An Expert’s View Of The Lending Industry Circa 2017

SettlementOne Q and A With Embrace Home Loans' Kurt Noyce

As any member of America’s lending community knows all too well, achieving—and maintaining—success in 2017’s volatile financial environment is shaping up to be quite a challenge.

From a multitude of promised regulatory revisions to rising interest rates, the lending industry is facing a number of critically important issues, all of which have the potential to dramatically impact lenders’ bottom lines.

In keeping with the adage that there “is no substitute for experience”, we presented an array of topical questions regarding the lending industry circa 2017 to Kurt Noyce, President of Embrace Home Loans.  For more than three decades, Embrace has served as a consumer marketer and originator of residential mortgage credit products; as an approved seller/servicer for both Fannie Mae and Freddie Mac—as well as being HUD and Ginnie Mae approved, Embrace has been recognized 3-times by Inc. Magazine as one of the ‘Fastest Growing Companies in America’, and 7-times by Fortune, as ‘Best Medium-sized Company to Work For in America’.

We believe you will find Kurt’s perspicacious take on today’s lending industry both informative and insightful.

SettlementOne: What challenges are banks facing today with mortgage originations?

Noyce: `Cost and Compliance – both are at historic highs. The onslaught of regulations, imposed following the housing crash and accompanying recession, require unprecedented resources from the bank. In the last few years, the process has been totally overhauled, demanding new technologies, and new talents. Today’s mortgage department must continue to invest in these to ensure their practices are compliant, and also that their sales professionals are provided the advantages required to compete in the marketplace. Despite these investments, the output of mortgage processors, underwriters and closers is a third of what it was a decade ago. As a result, the cost to originate, per the Mortgage Bankers Association, has doubled in the last five years. Bottom line it takes a lot more staff – operations & compliance – today to manage the mortgage application


SettlementOne: The long-anticipated interest rate rises have finally begun – how is that impacting bank’s mortgage efforts?

Noyce: For many lenders, pretty substantially. While the bell weather 30-year fixed rate is not materially higher than it was prior to the Fed hikes (or the election), mortgage refinancing nationwide has fallen by 50%. Compound this with the traditional seasonal slowdown in home purchases during the winter months, and bank mortgage activity has been lighter than any time in the last few years.  The challenge is how to best align staffing to business levels, while maintaining the necessary regulatory controls and meeting the service expectations of today’s customers and referral partners.  This is “The January-June Conundrum”. Staff for January–and come June’s volume increases, your team will be overwhelmed, increasing the risk of errors, poor service, and the cost of overtime, leaving banks scrambling to add talent – in a market where many others are as well. Staff for June, and come January, your team is under-utilized, and the slow market’s revenue generation is aggravated further by your high personnel expense line. Refi’s over the last several years smoothed those cycles – not anymore.


SettlementOne: What options do banks have given those challenges?

Noyce: Three:…(1) First, continue to upsize/downsize the bank’s mortgage operations staff to match business levels, endeavoring to secure capable and committed employees, as you hire/fire, (2) Second, align with a service-provider for your operational tasks expensing only according to actual business levels, (3) And third, exit the mortgage business. According to Inside Mortgage Finance, many are doing just that, with banks’ mortgage market share falling nearly by half from 2012 to 2016.  I suppose there could be a fourth—albeit undesirable option: continue to operate unprofitably.


SettlementOne: How does your outsource solution benefit the bank?

Noyce: I think really well, particularly since it was built for a bank by their request, and with their input. Our outsource solution assists a bank that is facing all of the aforementioned challenges, and one where options 3 & 4 were not a consideration. Also, it benefits a bank that needs the experience and expertise in their mortgage processing, underwriting, closing, compliance and capital markets back-office, without the expense of those talents during the slow periods. It further allows banks to devote its energies to focusing on its sales force and business development strategies, allowing others to focus on the process, the technologies, the vendors, and the paperwork. The results have been impressive, with all institutions served experiencing annual productivity gains. In fact, one bank we’ve supported for 3 years, has enjoyed back-to-back-to-back 28%-42%-36% year over increases.  Other benefits include achieving their highest ever customer services scores, loan officer satisfaction scores, and regulatory examination scores.


SettlementOne: Does it work for any size bank?

Noyce: It does, but the efforts and investments to build this private label solution require a critical minimum business level.  The banks we support are originating between $300 million to $800 million annually – we have the team to support larger platforms.  Within that range, though, the experience created for bank customers, the bank’s realtor partners, and the bank’s communities – is exceptional.


If your bank wants to focus its energies on building a strong origination effort, while partnering with a 30+ year nationally recognized operations expert, all while matching your expenses to your business levels, connecting with Embrace Home Loans may be your answer.  Call Kurt directly (800) 333-3004, to learn more about customizing a private-label solution for your bank.