The mortgage lending industry will face many hurdles in 2022, not the least of which is maintaining profitability in a shrinking market — not only on a macro basis but on every loan it originates.
This year loans will consist largely of non-QM and purchase loans. They will be more expensive to originate and will receive greater regulatory and secondary market scrutiny. And there will be fewer of them; by some estimates, loan origination activity will fall by a third.
Here are five steps you can take to improve your ability to remain profitable in this challenging year.
1. Look closely at your mortgage loan origination operation
Achieving profitability on a loan-level basis is imperative. Accordingly, we must sharpen our focus on tracking loan-level costs, particularly the labor components. These often uncover disconnected stovepipe activities that slow processing and add expense. They can also reveal elongated cycle times for certain steps, loan pull-through issues and excessive handling costs.
If you do not have a cost accounting system capable of tracking hours and costs against individual loans, perform a forensic analysis on loans that required extra time or effort to close, fund or ship. You will discover patterns that reveal roadblocks or inefficiencies that, if addressed, may benefit overall performance. Ultimately, being able to systematically monitor expenses by loan will provide you the analytical tools to optimize your operation and improve profitability.
2. Decide what is core to the business
We must also quickly scale operations to match the trajectory of the declining market, because our single highest cost component is labor. As we scale, we need to assess which functions are truly core to our business. We should outsource non-core activities, ones that do not contribute to margin or the customer experience, to a capable mortgage processing company.
Do not confuse “competent” with “core.” You may excel at a certain activity, but it may not yield a competitive advantage, or it may not contribute to your bottom line. Loan post-closing is an example of this. Ask yourself, “Is this the best and highest use of someone’s time? Or might these resources be deployed to a revenue-generating activity, or one that contributes to a positive customer experience?”
3. Choose to outsource –then choose an outsourcing strategy
It is said that the first step in a journey is the hardest. If you have not done it before, the decision to outsource an activity can be fraught with anxiety. Will outsourcing degrade the customer experience? Will I lose control over a key function? Outsourcing is essential to profitable mortgage processing, and it has been refined over the past 20 years. A reputable Mortgage Process Outsourcer (MPO) assumes the cultural identity and values of its client, so the net effect on customer relationships is neutral to positive.
Today there are several outsourcing strategies for leveraging what has become a global mortgage workforce. Outsourcing using an onshore vendor, for example by rebadging existing employees, yields expense reductions while preserving domain knowledge specific to your enterprise. Near-shore outsourcing, which often involves a workforce in a complementary time zone, allows for real-time collaboration between your employees and your outsourcing partner while reducing expenses.
Outsourcing using an offshore partner often yields the greatest expense reduction as labor costs are markedly lower in South Asian countries. In addition to attractive labor costs, these countries feature high literacy rates and a workforce familiar with most, if not all US mortgage processing steps. Time zone differences between the US and South Asian counties enable mortgage processing operations to operate nearly around the clock.
Outsourcing converts internal, fixed costs to external, variable costs. In an industry that is often whipsawed by rate changes, a variable cost structure buys you margin headroom in both lean and plentiful times.
4. Embed Robotic Process Automation
Automation has made significant contributions to mortgage processing efficiency, supplanting, or supporting humans engaged in rote, repetitive tasks. Probably the easiest to implement and most effective automation tool is Robotic Process Automation (RPA). It has made enormous contributions in automating and refining loan origination, particularly document preparation, data validation and document stacking. Working alongside your team members keeps the wheels of origination turning efficiently.
The fastest route to RPA implementation is through a Mortgage Process Outsourcer that offers mortgage origination solutions and has embedded RPA in their own processes. Following a review of your operation, they can identify quick-win opportunities for mortgage process automation.
5. Delight customers with digital communications
Finally, it’s important we redouble our commitment to customer satisfaction. Here, technology can also play a significant role, particularly in how we communicate with customers and prospects. Relying solely on face-to-face and telephone interaction is both expensive and inefficient. Customers and prospects may prefer text, email or even social media when they engage with you.
Digitally-Empowered Contact Centers offer omnichannel capability that creates anywhere, anytime access to a technology-enhanced workforce, harmonizing human interaction and automation. Artificial Intelligence can script interactions with consumers and be delivered via any channel, from chatbots to emails and humans in call centers.
A Digitally-Empowered Contact Center enables customer engagement that is at once responsive and personal, the first step in customer acquisition and the foundation for a positive customer experience over the life of the transaction.
As competition for borrowers increases, a reputation for excellence should precede us. Building and maintaining a reputation for being friendly and responsive is critical in a declining market.
What steps are you taking to maintain profitability in your loan origination operation? I’m interested in hearing from you.
Download our whitepaper An HFS POV – From outsourcing to innovation: partnering to revolutionize mortgage servicing that analyzes how outsourcing can be a gateway to innovation and adoption of emerging technologies in the mortgage servicing business.