The Mortgage Bankers Association recently released its Quarterly Mortgage Bankers Performance Report for Q2 2022. One of the most revealing metrics showed that mortgage lenders averaged a net loss of $82 per loan originated.
Total loan production costs (sales commissions, salary, overhead, technology and other production expenses) increased to $10,937 per loan. Personnel expenses alone averaged $7,371 per loan, while closings decreased to 1.7 loans per production employee per month. Production employees include sales, fulfillment, back-office support and management.
Bottom line: Costs are going up and volumes are going down. Profit margin compression is on the forefront of every mortgage lender’s mind.
All lenders are reviewing their costs in these difficult times. Staffing and budget cuts have been pervasive throughout the industry. However, decreasing staff does not bode well toward increasing productivity. Conversely, increasing loan volume while taking a loss on every loan is obviously not a long-term answer either.
How do you gain efficiency while reducing labor costs? Almost all lenders are reviewing their existing tech stack to gain more efficiency with what they already have. Or, they are adding new technology solutions to reduce their labor costs. However, there is rarely an immediate ROI in adding new technology or changing how you use existing technology.
While lenders do not have complete control over the cost of producing loans, they do largely control the expenses required to process, underwrite and close their loans. Many lenders are competing more effectively by making these key functions variable costs that scale depending on volume. Outsourced mortgage support companies can shoulder many tasks such as processing, underwriting, QC and closing functions, as well as accounting, servicing and default services. Lenders can rely on mortgage support companies to help them find ways to streamline processes and reduce production costs which will allow lenders to deliver a better customer experience and enable them to focus on relationships and growth.
As margins continue to shrink, mortgage lenders must keep their operating costs under control. Regardless of approach and strategy, using technology to become more efficient is essential. However, partnering with the right mortgage support services companies will enable lenders to reduce costs almost immediately, and will provide access to experienced and cost-effective mortgage professionals that can become a long-term solution for the market cycles inherent in the mortgage industry.
Learn the 5 Ways Lenders Can Ease Margin Compression