One of the problems facing mortgage lenders at the moment is how to cope with massive demand for their products as their competitors pull out of the market.
As supply falls, brokers and consumers naturally swarm around the few sources of funding that remain. This results in lenders having to pull products due to a drying up of funds or to keep up service levels. It’s a vi-cious circle that must be broken.
One solution is for lenders with unmanageable demand to outsource their front-end processing to third party lenders that have spare capacity but have already had to pull out of the market due to lack of funding.
Many lenders are seeing spikes in demand that can double or even treble their normal volumes.
With online technology, demand from brokers and consumers can be conveyed instantly and lenders can suddenly find themselves in the position of last man standing.
Of course, for the outsourcing idea to work, lenders providing third party administrative support would need to have great front-end systems in the first place as their competitors would effectively be putting their reputations on the line by outsourcing to them.
But several lenders have such systems so it’s just a case of choosing partners wisely. For the third parties, this app-roach could provide a valuable additional income stream at a time when they are unable to lend.
Brokers and consumers would welcome this solution as it would keep more lenders in the marketplace and they would enjoy better service. Adversity often creates opportunity and this is a case in point. And who knows how this app-roach could develop in the longer term? Perhaps lenders with great systems will diversify and offer third party administrative support on a permanent basis, even after they having started to lend again.
And perhaps lenders using third parties will decide to use them indefinitely when they realise how efficient their systems are compared with their own.
Either way, this could be a quick fix to a problem facing many lenders, and it may benefit the market too.
Some lenders are already considering taking this approach and I hope it can be implemented sooner rather than later to help get the market back on its feet. While outsourcing servicing is not a long-term solution to the liquidity crisis, it could buy us some time to address the bigger issue.