The industry’s sharpest minds have been writing about how the key to increased revenues in the mortgage industry has everything to do with the servicing asset. Many of our recent client conversations have focused on servicing as our newly re-architected servicing platform is finally giving them real control over that part of their business.
Determining what to do with the servicing rights is a decision that has significant implications for lender profitability in this market. As STRATMOR Group’s Michael Grad wrote in October:
“In today’s market, mortgage lenders are facing a challenge: they are not making enough money on originations to sustain their organizations. When your company is losing money on each loan you originate and the only revenue comes from the servicing rights, developing an effective servicing strategy becomes a mission critical priority.”
Unfortunately, many loan originators don’t currently have mortgage servicing software, so they don’t have all of the options available to them.
That’s easy to change now with MortgageFlex’s Unified Platform for loan origination and servicing. It’s a great option when the lender wants to reduce mortgage servicing costs.
The strategic imperative to reduce servicing costs
Over the past few years, lenders have watched their mortgage servicing costs increase. Ensuring maximum profitability involves not just having the software to service the loans, but also servicing them at an affordable price.
Between 2019 and 2021, the direct cost per loan (CPL) averaged $160 annually, equating to about $13.00 per month, with loans per full-time employee (FTE) hovering around 800, according to the Mortgage Bankers Association.
According to the MBA’s research, the primary drivers of direct servicing costs include technology, facilities, staffing, and loans per FTE.
The role of technology is particularly noteworthy as it stands as both a major cost factor and a potential solution for efficiency improvements. While technology investments can initially seem burdensome, their long-term payoff in streamlining operations cannot be overstated.
Call centers, a significant area of expense in loan servicing, highlight the importance of managing calls per hour to drive loans per FTE. This is where a system-driven workflow can make a tangible difference.
Implementing technological solutions that offer data management by department, automation in workflow, and enhanced reporting and accountability can significantly boost efficiency.
The Cost Implications of Technology Utilization
Obviously, the limiting factor to how much you can reduce your mortgage servicing technology costs will depend upon your technology developers. It’s very important for new mortgage servicers to explore with their technology partner how their own strategy will impact their cost structure.
Some of the industry’s largest technology providers use a tiered structure that rewards very large servicers by charging them less per unit to use their software. Growth will lead to cost efficiencies with this approach.
But many smaller lenders want the servicing revenue, but may never service enough loans to make the largest software companies software cost effective.
By focusing on scalable solutions that enhance efficiency per FTE, lenders can reduce their overall cost to service loans. This reduction is not just about cutting expenses but about reallocating resources towards growth-oriented activities.
By judiciously investing in and utilizing technology, lenders can control servicing costs, enhance productivity, and position themselves for sustainable growth in a competitive market.
The key is to strike a balance between immediate technology costs and long-term operational efficiencies, ensuring a future where reduced servicing expenses translate into increased revenues, regardless of the strategy employed by the lender for growing the portfolio.
To find out more about the industry’s most affordable mortgage servicing solution and the impact MortgageFlex and our Unified Platform can have on your profitability, reach out to us today by visiting MortgageFlex online or by calling John McCrea at 1-860-460-7418 to schedule a live demo.