Mortgage lenders have been here before. It’s a cyclical business, and most of the executives who are running firms in this industry have been through a cycle or two.
The industry experiences a downturn, during which rates rise, affordability falls, and borrowers back away from the market. Eventually, rates fall. Buyers re-enter the market. Pipelines refill. It’s a cycle.
But over the past two decades, the mortgage cycle has been bent out of all recognition.
Years of artificially low interest rates flooded the market with borrowers who were not quite fit to buy a home. Then COVID moratoria kept them in those homes while investors waited to see a return. Inventory plummeted.
What had been a dependable spinning cycle, rolling like a wheel into the future, was smashed flat.
And now, after years of waiting, experts are predicting falling interest rates, which should bring home buyers back. There will even be some refinance business flowing back in, fueled by higher-interest-rate loans sold over the past three years.
But unlike cycles of the past, this one will not benefit every lender who stuck it out and waited out the downturn. No, most of them are going to be disappointed. In this article, I’ll tell you why.
Why most lenders will suffer even in the coming boom
When sales don’t flow into a mortgage company, the common explanation is usually internal: we need better training, we need more marketing, we need more loan officers. You do need all of 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 spent the last two years playing defense, cutting costs, downsizing teams, and waiting for rates to come back, the nation’s largest mortgage servicers and independent mortgage banks never stopped marketing.
They never stopped communicating with borrowers. And they certainly never stopped positioning themselves as the safest, simplest option when the market turns.
As rates continue to ease, that gap is about to become painfully visible.
The market didn’t pause; it repositioned
While many lenders are assuming that the next cycle will look pretty much like previous recoveries: demand rising, phones ringing, and volume returning, I don’t expect it to work out that way.
What’s different this time is who borrowers already have relationships with.
Large servicers and national IMBs have spent the downturn aggressively nurturing consumers, especially past borrowers, through consistent messaging, proactive outreach, and polished digital experiences.
They’ve stayed present while smaller lenders went quiet.
I’m not suggesting that smaller lenders cared less about their past customers than the larger firms. They just didn’t want to spend the resources to show it when they couldn’t reasonably expect it to bring in new business.
That means when consumers re-engage, they won’t just be “shopping the market.” They’ll be responding to the first lender who already feels familiar.
And in a market where trust and certainty matter more than ever, familiarity wins.
The myth of the “well-trained” loan officer
I’m a huge believer in training. If loan officers aren’t prepared to deal with a situation like this, they won’t be able to do so. You must either train them or recruit new talent.
But, this doesn’t mean the lender should try to outspend competitors to recruit new loan officers.
This isn’t really a talent problem.
Most lenders already have capable, hardworking loan officers. Many are spending more on training now 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 be how consistently they execute and how clearly they communicate when the pressure returns.
Borrowers don’t judge lenders on intent. They judge them on the experience they deliver.
The second the experience degrades, that lender will no longer be an option, and the borrower will go with one of the other two or more lenders the CFPB has trained them to file loan applications with.
Borrowers expect:
- Clear expectations from the first conversation
- Proactive communication throughout the process
- No surprises between contract and closing
Those expectations haven’t changed with rates, and they won’t.
Where deals actually break
Most fallout doesn’t happen at the application phase of the deal.
It happens later. When communication slows, expectations drift, and small issues become confidence killers, that’s when borrowers will abandon the lender. Their patience for friction is pretty much at zero.
By the time a borrower disengages or a partner quietly stops referring, the damage is already done. The lender may never know exactly where trust was lost.
In today’s environment, that risk is magnified.
Consumers are more price-aware, more skeptical, and more willing to switch. Referral partners are fiercely protective of their reputations. One messy transaction can undo years of goodwill.
And here’s the uncomfortable truth: large lenders are better prepared for this moment not because they’re more personal, but because they’re more consistent.
David vs. Goliath is the wrong fight
Smaller lenders often frame 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 messaging, a predictable cadence, and aligned expectations across the borrower, the loan officer, and the referral partner make all the difference.
Technology supports that system, but it doesn’t create it, nor can it replace it.
Smaller lenders don’t need to outspend Goliath. They need to out-execute him.
And execution is where many organizations are dangerously exposed.
Why relationship lending is harder now
For years, the purchase business was fueled by the “American Dream” narrative: wealth creation, ownership, stability.
That story no longer resonates universally.
Today’s buyers are cautious. They’re evaluating affordability, lifestyle, and flexibility. Many are unconvinced that ownership is automatically the right move.
That puts more pressure on lenders and their partners to re-earn the buyer’s confidence, not assume it.
In this environment, relationship lending isn’t about friendliness or responsiveness. It’s about certainty.
Borrowers want to feel that someone has their back, that the process is under control, and the outcome is predictable.
The execution gap no one wants to admit
Many lenders believe they already provide good communication. But “good” is no longer good enough.
Execution has to be:
- Repeatable (not dependent on individual heroics)
- Scalable (able to handle volume swings)
- Aligned (loan officers and partners operating from the same playbook)
That last bullet point is huge.
The days of a business referral partner feeling like they’ve done a lender or loan officer a favor by sending over a deal, or worse, crossing their fingers and hoping the lender doesn’t mess it up, are over.
Satisfying today’s mortgage borrowers takes a team that knows how to work together to keep the deal moving forward, milestone to milestone, until it reaches the closing table.
When volume returns, and plenty of people are thinking that will be this year, lenders who rely on improvisation will lose business. Those who rely on systems created to support well-trained partners will capture it.
This is why preparing before the surge matters more than reacting during it.
Trying to fix communication and accountability when volume is rising 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 larger firms this year? The lenders best positioned for the next cycle aren’t waiting.
They’re:
- Auditing where trust breaks between contract and closing
- Standardizing borrower and partner communication
- Holding teams accountable for messaging, not just metrics
- Treating execution as a competitive advantage, not a back-office function
They understand that the next battle won’t be fought on rate sheets.
It will be fought in the borrower’s inbox, on the phone, and in the quiet conversations partners have about who they can trust when it counts.
When volume returns, everyone looks busy. But only some organizations will look reliable.
The rest will discover too late that while they were waiting for the market to improve, their competitors were quietly strengthening relationships that will be very hard for them to win back.
David doesn’t risk losing to Goliath because he’s smaller. He loses when he shows up unprepared for the fight he’s actually in.
In 2026, the lenders who survive and grow will be the ones who are preparing for that fight now.
Laura Lasher is the co-founder and Managing Director of Worthy Performance Group, and the former head of Mortgage for Arbor Bank
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].
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