Just How Much Is It Costing You to Originate a Loan? Do You Know?
Written by: Bill Dolan, CMB, AMP
By now, I’m hoping that the majority of you have taken the time to read the latest 2024’ Cost To Originate Study that was conducted by Freddie Mac. If you haven’t, you should, as the recent data shows, that the average origination costs have risen 35% over the past 3 years. The study performed also reflected on average, a cost-per-loan of $6,900.00 for the top 25% of performers in the industry while the costs associated with the bottom 25% of lenders averaged $16,500.00 per loan.
So let me ask you the following:
Do you know just what it is costing your institution to originate a loan today?
Do you know what it is costing your institution to service a loan today?
Where does your institution stand in relation to these industry numbers and percentages?
How are you addressing these costs as a Lender, while staying efficient and remaining competitive within your footprint?
If you are interested in improving efficiencies across your mortgage origination and servicing business, SCA can recommend ways to evaluate your current processes and identify areas of improvement to retain more value from each loan that you originate and service.
You need to start first by analyzing your mortgage origination workflow process, from your starting point to the finish point. By charting a pathway, you’ll understand just where you are today and where you need to end up. Start by delineating the following steps in your process that includes:
Application
Document Collection
Processing
Identity and document verification
Underwriting
Closing
Post Closing
Now ask yourself some of the tough questions:
Just how long is a loan sitting in this stage of the process? Why, and what can I do to reduce the amount of time in this stage?
Are there bottlenecks existing within certain stages? Are they being caused by people or processes?
Where do your loans tend to fall off or stall in the process? What steps can you take to eliminate these bottlenecks?
How seamless is the handoff between your team within each stage? Is the loan being moved one way and one way only to the next stage or, just how many times is your team moving the loan back and forth between stages? What steps are you taking to eliminate the back and forth ensuring the loan moves one way within the process……. Forward?
Ask yourself when you are reviewing your pipeline, just where most files currently stall and what can you do to reactivate those files to expedite them along?
It may be helpful to implement some Key Performance Indicators (KPIs) so you are able to benchmark the KPIs prior to implementing any changes within your process. Consider some of the following:
Average loan cycle time
Cycle stage length
Pull-through rate
Fallout rate
Average loan value
Profit per loan
Cost per originated unit
Application approval rate
Lost or abandoned loan rate
Incomplete application rate
Utilize this time during the lending cycle we are in to streamline your processes and automate as much as possible, in order to reduce your expenses and generate new revenues. Not sure how to start? Contact SCA. There is no better time to address these issues than NOW!
Why SCA? Simply put, SCA’s team of industry experts are both personal and practical. We have in our 34 years never lost sight that consulting and outsourcing services we provide are a people business. It is our team of industry professionals (who average 25 years of hands-on experience) within the banking and financial services sectors, with different passions and strengths who take as much joy in the work performed as from those we partner with.
Interested in learning more? SCA can work with your institution to perform a time/cost analysis for both your origination and servicing areas. Our engagement can be a powerful tool to improving your workflows as well as your recapture rate while driving the customer experience throughout your relationship with your borrowers.
Contact Bill Dolan, Director at: Wdolan@scapartnering.com or (617) 694-2617. Learn more regarding SCA’s consulting and fulfilment services we provide by visiting our Solutions page.
