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Five Ways to Improve Mortgage Originations

August 25, 2023

Altisource commissioned a 2018 report, “The State of the Originations Industry,” which showcases results from our annual Origination Solutions Survey of over 200 decision makers in the U.S. mortgage origination business. The survey uncovered many industry insights, including risks and challenges present in the mortgage market and methods for improving mortgage originations. In this post, we have distilled five key points from the report that can help originators stay competitive.

1. Create a more variable cost model by outsourcing

According to HousingWire, loan production costs averaged $6,224 per loan between 2008 and 2018. However, according to the Mortgage Bankers Association Q1 2018 report, they found that the average cost had risen to $8,887. By October of the same year, the association announced that it anticipated a 4.2 percent increase in purchase mortgage originations in 2019.

While loan production costs have increased, loan volume has decreased and there are a combination of factors that have affected application volumes. The primary reason being higher interest rates, along with low housing inventory which limits purchase activity, and refinance volume continuing to shrink.

The combination of the increase in loan production costs and the decrease in loan volume can lead to less revenue per loan. Lenders are losing key accounts by not effectively managing service levels and turn times and furthermore, staffing to manage and retain market share while controlling costs is a delicate balance. One way loan originators can mitigate this risk is to increase efficiencies in the workplace. Our survey results, showed that nearly two-thirds (64 percent) of originators were actively looking at automation solutions to adjust to the increased cost of production, roughly half (51 percent) said consolidate staffing and less than half (45 percent) were considering outsourcing. Outsourcing not only has some of the same benefits as automation—including higher internal efficiency—but also enables originators to provide stronger customer experience. To combat staffing issues, savvy originators will evaluate outsourcing programs, through which they can retain the effectiveness of a dedicated, predictable and scalable workforce and access support for back office operations. The best outsourcing offerings will demonstrate performance and service levels as key components in statements of work, providing originators certainties around production levels regardless of market conditions.

2. Develop strategic partnerships

Seventy percent of the originators surveyed believed that the growing cost of participating in the mortgage market means that small lenders will face larger-than-average challenges. In fact, survey respondents said that small lenders will either be acquired by larger lenders; or be driven out of the market.

Clearly, neither one of these options is ideal. However, if small lenders were to strategically pick partners that complement their businesses, they could potentially avoid this fate. Vendors are not “one-size-fits-all”—rather than create entirely new systems, they must seamlessly integrate with existing processes. In other words, vendors must add value, not detract expensive systems already in place.

3. Retain top performers while finding new talent

About 75 million Baby Boomers are heading into retirement, but there aren’t enough Millennials and Gen X workers to replace them. Mortgage originators, for example, are aging out of the business, but there simply isn’t a large enough influx of workers to take their place—there is a higher percentage of originators over the age of 55 (21 percent) than under the age of 35 (14 percent).

Before trying to attract new talent, it’s important to first invest in existing top talent such as loan officers and underwriters. This can be done by offering better pay incentives, increasing opportunities for work-life balance and creating more opportunities for professional development.

According to LinkedIn’s 2018 Workforce Learning Report, 93 percent of employees would stay with a company for a longer tenure if it invested more time and money into their careers. Some of these same incentives apply to finding new talent. A recent Gallup poll showed that the number one attribute Millennials look for in a new job is the opportunity to learn and grow.

4. Add new loan programs but offload risk to a third-party

Creating new streams of revenue often means assuming new areas of risk. The originators surveyed said that construction loans, renovation loans, jumbo loans, FHA loans and non-QM loans (not including jumbo), were attractive. Yet non-QM loans are atypical, as they don’t meet traditional mortgage standards. This doesn’t mean that such loans aren’t safe, although originators need to put extra care towards decreasing risk.

It’s next to impossible to hire enough people in-house to manage all of today’s underwriting needs. Fortunately, offloading risk to third-party vendors who are experienced in a wide variety of loan programs can supply a customizable bench of underwriters.

5. Be bold—consider piloting programs that will generate savings

Speed, efficiency and productivity. Automation can help increase the speed of the loan origination process, as well as boost efficiency and productivity. Many of our survey respondents, however, noted that automation poses challenges, including how long it takes to implement automation systems, and finding the right way to integrate these platforms with existing systems. Being cautious and taking the time to add automation means that originators can process more qualified loans and increase levels of customer service.

While the mortgage market poses some challenges, knowing what might be ahead can help originators stay competitive. To learn more about origination trends in the coming year, including some of the biggest trends in automation, risks of repurchase demands and predictions for the next couple of years, read “The State of the Originations Industry” report.