Prognosticators are already suggesting the mortgage market has recently “peaked.” That’s based, primarily, on total origination volume and may or may not account for seasonality. No matter. Most agree that in 2021, we will not match the astronomical origination volume seen in 2020.
If the past two decades are any indication, the impending purchase-dominated market will bring discussion of softening margins and higher expenses. This was a major topic of discussion among mortgage lenders in 2018, our last whiff of a true purchase market.
However, that conversation was quickly silenced by yet another unexpected refinance surge. To be candid, it seems we’ve been in an almost continuous refinance cycle since 2001, with only one, albeit powerful, default counter cycle to break up that period.
As this refinance surge slows, I highly doubt we’re in for another just-in-time spike. Many of our younger leaders and executives are about to experience their first true, prolonged purchase market. But I’m surprised how many treat this as a threat. There is no doubt that lender success in a purchase cycle requires more effort, more cost and more planning, but there’s still amazing opportunity available for firms that execute well.
2021 could still be a very good year for prepared businesses. But not everyone will be prepared.
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That general principle holds true for the title and settlement services space as well. I have, myself, owned and managed numerous title businesses through the decades. Admittedly, a title business is predisposed to slim margins to begin with. That’s due in part to the unsightly myriad of laws and regulations that hamper many potential improvements or efficiencies. And the issue is only compounded by the fact that every state (and seemingly, every city) has its own rules and requirements to issue title insurance and hold a closing.
I understand well the challenges of operating a title agency; especially a multi-state title agency. But they are not insurmountable.
My recommendation for lenders is applicable to the title industry, too. No, we can’t single-handedly modify attorney closing requirements or rules that make more efficient, eClosings more widespread. But, just as many lenders are starting to do, we can finally start to embrace the idea of automating and streamlining our operational processes.
I still know of far too many great agents and owners who do certain things “the way we’ve always done it.” I respect that, but it also contradicts their complaints about crumbling profit margins, especially when we know that a purchase market means more time, more cost and more sweat equity for each transaction.
There are any number of great solutions coming into the title market or already here. Some attack single functions such as curative, lien searching, TRID or even communications. Others are more global. We don’t have a true “cradle-to-grave” technology, but we can still think at a more strategic level when it comes to opening up established chokepoints in the traditional title flow.
The fact is that, if you’re still significantly ramping up and ramping down staffing depending on the market cycle, there are probably several ways you can become much more efficient with your workflow.
Embracing the purchase market opportunity by streamlining isn’t just a benefit for title agents and operators. It’s also a selling point to your potential lending clients. I understand that many mortgage lenders don’t put a lot of time into their relationship with title companies once the relationship has begun.
But most lenders I know do put a great deal of effort and scrutiny into selecting new partners on the settlement side when the time comes. They want redundancies and policies that ensure compliance. They want efficient throughput and fast turn times. And, of course, they want minimum (meaning “no”) errors. Having a modern, streamlined process makes a potential lending client’s decision much easier.
I am not simply recommending here that every title agent run out and make massive technology investments. Technology, chosen and implemented with a lot of forethought, can be a great lever for improving margins.
But wise, strategic management of one’s costs and liabilities includes many other elements. How (not just “how much”) you staff your business. How your team manages the business. How well your processes and workflow fit together and match the needs of your clients and market. How strong your compliance program is. How well you market yourself.
All of these things, while aided by technology, start with planning and strategic thought. A firm can make a massive investment in a well-regarded technology only to learn that it’s not a good fit for their business model. And the last thing any title agency can afford in a purchase market is a sunken cost.
A true purchase market is an opportunity for settlement services businesses to differentiate themselves. We’re already seeing market consolidation and that will continue. Just as I’ve advised the origination industry, that opportunity also exists for the settlement space. If you are bemoaning your margins later this year, perhaps it’s time to take a look at how you’re running your business, rather than blaming the market.
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