In the quest to extend homeownership to everyday Americans, local lenders—a segment that includes credit unions, community banks and independent mortgage banks serving communities across the country—play a vital role. The only banking presence in one in five U.S. counties, local lenders help millions of people access resources and services necessary to buy a house. Especially in rural communities, where almost 74 million people reside, these institutions provide a lifeline to banking, credit and mortgage products. Their presence across America makes them the obvious choice for many of the country’s underserved communities seeking homeownership.

In today’s challenging market, where rates are rising and home prices remain high, these lenders serve as essential lifelines to crucial loan products. Because they form strong relationships in their communities, often providing banking services and financial counsel for local residents, they know their clients’ needs far more intimately than large lenders. This insight makes them more likely to provide education, resources and advice to their customers that give a full picture of available loan options, financial requirements and other essential considerations related to taking out a mortgage. Similarly, since local lenders aren’t catering to mass segments of the population, they’re more likely to offer niche loan products with flexible terms, costs and criteria that take into account the financial realities of their borrowers.

Growing obstacles in 2022’s market

Still, local lenders face rising challenges that threaten their ability to serve the American home buyers who need them most. As loan costs rise and profitability shrinks, smaller lenders across the country are scrambling to protect their bottom lines. According to the Mortgage Bankers Association (MBA), Q2 2022 saw total loan production expenses—including commissions, compensation, occupancy, equipment and other production expenses and corporate allocations—soar to a study-high of $10,937 per loan, up from $10,637 per loan in Q1 2022. To put that number in perspective, loan production expenses have averaged $6,829 per loan over a nearly 14-year period. Coupled with declining loan volume, compressing margins are driving lenders to rapidly seek new loan products and channels to unearth business and bolster profitability. 

In this environment, local lenders, often lacking access to the resources, expertise and operational capacity to launch new offerings quickly, are at a disadvantage despite their pre-established relationships with communities that could benefit from these loan products. Their inability to quickly and nimbly add products and channels to their mix inhibits them from helping borrowers into homes and reduces their potential to profit from market opportunities. In turn, they’re unable to make up for lost loan volume and risk company lay-offs or worse.

A new way to launch accessible loan products

To solve this problem, local lenders are beginning to leverage innovative partnerships and technology to bring new products and channels to market. Solutions now exist to dramatically simplify the process of adding a new channel or product, such as a wholesale channel or HELOC and non-QM products. Because these solutions handle all operational logistics and resources, they open up new lending options, which many local lenders would likely not build on their own due to the associated cost, resources required, compliance burden, access to secondary market investors needed and more. Maxwell Private Label Origination, for instance, provides a scalable, compliant solution that includes end-to-end services, from digital mortgage software and fulfillment solutions to secondary market capital, that allow lenders to focus on increasing volumes, and thus revenue, by generating more loans.

These solutions give local lenders an edge not only due to what they provide, but also due to the complexities, resources and headaches they offload from lending teams. Especially in tough markets like today’s, where borrowers need increased support, lending team members’ time is best spent providing guidance and counsel on the journey to homeownership. By ridding themselves of operational concerns, lenders can lean into their core competencies and focus on building relationships, serving their borrowers and growing their lead funnels.

Changing the trajectory of American homeownership

Barriers to homeownership aren’t disappearing anytime soon. Forecasts estimate that the homeownership rate in the U.S. will decline by 3 percentage points by 2040, with the concentration of homeowners skewing older and less diverse. 

For local lenders to support more homebuying, they need to broaden their loan product offerings when the market demands it—but they need to do so in a scalable, efficient way that avoids operational tasks that distract from important, business-building work. If these lenders are able to leverage strategic partnerships to bring new loan offerings to market, they’ll be ideally positioned to serve a wider range of borrower needs and create lasting change in American homeownership.