Mortgage lenders have been here before. It’s a cyclical business, and most executives running companies in this sector have been through one or two cycles.
The sector is experiencing a downturn, with interest rates rising, affordability falling and borrowers withdrawing from the market. Ultimately, rates drop. Buyers are re-entering the market. Pipelines are being refilled. It’s a cycle.
But over the past twenty years, the mortgage cycle has become unrecognizable.
Years of artificially low interest rates flooded the market with borrowers who weren’t quite qualified to purchase a home. Then the COVID moratoriums kept them in those homes while investors waited for a return. The stock plummeted.
What had been a reliable spin cycle, rolling like a wheel into the future, was flattened.
And now, after years of waiting, experts are predicting falling interest rates, which should bring homebuyers back. In fact, refinancing activity will flow back in, fueled by higher-interest loans sold over the past three years.
But unlike past cycles, this one won’t benefit every lender that held on and waited out the recession. No, most of them will be disappointed. In this article I will tell you why.
Why Most Lenders Will Suffer Even During the Coming Boom
If sales aren’t flowing to a mortgage company, the general explanation is usually internal: we need better training, we need more marketing, we need more loan officers. You do need all those things.
But the real problem facing lenders in the next cycle isn’t internal at all.
It’s competitive.
While much of the industry has played defense over the past two years, cutting costs, downsizing teams and waiting for interest rates to recover, the nation’s largest mortgage lenders and independent building societies have never stopped marketing.
They never stopped communicating with borrowers. And they’ve certainly never stopped positioning themselves as the safest and easiest option when the market turns.
As interest rates continue to fall, that gap is about to become painfully visible.
The market did not stand still; it was repositioned
While many lenders assume that the next cycle will look much like previous recoveries: demand rises, phones ring and volume returns, I don’t expect it to turn out that way.
What’s different this time is who borrowers already have a relationship with.
Major servicers and national IMBs have spent the recession aggressively nurturing consumers, especially former borrowers, through consistent messaging, proactive outreach and polished digital experiences.
They have remained present while smaller lenders have remained silent.
I’m not suggesting that smaller lenders cared less about their past customers than the larger companies. They just didn’t want to spend the resources to show it when they couldn’t reasonably expect it to bring in new customers.
That means when consumers re-engage, they’re not just ‘shopping the market’. They respond to the first lender who already feels familiar.
And in a market where trust and certainty are more important than ever, familiarity wins.
The Myth of the “Well-Trained” Loan Officer
I really believe in training. If loan officers aren’t prepared to handle a situation like this, they won’t be able to do so. You have to train them or recruit new talent.
But this doesn’t mean the lender should try to outdo the competition to recruit new loan officers.
This isn’t really a talent problem.
Most lenders already have skilled, hard-working loan officers. Many are now spending more on training than ever before. Compliance, product education, sales coaching, it’s all there.
But training alone doesn’t solve the real breakdown.
What separates winners from losers in the next cycle won’t be what loan officers know. It will depend on how consistently they perform and how clearly they communicate when the pressure returns.
Borrowers don’t judge lenders by intent. They judge them on the experience they provide.
Once the experience deteriorates, that lender will no longer be an option, and the borrower will opt for one of the other two or more lenders with which the CFPB has trained them to submit loan applications.
Borrowers expect:
- Clear expectations from the first conversation
- Proactive communication throughout the entire process
- No surprises between contract and closing
Those expectations haven’t changed with the rates, and they won’t.
Where deals actually break
Most impacts do not occur during the application phase of the deal.
It happens later. When communication slows down, expectations deviate, and minor issues become trust killers, borrowers will abandon the lender. Their patience for friction is virtually nil.
By the time a borrower backs out or a partner quietly stops referring, the damage has already been done. The lender may never know exactly where trust has been lost.
In the current environment, that risk is increased.
Consumers are more price-conscious, more skeptical and more willing to switch. Referral partners fiercely protect their reputation. One messy transaction can wipe out years of goodwill.
And here’s the uncomfortable truth: Big lenders are better prepared for this moment, not because they are more personal, but because they are more consistent.
David versus Goliath is the wrong fight
Smaller lenders often view this as a technology arms race: they have better CRMs. Bigger budgets. More automation.
That’s only part of the story.
The real advantage of large institutions is systematized communication. Clear messages, a predictable rhythm and aligned expectations from the borrower, the loan officer and the referral partner make the difference.
Technology supports that system, but it does not create it and cannot replace it.
Smaller lenders don’t have to issue Goliath. They have to outsmart him.
And many organizations are at risk during execution.
Why relationship loans are now more difficult
For years, the purchasing industry was fueled by the “American Dream” narrative: wealth creation, ownership, stability.
That story no longer resonates universally.
Today’s buyers are cautious. They evaluate affordability, lifestyle and flexibility. Many are not convinced that ownership is automatically the right move.
That puts more pressure on lenders and their partners to regain buyer trust, not assume it.
In this environment, relationship lending is not about friendliness or responsiveness. It’s about certainty.
Borrowers want to feel like someone has their back, that the process is under control and that the outcome is predictable.
The execution gap that no one wants to admit
Many lenders believe that they already ensure good communication. But ‘good’ is no longer good enough.
The implementation must be:
- Repeatable (not dependent on individual heroics)
- Scalable (can handle volume fluctuations)
- Aligned (loan officers and partners operate from the same playbook)
That last point is huge.
Gone are the days when a business referral partner feels like they’ve done a lender or lender a favor by sending a deal, or worse, crosses their fingers and hopes the lender doesn’t screw it up.
Satisfying today’s mortgage holders requires a team that knows how to work together to move the deal forward, from milestone to milestone, until the closing table is reached.
When volume returns, and many people think it will this year, lenders that rely on improvisation will lose business. Those who rely on systems designed to support well-trained partners will get the hang of this.
This is why preparing before the wave is more important than reacting during the wave.
Trying to improve communication and accountability when volume increases is like rebuilding an engine while driving down the highway. You will crash.
What winning lenders are doing now
So what will it take to be ready to compete with the bigger companies this year? The lenders best positioned for the next cycle aren’t waiting.
They are:
- Auditing where the trust between contract and closing is violated
- Standardizing communication with borrowers and partners
- Hold teams accountable for messaging, not just metrics
- Treat execution as a competitive advantage, not a back-office function
They understand that the next battle will not be fought on tariffs.
It will be fought out in the borrower’s inbox, on the phone, and in the quiet conversations partners have about who they can trust when push comes to shove.
When the volume returns, everyone looks busy. But only some organizations will look trustworthy.
The rest will discover too late that while they waited for the market to improve, their competitors were quietly strengthening relationships that will be very difficult for them to win back.
David doesn’t risk losing to Goliath because he is smaller. He loses if he is not prepared for the fight he is in.
In 2026, the lenders that survive and grow will be the ones preparing for that battle now.
Laura Lasher is co-founder and Managing Director of Worthy Performance Group, and former Head of Mortgage for Arbor Bank
This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners. To contact the editor responsible for this piece: [email protected].
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