Overcapacity and the Risks
Written by Bill Dolan, CMB, AMP
With less demand for mortgages right now, high interest rates, lower consumer confidence, a lack of housing supply still existing, and pipelines down almost 90% during 2023 and early 2024 it thoroughly amazes me, the number of institutions with little to no volume facing the same day-to-day problems and challenges, who do not want to address the elephant in the room, namely, overcapacity!
When an organizations’ output is lower than your potential output and you have more resources than you require, you have an overcapacity issue and the questions you should be asking are:
How am I utilizing my staff when the work and the volume just isn’t there and,
Am I redeploying staff into other departments and areas of my institution, so I am at least receiving an honest 40-hour work week from my FTE’s?
Just recently, there has been talk that a few institutions are possibly considering taking a retreat from the mortgage market all together. Does this really make sense and what does it mean for their borrowers and potential homebuyers? What of the technology and human investments made over the years? Will you be able to ramp back up if necessary? The question many of you should be asking is: “How do I provide loans to my customers and members along with those in minority communities, while reducing the overcapacity, particularly in my operational area, addressing my underutilized resources and elevated costs, while trying to sustain profitability, operational efficiency, and strategic resilience during these dynamic conditions?”
As the adage goes, “Don’t throw the baby out with the bathwater!”
One concept that is currently taking on a life of its own is to strengthen and increase your MLO sales team along with your loan processors and outsource the rest of your mortgage manufacturing plant including: underwriting, closing, secondary marketing, the rate lock desk, quality control, systems administration, straight through to servicing, collections, and default management. As for compliance, the banking and credit union sector has become far more heavily regulated and scrutinized recently, especially in the areas of Fair Lending, CRA, Redlining, and HMDA.
In the current mortgage cycle, many are trying to move forward, address issues that need to be addressed and worked on as soon as possible, and so, the last situation that any organization wants to face is the lack of preparedness for an upcoming examination whether for Safety and Soundness, Fair Lending, or CRA.
At SCA, we understand and empathize with our clients and colleagues having to make the tough decisions day in and day out to sustain your business, but the harsh reality is that all of us could very well be looking at the “new” normal, and unless/until the current cycle changes, the reality is, we must deal with what we have in front of us today.
SCA’s consulting team of industry experts and veterans have faced many of these same types of challenges and cycles in their own prior shops that they managed, and, can provide you with the “hands on” experience, guidance, and expertise, along with SCA’s array of fulfillment services needed to meet your bank’s and credit union’s needs TODAY!
For more information in taking the next steps necessary to address the above, please reach out to Bill Dolan, Director at Wdolan@scapartnering.com or contact me at (617) 694-2617. While you are at it, please visit our Solutions Page to learn more about the consulting and services that SCA offers.
