By Max Slyusarchuk, CEO and Founder of A&D Mortgage
(Hollywood, FL) — One of the main factors impacting the business operations and profitability of mortgage lenders is margin compression, and in the past few years, profit margins have been steadily falling.
Lenders are currently receiving about 1/3 of what they previously earned, and in some cases, even less.
Naturally, this is cause for concern. In a recent sentiment survey conducted by Fannie Mae, lenders are very worried about the outlook for their profit margins, and what’s worse, most industry experts believe that margin compression will only become more extreme in the foreseeable future.
While this issue affects all banks and mortgage lenders equally, shrinking profit margins put smaller lenders at greater risk. They do not have the same flexibility, resources, or control as do the larger, more established lenders, so they are less able to weather the margin compression storm.
There are several economic factors in play that are contributing to margin compression:
In these challenging times, the impact of margin compression on mortgage companies cannot be overstated. In an effort to survive, lenders are focused on enhancing their operational efficiency. They are leveraging technology to reduce costs, while streamlining their internal operations and maximizing vendor performance.
Unfortunately, many smaller lenders do not have the financial resources to implement similar advancements and, as a result, they are barely able to remain solvent.
In these difficult circumstances, it is only the well-founded and well-capitalized lenders that will thrive, and it is with these stable and secure companies that brokers should partner.
In uncertain times, it is wise for brokers to align themselves with strong companies – lenders who are market makers, who are in charge of their own programs, and who are flexible enough to make their own rules, change their own guidelines, and, if necessary, to move prices the right way to keep brokers happy. In short, a broker’s best chance to survive margin compression is to work with true loan aggregators.
It’s also important for brokers to work with companies that are vertically integrated; lenders whose loan products are all-inclusive – from wholesale to retail, including conventional, government, and Non-QM loans.
In difficult times, when you’re in the midst of a storm, you want to make sure you’re on a big ship, not a tiny boat. When waves are crashing overhead, stability and security are essential.
We are now in an environment where interest rates are likely to rise. Consequently, rules, rates, and timeframes will change. Lenders that can keep their rates low, make their own rules and manage their own guidelines will prosper, and be in a position to benefit their broker partners.
In turbulent waters, passengers seek a port in the storm. And they rely on the experience, expertise, and guidance of an expert crew to lead them there.
Because we are a loan aggregator that has received approvals from Fannie Mae, Freddie Mac, JP Morgan, and both KRBA and Fitch Ratings, A&D Mortgage is a large and sturdy ship that can issue our own proprietary programs and whose professional staff will guide you through the storm and lead you to a safe harbor.