As the mortgage industry closes the book on its most challenging year in recent memory, what strategies and what role will technology play as lenders struggle to regain traction, grow volume, and return to profitability in 2024? To gauge industry sentiment and gain insight on the most promising strategies, Wolters Kluwer surveyed more than 100 C-suite and executive-level mortgage lenders and financial institutions in early December. The survey focused on their outlook for 2024, their current and future technology needs and wish lists, and how they intend to scale when the market returns to more normal levels.
Despite the hard lessons learned over the past 18 months, most of the respondents were relatively positive about their ability to navigate the market conditions ahead and the benefits of increased digitization.
Specifically, respondents were optimistic that their mortgage operation will be profitable in 2024, due primarily to rightsizing costs to match volume (38%) and leveraging technology to be more efficient (36%). More than a quarter of respondents said they expect to grow market share, 17% said reduced rates will help increase volume and another 17% said they plan to add alternative products. If things don’t go as planned and their mortgage operation isn’t profitable, almost a third (31%) said they plan to invest in the business to improve efficiency. A third of respondents said they would scale back operations permanently if needed.
Almost three-quarters (69%) of respondents expect this year to remain about the same as this past year; only 10% expect it to be better than 2023, and 21% anticipate a tougher 2024. The survey was in the field before the Federal Reserve signaled that it was done with rate hikes, but most respondents anticipated this development. When asked their predictions on the direction of rates, over half (57%) believed rates would drop in 2024, but 23% expected rates to continue to rise, and 20% said they believed the higher rate environment is the new normal.
There are differing opinions in the industry regarding whether or not there will be a significant increase in home equity lending, given the record-high home equity American homeowners have amassed. A majority of these industry executives surveyed (71%) don’t expect a significant uptick in home equity lending in 2024; 29%, however, are more optimistic about this lending segment.
When asked about the biggest challenges that will continue into 2024, loan fall out was cited by 37% of the respondents, followed by lead generation (30%), volume (25%), technology needs (20%) and increased regulation (18%). Asked if regulatory compliance will increase loan production costs, 71% said yes, with only 19% saying it would increase costs by a lot, and 53% saying it would increase costs, but not by much.
Respondents made clear they anticipate digital solutions, including eClosing and eVaults to be a significant need over the coming years. When asked what enhancements they’d like to see in loan origination systems (LOS) over the next five years, almost 79% identified eClosing and eVault capabilities, with 37% citing eClosing as a need and 32% citing eVault as a need. These functions will be must haves for doc solution functionality as well the next five years.
CRA (Community Reinvestment Act) reporting is also top of mind with respondents, with 30% citing it as a key functionality requirement in their LOS, and 32% saying it’s key for their doc solution. Other needs cited in the LOS space include MERs integration (20%), HMDA reporting (16%) and better CRM functionality (12%). Other needs cited for doc solutions include HMDA reporting (13%) and MERs integration (10%).
Almost all respondents (93%) said they plan to rely on new or upgraded technology to scale up in the future, with 35% citing the need for a new or upgraded doc solution, 32% citing new or upgraded point of sale (POS), and 25% citing new or upgraded LOS. Other anticipated technology requirements include eClosing, eNotes and eVault solutions (25%), new or upgraded CRM (19%), BOTS (17%) and AI and machine learning (8%).
When it comes to AI, which is being discussed and debated in virtually every industry including mortgage and banking, a majority of survey respondents believe it will play a significant role, even though it may take significant time. Seventy-two percent said they think AI will reshape mortgage lending, with 52% of that group saying it will take a very long time, however. Currently, 38% of companies surveyed are using AI with another 44% saying they are not currently using it, but plan to.
In anticipating their plans when the mortgage market improves, 41% said they will leverage technology to handle the increase in volume and, interestingly, 38% also expect to add staff to accommodate the increased workload.
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