BLOG VIEW: As lenders continue to sell off production and look to reduce expenses, today’s market demands a shift from an opportunity-focused environment to one driven by marketing and sales strategies.
In the current challenging market, lenders are struggling to drive loan volume, revealing the need to redirect their attention on managing “the spend” to improve their financial health. As such, lenders should maximize their use of existing business intelligence (BI) capabilities to gain significant insights into loan profitability and make data-driven decisions to refine marketing strategies to attract loans.
The Evolution of BI in Lending
Historically, BI has played a crucial role in shaping how mortgage lenders operate, optimize processes and make strategic decisions. From basic reporting and data warehousing to real-time analytics, BI tools help organizations find incremental operational savings and seize opportunities in a dynamic market landscape.
BI proved particularly valuable in high-volume, low-interest rate environments as lenders struggled to keep up with loan volume and demand. It helped lenders better track how many touches there were on a loan file between origination and closing, for example, and identify where lenders could incrementally gain operational efficiencies in loan processing.
BI as a Tool for Understanding Profitability
While it’s helpful to know the number of times a loan file is handled, using BI solely for operational efficiency simply doesn’t resonate in today’s market. Instead, lenders should leverage BI to provide detailed financial insights into loan profitability and revenue-generating activities.
Many lenders already have underutilized BI capabilities embedded within their existing tech stacks. Due to a disconnect between the available tools and their effective application, most lenders do not use their reporting systems to assess profitability by loan, commission and override costs per loan, and other loan related expenses. Instead this data is generally prepared and reviewed manually in spreadsheets.
Rather than investing in complex and expensive new BI technologies that offer limited features while keeping loan data siloed, lenders should focus on training staff better on how to use their existing accounting system’s live dashboards and reporting to track loan-level profitability. This positions branch managers and their loan officers to better use real-time data to make informed financial decisions, cut costs where necessary and reallocate spending to areas that actually drive revenue.
Data-Driven Financial Decisions
To get the most out of their accounting systems’ BI capabilities, the key lies in equipping lenders with access to faster reporting with the ability to drill down into the financial details of each loan. This allows lenders to better analyze revenue generated from origination fees against the costs associated with processing and servicing the loan. By calculating profit margins on a true per-loan basis, lenders can identify which types of loans are most profitable.
This ability to provide a detailed breakdown of the cost per loan, paired with insight into customer behaviors and preferences through real-time data analytics, enables lenders to enhance marketing and sales efforts to attract the right borrowers that will boost overall profitability. These metrics can serve as benchmarks for evaluating the effectiveness of marketing and sales initiatives, allowing lenders to fine tune their strategies to improve pricing and sales targeting.
Continuously monitoring and analyzing profitability metrics also helps lenders better understand evolving market demands, revealing insight to help drive the development of new loan products or the enhancement of existing ones to better meet borrower needs. With access to comprehensive and accurate loan-level data, lenders make more informed decisions integral to forecasting future performance and long-term strategic planning.
The industry-wide shift from maximizing loan volumes to optimizing profitability on a per-loan basis emphasizes the critical role of data-driven decision-making. By leveraging their BI capabilities housed within their existing accounting systems and technology infrastructure, lenders can not only enhance their profitability per loan but also optimize their overall operations, marketing strategies and resource allocation.
Joe Ludlow is vice president for Irvine, Calif.-based Advantage Systems, a provider of accounting and financial management tools for the mortgage industry.