Managing Profitability Through Your Product and Pricing Engine (PPE)

By: Paul Bates, Senior Technology and Capital Markets Consultant

Industry leading Product and Pricing Engines give lenders a robust toolset for fine tuning their profitability in an effective and compliant manner. It’s easy to fall into the trap of ‘setting and forgetting’ margin settings when setting up the pricing engine. I would challenge that profitability margins inside the PPE should be regularly reviewed and adjusted based on market conditions and business strategies.

One of the key advantages of a robust PPE is the options available for making profitability adjustments, and the ease in which these changes can be accomplished. There is even functionality that allows temporary changes to automatically sunset upon a pricing update.

Analyzing your historical lock data is essential in uncovering hidden opportunities for applying margin changes, and then performing comparisons post change to see if you achieved the desired result. Below you can see some of the many options available.

Adjust Margins by Product type

We are all familiar with adjusting margins by loan type – such as FHA/VA vs Conventional. Another good strategy is to fine tune margins within a specific loan type. You could make your 15 year conventional margins smaller (or larger) than your 30s.

Run a ‘Sale’

Another profitable strategy is to run a ‘sale’ on weekends for your purchase transactions. You can temporarily adjust the margins on purchase transactions to entice buyers attending open houses. These types of adjustment can be automatically set to expire. If you are running a ‘sale’ you should anticipate your coverage needs (forward commitments or registration activity) on a review of historical lock data.

Manage your Delivery Pad

As pipelines ebb and flow lenders can adjust their delivery pads based on loan throughput. Has the average time from origination to closing moved in either direction by 5 days? That is a time to adjust the delivery pads to make sure all the profitability available is captured.

Have any questions? Please reach out so we can help you. Contact Bill Dolan, CMB, Director for more information at (617) 694-2617 or email him at: wdolan@scapartnering.com.