BLOG VIEW: In further attempts to reduce inflation, the Fed is expected to enlist another 0.75-point interest rate hike later this month, pushing lenders that much deeper into the current purchase market. Meanwhile, overall residential mortgage lending activity is experiencing the largest annual drop since 2014, down 32% in Q1 of this year.
As a result, many lenders across the industry will see a decline in their loan volumes – but this is the ideal time to assess how money is moving through the organization, as well as strategies in lowering personnel and operating costs to remain profitable. Unlike a high-volume refinance market, the current purchase market will require more “boots on the ground” to support healthy origination pipelines, and an increased level of scrutiny when it comes to invoicing and recurring operational expenses.
The reality is that today, many firms are still employing labor-intensive and outdated processes to manage both loan and non-loan expense approval and reconciliation, which presents opportunity for human error and delays.
In the wake of pandemic-related business challenges, some mortgage firms may have given their accounts payable and procurement departments an intelligent automation overhaul. By automating accounts payable with rules-driven workflows, lenders are equipped with enhanced levels of visibility into specific vendor invoices and individual employee expenses, as well as more control over the approval process, quickly uncovering increases in vendor fees, new contract terms, changes to vendors’ service level agreements, and changes in the frequency of vendor billing. As imagined, these early adopters are likely already reaping the benefits by affecting automated and immediate adjustments to positively impact ROI.
The key to lowering existing operational costs to efficiently manage “the spend” lies in equipping lenders with access to faster reporting, including detailed insight into loan volumes or margins and profits, for each branch within their network. Automated reporting capabilities not only set up lenders to move loans more quickly and efficiently through the origination pipeline to closing, but as the lender closes more volume, it also elicits potential for greater savings through the evaluation of each invoice.
Commissions to loan officers and overrides to operations staff make up the largest expense that each branch, as an operating unit of the company, must bear. By positioning mortgage bankers to adapt to evolving market conditions through better utilization of automated commission systems, lenders can more readily adjust commission calculations on a monthly and/or quarterly basis for individuals within the branches.
The flexibility and benefits of transparent reporting helps lenders see past simply loan volumes, providing the ability to drill down to income and commission basis points on any group of loans. In this case, the true margin and profitability data positively impacts employee retention while serving as a recruitment tool for talented branch managers who may feel undercompensated by competitive lenders.
In times of economic uncertainty paired with a looming recession, it is imperative for lenders to look beyond loan volumes listed on spreadsheets to more accurately evaluate the true profitability of each branch. As the industry continues to face the reality of decreasing loan volumes, faster reporting and automation will help ensure greater consistency and profitability across branch networks – something that will pay even greater dividends in the future when loan volumes rebound.
Joe Ludlow is vice president for Irvine, Calif.-based Advantage Systems, a provider of accounting and financial management tools for the mortgage industry.