ComplianceMay 05, 2023

Mortgage lenders cautious about short-term investing in digital lending technologies

In our latest mortgage industry survey, Wolters Kluwer asked 110 mortgage and financial executives what effects the downturn in the mortgage market is having on their companies’ operations, staffing and investments in digital transformation. It also explored how these companies intend to scale once the cycle returns.

In Part I of this two-part blog series, we’ll look at what mortgage lenders have to say about their current investment in technology (or lack thereof) in 2023 in light of the market downturn and what their staffing plans are for this year. 

Digital closings continue to be an investment priority in 2023. 

When asked what kind of technology their companies are currently investing, more than two-thirds (68%) ­– a clear majority – said eClosing, eNote and/or eVault solutions. This is followed by automated underwriting at 38%, BOTs at 36%; upgraded or new LOS at 34% and POS at 25%.

A majority of lenders won’t increase technology investment for 2023 unless they can see strong ROI.

Just over half of respondents (54%) say they are not planning any increases in technology this year. Only 22% say they plan to invest more in 2023. Almost half of respondents (43%) say 2023 is not the right time to invest in technology, with only 27% saying their company should be currently investing in technology to boost digital lending this year.

However, 80% of respondents say that despite the current economic situation, they would either absolutely (55%) or possibly (25%) recommend additional investments this year if they were convinced it would deliver with positive ROI. Only 13% say they wouldn’t invest regardless of ROI.

What per-loan-cost savings would be needed to justify additional investment in digital technology this year?  More than half (55%) say they’d need to see per loan savings of $200 or more. A quarter of respondents (25%) say savings of $100-$150, 13% $50-$100, and 8% less than $50 per loan.

Not surprisingly, a majority of lenders staffed up to handle loan volume increases and then reduced staff by the same amount in response to the downturn.

Almost of all the respondents ( 90%) say their company increased staff to handle the lending boom in 2021. Only  9% saying their company didn’t. More than half (54%) of the companies increased staff by 5% to 10%, and a quarter of companies increased their staff by 10% to 15%. Staff reductions in 2023 mirrored the ramp up in 2021 with more than 90% of respondents saying they’ve reduced staff this year and only 8% saying they have not yet reduced staff this year. The percentage decreases in 2023 also mirrored the percentage increases from 2021 with 54% reducing staff by 5% to 10%, and 25% of respondents reducing staff by 10% to 15%. Three-quarters of respondents (75%) say they are unsure if additional staff reductions will occur in 2023.

A majority of lenders believe using technology yields higher operational gains as opposed to using human capital.

When asked to compare operational profit levels using human capital management versus using digital lending technologies, 72% say technology will deliver higher profit margins. Twenty percent say they are unsure, and 9% say human capital will deliver higher yields.

In Part II of this blog series, we’ll explore what these companies are planning for future investments in technology and staffing.

For more information about Wolters Kluwer digital solutions, schedule time with one of our industry experts today.

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