Lending Demand Is Low…Time To Get Busy.

Just about three weeks ago, the Federal Reserve raised the target federal fund rate range by 50 basis points to 4.25% - 4.50%.  It was the seventh time the interest rate was raised in 2022 and the highest the rates have been in the last 15 years.  It is not likely the last time interest rates will be raised, as the Fed has indicated that there are plans for more hikes in the near future.

The rate hikes, of course, are all in an effort to bring down inflation and this effort is showing signs of working, as inflation rates have started to inch down in the last few weeks.  But one of the other parts of the economy that is feeling the impact of these rate increases is the demand for mortgages and other loans.

According to Barron’s, mortgage applications at the end of 2022 were at the lowest level in more than 20 years.  Home refinance applications are down over 80% from the same time last year and new mortgages are down over 40%. It is not just home lending demand that is low.  Personal loans, business loans, and auto financing demand is also at the lowest they have been in years.

With demand for financing at near historic lows, what is a lender to do? The answer: be ready when the pendulum swings the other way. 

As sure as interest rates have gone up, they are going to come down.  It’s just a matter of time!

When interest rates do come down, there will be a lot of pent up demand.  Home owners that have delayed refinancing will be shopping for better rates than their current rate. New home and auto buyers will be out shopping again, and businesses that have put off new investments will be looking for financing.  Those in the lending business will likely see a flood of applications and you will need to be ready.  Here are a couple key things your business can do now to handle the onslaught.

Automate And Streamline Now

The last 15 years have seen unprecedented growth in electronic automation and cloud based tools in the mortgage industry.  During this time, big mortgage lenders with large IT resources have moved their entire loan process, from customer acquisition to loan settlement and payments, online.  The good news for smaller lenders is that, with the systems and tools available now, it has never been easier to do the same thing.

Companies like Salesforce offer solutions that allow even small companies to interact with prospects and customers online in a streamline and secure way.  Combining Salesforce with a select few of the thousands of apps that are offered by Salesforce ISVs on the AppExchange, smaller companies can operate just like the large lenders.  This includes online functionality such as show casing offerings to prospects, allowing customers to upload documentation, sending automated notifications and reminders, viewing statuses, and making payments.

Much of this can be done even if you have little or no technical resources available to you.  For example, Salesforce’s Digital Experiences feature, which is included within Salesforce’s standard licensing, allows you to create and format public web pages by simply dragging and dropping components onto a page.

These drag and drop components allow you to do things that are as simple as formatting text, or as complex as document uploads.  When you’re ready, a click of a button is all it takes to publish the web page to the Internet.

There are a number of benefits of going on line and providing self-service tools to customers.  First, customers, especially those that have already worked with larger lenders, expect it.  Second, your work flows and processes become more standardized. Third, your customer data is consolidated.  Fourth, once on line, the size of your market can be expanded significantly, if you want it to be. 

Don’t make the mistake of thinking that going on line and providing self-service tools eliminates that personal touch that small lenders pride themselves in.  There are still plenty of touch points that can still be inserted.  No business process is set in stone. You can still make personal phone calls and have face-to-face meetings even with cloud based loan processing in place.

Move Away From Using Tools In Ways They Were Not Designed For

We have all done it before. You’re a Microsoft Excel wizard and can make any spreadsheet bend to your will within minutes.   You string together formulas and macros and soon you have a spreadsheet generating complex amortization tables and it’s fabulous!

The problem is it doesn’t scale.  You end up having to make tweaks and saving multiple versions of your spreadsheet in order to meet specific requirements.  Then comes the day when you need to train someone else on using the spreadsheet, maybe because business is expanding or maybe you’re going on vacations…remember those?

The fact is, Excel and other spreadsheet applications like it where never designed to be used for volume production use. They are great tools for analytics and modeling, but when you try to use them to generate data over and over again, they fall down. This especially true when you need to make small tweaks to macros formulas or when more than one person needs to access the spreadsheet.

Take this time of lower demand to move away from these types of tools that do not scale.  Amortization tables generated from spreadsheet formulas and macros are extremely error prone.  One fat-finger mistype when making a tweak is all it takes.  If you use Salesforce for your loan approval workflow, 3 Creeks Technologies publishes AMCalc that generates payment schedules for a variety of loan types. Amortization tables are just one example.  I am sure there are other tools that are being used in ways they were not designed for once you start reviewing your business processes.

It can sometimes be hard to see much upside when demand is low and business is slow, but there is a silver lining to it.  The question is will you be ready when all of those that are putting off borrowing start to come knocking?  You will if you look at this time as an opportunity to get more efficient and streamlined.

3 Creeks Technologies is a Salesforce ISV that develops applications for the Salesforce AppExchange.  AMCalc is a 3 Creeks Technologies app that generates loan payment schedules and more. Learn more by going to the AMCalc AppExchange page.