Working in the mortgage industry, I always find myself getting questioned by friends and colleagues ‘what do you think will happen with rates?’. It’s a fair question, especially considering it’s the primary driver of our industry. But my answer is always the same… ‘I don’t know’. And in fairness, most don’t.
The mortgage industry is complex, and it can become very easy to overcomplicate. Liquidity, demand, the yield curve, seasonality, and rate hikes are just a few of the buzz words that get thrown around when discussing what might happen next. And they are all a factor one way or another. But I like to keep it simple and at the end of the day, interest rates can really only do three things; go up, go down, or stay the same.
The great companies in our industry are always prepared for all three scenarios. This is not to say they won’t need to make pivots when rates change, but they at least have a plan.
When rates go up, most companies would see varying reductions in loan volume. This reduced revenue typically means a need to reduce expenses so they will look to layoffs (I recently discussed why this may not be a viable solution in 2023), commission & compensation reductions, and other similar strategies if they feel they will be impacted by the rising rates.
On the other hand, when rates drop most companies will need to prepare for an increase in demand. This can be especially true for companies offering streamline refinances. This can be accomplished by asking the current team to work overtime, offering more attractive commission plans, hiring incentives and/or signing bonuses. Outsourcing and offshoring has also seen an uptick over recent years.
And, even if rates stay the same, those same companies heavily reliant on refinances may need to ask themselves ‘how long can this last’? Obviously, we cannot be in a refinance wave forever; no matter how low the rate, eventually everyone will have it.
There’s no right or wrong answer to any of this necessarily. Great companies have a plan that works for their business model and are prepared to execute. But the key is to be prepared for all three scenarios – because each plan will be unique.
For mortgage professionals, it’s important to understand how YOU fit into your company’s business model and what might happen if rates go up, down, or stay the same. If rates are low, are you only working on streamline refinances? Or, are you cross training to support home equity loans, purchase loans, and other products that could be a future pivot when rates inevitably rise? And, when rates do rise, understand some of the difficult decisions your company is trying to sort through. What are you doing, or what have you done, to make yourself more valuable to your company, or another company? The mortgage industry is always evolving as rates continue to change. You should be evolving too.
Mo Oursler, CMB
Executive Vice President, Mortgage Career Exchange
Mo Oursler is an established mortgage leader who has served in wide range of executive roles in operations, originations, credit risk, capital markets, university training, and leadership development.
For more, visit Mortgage Career Exchange: mortgagecareerexchange.com