's transition to Uniform Appraisal Dataset (UAD) 3.6, which introduces a more standardized, data-driven approach to residential appraisal reporting. While he expects the transition to create near-term disruptions, including longer turnaround times, higher costs and workflow challenges, the longer-term benefits could be significant. 

Moving away from PDF-dependent appraisal processes toward structured data should enable more efficient reviews, stronger quality controls and improved integration with automated systems. “Having UAD 3.6 be the source of truth in the appraisal..takes us into more data-driven workflows, which should ultimately lead to better outcomes for everyone,” Franco said. 

Standardized appraisal data could also improve secondary market due diligence by allowing reviewers to evaluate property characteristics, comparable sales and other valuation information more systematically. 

Franco noted that SitusAMC has adapted its systems to accept UAD 3.6 files and expects the new standard to improve the accuracy and efficiency of appraisal reviews. 

Historically, discrepancies between appraisal PDFs and associated data files have created challenges as loans move through the capital markets. A common industry data standard could help address those issues while supporting more advanced automation. 

Despite the implementation challenges, Franco sees the transition as an important step in modernizing mortgage operations and improving data quality across the loan lifecycle. 

Today's Decisions Will Shape Tomorrow's Market Leaders 

Throughout the interview, Franco returned to a central theme: lenders that use the current market environment to improve operations could gain a meaningful competitive advantage when origination activity rebounds. Drawing on 15 years of experience growing SitusAMC through multiple market cycles, he observed that downturns often create opportunities for companies willing to invest while competitors retrench. 

That requires management teams to establish clear performance metrics, align employees around operational improvements and make difficult decisions about where to invest resources.  

“Redesigners are people who treat each downturn as a moment to take share from competitors who may be retrenching,” he said. “The opportunity to differentiate—whether it's technology, customer service, M&A—is at its highest when everyone else is cutting.” 

Listen to the full Housing Wire interview here.