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Still Room to Go: Driving the Costs Down

Most if not all of us in the financial and mortgage sector realize there is still room to go in managing costs. I recently read a great piece by LenderLogix CEO, Patrick O'Brien, on this such topic (analyzing the Q1 MBA Cost/Profitability reporting.

I'm summarizing on what I took as the ten key highlights from Patrick's passage: 1. Total loan production expenses for independent mortgage banks reached a study-high of $13,171 per loan in Q1 2023.

2. Technology represents between 5% and 8% of IMBs' overall cost to originate in the retail production channel.

3. Lenders' tech spend is divided into three key areas: corporate administration, servicing, and production.

4. Lenders' production tech investments are primarily focused on the beginning and conclusion of the origination process.

5. Fulfillment, which covers a significant portion of the loan manufacturing process, represents about 25% of IMBs' cost to originate.

6. As loan volumes increase, sales and fulfillment expenses also rise, contributing to the overall cost to originate.

7. Lenders are not investing enough in technology, allocating only a small percentage of their budgets toward it.

8. The deployment of technology in the origination process is a factor limiting its impact on the cost to originate.

9. Adoption of automated verification tools for employment, income, and assets is low among mortgage applicants.

10. Borrowers trust sharing personal information through their lender's online application but may have doubts when connecting with third-party verification services. So now let's focus on key actions to take if you have not already. 1. Increase investment in (the "Right" technology): Lenders should allocate a higher percentage of their budgets toward technology to drive down origination expenses effectively. (Note: BUT MEASURE MEASURE MEASURE the entire picture)

2. Expand technology investment in key areas: Lenders should focus on investing in technology solutions that cover the entire loan manufacturing process, not just the beginning and conclusion stages.

3. Enhance automation for verification processes: Lenders should adopt and promote the use of automated verification tools to streamline processes such as employment, income, and asset verification, leading to greater efficiency and cost savings.

4. Improve borrower trust in third-party services: Lenders should work on enhancing the user experience and branding of third-party verification tools to build confidence in borrowers and increase adoption rates.

5. Embrace data aggregation technology: Lenders should leverage data aggregation technology to simplify and expedite the verification process, taking advantage of rep and warrant relief offered by entities like Fannie Mae and Freddie Mac.

(Matt's take: One more key item to act on....EMBRACE A BPO/BPM partner: If you demand and use a variable "skin-in-the" game approach with the partner, you should expect to see even greater margin improvements (on both fronts...revenue optimization and cost optimization). By implementing these actions, lenders can make meaningful strides in reducing the cost to originate and optimizing their technology investments.

Patrick's full article here:

Matt Slonaker Founder & CEO of M. Allen (E) (W)

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