The mortgage lending business today continues to be a costly and time-consuming process. Did you know that in the U.S., on average, it costs more to originate a mortgage than to assemble a car? (That’s according to numbers from the United Auto Workers and Mortgage Bankers Association.)
Although advancements in technology have fueled some gains in productivity, the mortgage industry needs to make greater strides to lower costs while continuing to improve the client’s experience. So, how can lenders and originators become an exception to the costly norm, what can affect their time to closing and what is reducing profitability?
First, mortgage companies need to look at the many sources of friction that drive down profits. This can include overstaffing, lagging tech adoption and a failure to recognize when outsourcing can streamline operations.
Identify trouble spots
How do you identify potential areas of improvement? Start by auditing the entire loan origination process. This will require participation from a cross-functional group of leaders over a series of sessions. It helps to have a marketing leader or customer-experience consultant to drive the exercise and visually document the journey of the client.
Then, identify points of friction for both clients and associates. Finally, decide what to eliminate, automate and/or outsource. Simplifying your operation doesn’t have to be a top-to-bottom exercise where only leaders contribute. When you inspire everyone in your organization to identify opportunities to simplify, you will be surprised at how many ideas will flood your inbox. Two mottos should guide this process — challenge everything and simplify.
Consider the following facts: The average mortgage production volume was $781 million per company in third-quarter 2019, up from $601 million per company in the second quarter of last year, according to a quarterly performance report from the Mortgage Bankers Association. Total production revenue, however (which includes fee income, net secondary marketing income and warehouse spread), decreased to 349 basis points in the third quarter, down from 370 basis points during the prior quarter. On a per-loan basis, production revenues decreased from $9,400 to $9,142 between the second and third quarters of last year.
Of even greater concern, the average time to close increased to 48 days in December 2019, up from 45 days a month earlier, according to Ellie Mae’s Origination Insight Report. This was the longest time to close for any month in 2019. And although one month does not equate to a trend, the average time to close never dipped below 40 days over the course of last year. This statistic applies to many types of mortgages — purchase, refinance, conventional and government-insured loans.
There are opportunities in which lenders can not only be outliers to these negative trends but also reduce the time to close and increase profitability. Achieving this requires leadership, making some difficult decisions and digging deep into cost-benefit analyses.
Lenders that focus on simplifying homebuyer engagement and providing excellent service could reap significant benefits. Once you map your organization’s entire operation and analyze each step, you must ask yourself the following questions: Do all departments interact effectively? Is there a manual or repetitive process that can be automated? How many opportunities were identified? How do you prioritize improvements based on the required level of effort and the impact upon your organization?
Innovative thinking is a natural byproduct of challenging every process. A good example is to leverage robotic process automation or bots. For example, a single disclosure specialist may be able to do about eight disclosure packages per day. With a bot, a disclosure specialist can do as many 150 of these packages per day. That is a remarkable lift in productivity.
Bots also can order title services or perform an automated prequalification, producing a prequalification letter in minutes. These improvements not only lower costs for lenders but provide a more friction-less experience for the borrower.
The appropriate implementation of technology, when matched with right-sized staffing, provides a winning combination. And having an effective outsourcing partnership is key. Care must be taken to partner with appropriate and like-minded parties, especially when it comes to digital mortgage lending platforms. Does your spartner enable a digital loan application to commence with a single touch of a smartphone? Can that partner withstand both surges and lulls in lending? Both answers need to be a resounding “yes” if outsourcing is going to work.
Technology, along with a management focus and effective outsourcing, can facilitate efficiency, enhance the borrower’s experience and improve the bottom line. Technology initiatives, along with outstanding service, should become an integral part of any mortgage company’s core mission.
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The mortgage market is evolving in new and exciting ways, and lenders owe it to potential homeowners — those looking to procure their piece of the American dream — to not only keep up with the times but stay one step ahead. It serves borrowers well and it works just as well for the industry, too.