Acquire New Tech Today to Get Off the Mortgage Market Merry-Go-Round
It’s been said that the definition of insanity is doing the same thing over and over again and expecting a different result. No one can predict with any certainty when or how much interest rates will change in the future, but we can practically guarantee how mortgage lenders will respond. Every time rates drop and volumes rise, there’s a mad rush to hire and train as many people as possible.
Meanwhile, loans take longer to close, and overtime runs rampant. Even savvy lenders that pursue process re-engineering and technology investments can find their efforts muted. Because they’re too busy hiring, training, processing, underwriting and closing, those lenders are often unable to see these initiatives through. Then, when interest rates inevitably rise, lenders find they need to quickly switch gears. Overtime is eliminated, people are let go and improvement initiatives grind to a halt. Lenders scramble for opportunities to replace declining volume, while some get acquired, and others end up closing their doors. Despite the best intentions to be better prepared, the cycle repeats itself again and again.
The good news is that there is a way to get off this maddening merry-go-round before volumes pick up again. The key is to identify a technology partner that can lower costs, create efficiencies, and minimize training and onboarding time. Let’s take a look at how this can be done.
Take Control of Rising Mortgage Technology Costs
One of the biggest challenges we see for lenders is simply how expensive it is to operate their existing technology stack. Often, it’s because they rely on decades-old origination technology that does not improve productivity as volume increases. They may have pieced together different solutions and tossed in some homegrown elements that served them well at one point. But eventually, their stack grows more expensive to maintain. Meanwhile, many LOS vendors raise their prices to replace lost revenue from lower volumes or to handle the technical debt accrued by having to maintain legacy products. Lenders with inhouse proprietary systems have similar issues to overcome due to large IT staff and fixed infrastructure costs, which creates vulnerability to market swings.
The result is that the total cost of ownership (TCO) for technology continues to rise. Evidence of this fact can be found in the MBA’s Quarterly Mortgage Bankers Performance Reports. Recently, independent mortgage bankers saw record losses in the fourth quarter of 2022, while technology costs as a percentage of the average lender’s total expenses jumped from 7.8% in 2021 to 9.5% in 2022.
The best way to lower TCO is to adopt modern technology solutions that can be optimized to any lender’s business model and handle any loan channel or product type. Right now, cloud-based, mobile-first, AI-enabled enterprise technology is readily available to provide the scalability and flexibility lenders need. The best of these solutions are also API-centric to give lenders more flexibility as the market and their businesses evolve.
Cloud-based tech providers are also better equipped to handle system backups, disaster recovery, security, high availability and environment maintenance. And compared to legacy systems, newer solutions come with variable cost structures and transactional charges based on closed loans, so costs automatically decline when volume declines. This eliminates the need for drastic cost-cutting measures during down cycles. At the same time, newer, more flexible systems enable lenders to pivot quickly to new opportunities that every down market presents.
Embrace Production Efficiency
Of course, the greatest cost savings that result from embracing more modern technology comes through greater efficiency. When volumes spike, most lenders end up doubling their staff to handle twice as many loans. By using newer technology equipped with task-driven workflows and rules-based processing, lenders only need to incrementally increase staff to handle significantly more volume.
By automating service orders, compliance checks, toll-gate enforcement, built-in alerts, exception handling and other workflows, lenders can close loans faster with fewer errors. Plus, with newer technology, routine work can be easily automated, allowing the lender’s staff to focus on more complex matters. This refocusing of talent improves morale and retention by eliminating time spent on mundane tasks and mindless paper-based processes.
Reduce Mortgage Software Training and Onboarding Time
As most lenders know, the time to train and onboard new team members invariably rises when volumes spike. In fact, per-loan production costs have climbed steadily along with loan volume for the past several years, reaching a record high of $12,450 last year, according to the MBA’s quarterly IMB data. Meanwhile, from the beginning of the pandemic up until last year, when lenders were hiring intensively, the number of loans closed per employee fell precipitously from 3.1 to 1.0, the lowest level seen in more than 10 years.
Newer, more modern platforms are not only more efficient, they are much easier to implement and simpler to use, so new hires can get up to speed quickly. Additionally, it takes a platform built by people with extensive mortgage experience to achieve this goal (there aren’t many, but they do exist). Once the new system is in place, team members can start pushing loans through the system and providing exceptional service to your borrowers in the blink of an eye.
These are all great things to talk about, but it will never happen unless lenders decide to stop the Mortgage Merry-Go-Round by adopting a modern technology platform that accelerates their business before the market shifts again. No one knows when mortgage rates will drop yet again. When they do, homebuyers and homeowners looking to refinance will emerge from the sidelines, and volumes will begin to rise. History will undoubtedly repeat itself once more for many. But, forward-thinking lenders that rip the band-aid off NOW will break this vicious cycle, because they’ll have the technology and tools in place to control their own fate.
About Blue Sage
The Blue Sage Digital Lending Platform is the leading choice for lenders, banks and credit unions seeking to leverage digital technology to lower costs and maximize sales opportunities. Blue Sage is a 100% browser-based mortgage production platform that provides end-to-end functionality for the entire lending and fulfillment process, regardless of channel, and a superior experience for every borrower. All Blue Sage solutions include mobile applications and are delivered through a secure, fully managed cloud service. To learn more, request a demo or email us at today.