Lenders will need to adjust their strategies to succeed in 2021 and beyond.

For most business sectors – and the mortgage industry is certainly no different – 2020 was a year filled with challenges coming at us from seemingly every angle. Moving forward into 2021, the ability to adjust our strategies to meet these challenges will be the key to our success, and the success of our customers. 

Some of these obstacles we’ve seen before, and some we have not. But never before have we had to deal with so many in combination, and furthermore, so many that were out of our, or our customers,’ control. 

Historically low mortgage rates, rising home prices, record unemployment, remotely working staff, the need for a contactless loan process, loan deferral solutions and counseling for customers in need have all been issues to contend with in the past year, and there is no reason to think that will change in the short term. 

How do we prepare for all of this? We’re nearly a year into this now, and lessons have hopefully been learned. Let’s take a look at what 2020 has shown us and how we can use that information to navigate the coming year. 

Tailored Plan for Customers 

Starting with our customers, we have seen that in times like these, they need us to make the lending process as simple and safe as possible. Customers want – and need – a fully integrated, digital and contactless experience. If we hadn’t prepared for this prior to the pandemic, we would have been virtually cut off from any and all real estate business. 

It takes a commitment of time, human resources and a financial commitment to provide the experience that our customers expect, and the desired end–state can only be achieved by not only implementing advanced technology, but just as importantly, striving for process efficiencies wherever possible. Financing a home is stressful enough, and we should make the process as simple as possible for everyone. 

However, we all know that this environment is going to eventually pass, and if our customers run into difficulties during these times, it should pass for them, too. How quickly will depend on the path of the pandemic, the effect it has on each of them – and the level of assistance we can give them. 

If customers need help, they need to be able to pick up the phone and talk to someone who can listen, empathize and then tailor a plan specifically for them. If this situation has taught us anything, it’s that a “one size fits all” solution just doesn’t work. It’s our responsibility to put a plan in place that fits them individually. In my opinion, community banks are best positioned to provide this kind of service by making local decisions, with local staff, for local homeowners. 

Strategies to Survive 

In looking at the rate environment through 2021, by all estimates the forecast is that rates will likely continue at these historically low levels. The consensus through the next year has the 30–year fixed rate hovering around 3 percent. Refinancing activity is forecasted to drop, and purchases are estimated to only increase slightly, resulting in estimates of overall activity being down in 2021. This has many implications for lenders. 

On one hand, high volumes as a result of these low rates have provided above–average sales income, but those levels may not be sustainable in the coming year. For lenders concerned with growing their balance sheet, margins are stressed. If margins continue to be squeezed at this level, those lenders who hold their loans may have to adjust their strategy on these long–term assets. 

Do you hold? Sell? Look for offsetting investments? There is much to consider as we head into our second year of COVID, and those lenders able to adjust – often back and forth – between strategies will be best positioned to get through this with minimal impact. 

For customers, low rates also have positives and negatives. Of course, while low rates make loans more affordable, the increased housing activity combined with resulting low inventory levels have pushed values higher, potentially offsetting the advantage of lower rates, particularly for the critical market of first–time home buyers. 

James Sherbo

In fact, we’ve already seen this starting to happen, as it is these first-time buyers who typically get pushed to the side in bidding wars. In some markets, these buyers are now also competing with people fleeing from urban areas to work remotely from the suburbs. 

At the end of the day, much depends on the trajectory of the virus. As much as it feels as if we’ve been in this turmoil for quite some time, it’s still only been about a year, and there’s much uncertainty about the true impact. It is probably too soon to tell whether the measures that are being taken will be effective in the long run. However, one thing we know for sure is that customers are changing their habits, and everyone is wondering how many of these changes will, in some fashion, be permanent. 

In any event, lenders need to take a close look at their strategy, or strategies, to not only get through this environment but also to survive the changes that are sure to remain once we break on through to the other side. 

James Sherbo is senior vice president of consumer lending at Holyoke-based PeoplesBank.