How to Avoid the Shiny Object Syndrome in Mortgage Tech
This article was initially published on CUInsight.com.
In 2018, the Mortgage Bankers Association (MBA) released quarterly numbers for loan profitability across the mortgage industry. The results were grim – the MBA reported that the cost per loan had actually increased since Q3 and, due to rising production costs, mortgage lenders were posting a net loss per loan originated for the second time that year.
This has sent lenders scrambling for answers and ways to compensate for these numbers. Interestingly enough, just last month LendingTree published a series of key findings indicating that lenders who were investing in technology and prioritizing the digitization of the loan origination process were experiencing success across the board – including a significant decrease in loan closing times.
In an era where margins on loans are thin and lenders are constantly searching for different ways to increase profit and close loans faster, LendingTree’s study is proof that strategic investments in technology can serve as a solution for mortgage lenders.
However, investing in technology is one thing, but investing in the right technology is a whole other ballgame. Today across mortgage lending the “shiny object syndrome” is alive and well – in other words, it is easy to invest in slick technologies that seem modern and advanced, but harder to identify the technologies that yield clear return on investment.
With the influx of technology in the mortgage industry today, it is critical that loan originators approach technology investments with prudence and strategy. Today, lenders should primarily invest in technology that maximize loan profitability, streamline manual workflows, and provide the borrower with a better end to end experience.
One way to do this is for lenders to reevaluate the way they calculate the costs to manufacture loans and then identify technologies that directly expedite certain parts of the process. When evaluating loan profitability, aside from looking just at rate figures, lenders should break down each step of the loan origination cycle by number of employees involved, time per minute spent on each task, and the rate at which someone is in a loan file completing a particular action. By quantifying how long one employee spends on a milestone event, lenders will have a holistic snapshot of how costly each phase of the origination cycle truly is.
With this loan productivity analysis in mind, it becomes clear that certain areas of the origination cycle tend to require more resources than others. A piece from HousingWire from November 2018 highlights how lenders should look for efficiencies in the valuation stage of the loan cycle in an effort to reduce manual processes and emphasize automation.
Today the appraisal process can delay the loan cycle by weeks while lenders grapple with Excel sheets, appraisal management companies, and outdated software. During the appraisal process, internal processors are tasked with spending time on each file assigning orders to appraisers or following up on status requests. Accounting departments have to juggle the finances of requesting payments from the borrower and paying out the appraiser. And underwriters spend time manually reviewing each appraisal for accuracy and are often forced to go back to the appraiser for revisions.
Overall, from a loan profitability standpoint, lenders are losing money daily by not investing in technology that can streamline and automate their appraisal process. Today, new software exists that can save lenders money by not only eliminating manual tasks, but also by decreasing appraisal turn times, which result in a shorter time to close.
Lenders that invest in comprehensive appraisal automation platforms can take advantage of algorithms that instantly match appraisals with available appraisers, regularly update processors about appraisal statuses, automatically run appraisals through advanced underwriting engines, and even automate the entire payment processing workflow for the accounting team.
For every minute that employees are not spending in the loan file, and for each day that the appraisal turn time is cut down, lenders save money and maximize loan profitability, thereby increasing the margins on that particular loan.
There is ample evidence that one of the surefire ways to cut production costs is to strategically invest in technology that provides a clear return on investment by way of concretely automating manual processes and decreasing origination time. Within the loan cycle, the appraisal is a good place to start.