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Lenders need to prepare now or risk losing business

June 27, 2024DENVER, Colo. – In its June Insights Report, STRATMOR Group examines how lenders will fare in the next refinance boom—and why some will be more successful than others in capturing that business.

In his article, “Why a Refi Wave Won’t Save Every Lender and How to Prepare,” Senior Partner Garth Graham explains why the next refi wave will be different than past refi booms and provides strategies lenders can implement now to prepare.

“I’ve talked with many lenders who believe at the core of their beings that as soon as the next wave of refinances hits the business, all of their problems will go away,” Graham says. “But that isn’t guaranteed.”

Graham says the industry has changed significantly since the last boom. After over two years of COVID-era profits, most lenders are now struggling. “In fact, the data shows that the typical mortgage banking firm has been taking on water, with the industry showing losses for eight quarters in a row,” Graham says.

Additionally, many lenders opted to sell off servicing rights for cash, thus severing their relationships with borrowers who might refinance in the future. Lenders that retained servicing, on the other hand, will hold an advantage when the next refi wave hits, Graham says, as they can leverage existing relationships instead of relying on “trigger leads.”

Large consumer direct lenders may also fare better than smaller lenders when rates drop, as they are typically well-staffed and equipped with advanced technology that can identify refinance opportunities.

Lenders with outdated compensation structures will also struggle to compete with lower costs offered by consumer direct lenders and banks, according to Graham. Refinances are much easier to originate, so loan originators should be paid less for them, he suggests.

“Traditional comp plans are serious impediments to any lender who wants to be competitive,” he says. “Optimized compensation plans typically mean paying less for refinances and in-house deals.”

STRATMOR data shows that over 60% of no-cash-out refinances are being originated through consumer direct lenders, who pay a lower commission on those loans than independent mortgage banks (IMBs) and retail banks.

Graham says it’s the ideal time for lenders to adjust their compensation structures. “After all, if you told an LO you were going to pay less on refinances, that would have virtually no impact on their comp today because there are hardly any refinances,” Graham says.

Graham offers several strategies lenders can employ to prepare for lower rates and the subsequent wave of refinances. For example, he recommends developing strong retail or consumer direct channels to handle a surge in refinance applications. “These channels need to be well-managed, properly staffed, and ready to compete aggressively when rates drop,” he says. 

Graham also recommends that lenders tune up their lead generation efforts. Lenders without established servicing relationships need to create targeted marketing strategies to attract new refinance business, he adds.

In a second article in this month’s report, STRATMOR Customer Experience Director Mike Seminari asks the question: “How will history judge our current thinking about the path to success in the mortgage industry?”

In “Horses to Headsets: The Evolving Model of Mortgage Success,” Seminari addresses the importance of adapting to changing trends in the mortgage industry and emphasizes that past successes don’t guarantee future results.

Historically, lenders have focused on traditional marketing and lead generation like SEO and testimonials. However, STRATMOR data shows these have minimal impact on borrower decisions in 2024. Seminari stresses instead the growing importance of short-form video content.

“TikTok, Instagram stories, Facebook reels, and the like are becoming the preferred method of consumption for a quickly growing majority of the population,” Seminari states in his article.

Click here to read the June 2024 edition of STRATMOR’s Insights Report.

About STRATMOR Group

STRATMOR Group is a leading mortgage industry advisory firm that provides a range of programs and services for senior industry executives. STRATMOR serves more than 250 companies annually, recommending strategies that increase growth and improve profitability in sales, marketing, technology, operations and mergers and acquisitions. The company leverages comprehensive, proprietary data and key insights gained through extensive experience in the mortgage industry. STRATMOR is well known for its financial models and its collaboration with the Mortgage Bankers Association in the PGR: MBA and STRATMOR Peer Group Roundtables Program. Find out more about STRATMOR on its website at