If you follow the research provided by the Mortgage Bankers Association, you’ll know that the cost to originate a mortgage loan today is…well, it’s hard to find the right adjective. Calling it outrageous is an understatement and calling it sky high doesn’t go far enough.
But at the end of the day, it’s just a number.
Don’t get me wrong, it’s a number that is currently wiping out any chance a lender has of being profitable. But like every other number in the transaction, it is subject to change.
Lenders just need to know what they can change and then have the technology to make that easy.
More than half of the cost to originate goes to people, but as a service business we would expect that. Most businesses that don’t have to carry inventory spend about 60% of every dollar on people, in one way or another.
But the other half of the cost equation is subject to change. Here’s how to think about changing it.
Controlling Where the Money Goes
This isn’t a blog post about the CFPB’s alleged junk fees. We’re not aware of any junk fees in the current mortgage transaction. The regulators may be talking about the fees the nation’s largest secondary market investors require lenders to take on for verification during the underwriting process, in which case that seems like an internal conversation for the government folks.
Out here in the real world, lenders spend money where they must. Today, that amounts to about $12,000 per loan or more, on average, according to the MBA.
This money goes to three places: internal people, external products and services required by the investor, and time. You could argue that time is a factor built into HR expenses, but it’s not just payroll costs that go up when the loan takes longer to close.
The lender needs people, and they’ll need more when the business comes back. Investor demands drive settlement services costs. This means the opportunity lies in the time it takes to close the loan.
Saving Money by Saving Time
Things may change in the future and if they do, lenders may find a pathway around some of the expenses involved in closing mortgage loans. Until that happens, their best chance of becoming profitable is to streamline their operations and do more loans in the same amount of time, thus lowering their average cost to originate.
That points to better technology, working to ensure high adoption of the new tools, and then training the team to make the most of them.
Better lead management technology, combined with a streamlined application process, and better workflows through the processing department would do more for lenders than cutting more staff to lower their costs. And it would be a sustainable change. Otherwise, they’re just going to be hiring more bodies when the business comes back.
Better to look at today’s new loan origination technologies. Our MortgageFlexONE LOS offers so much more functionality than it did when we followed its ancestor technology forty years ago that there is no comparison. There really isn’t, because the entire system has been rearchitected.
If you want to originate more in less time and have a chance at being profitable again, it’s time to give us a call. Visit MortgageFlex or contact John McCrea, today at 1-860-460-7418 for a live demo.