Making Mortgage More Profitable, Part I: Costs on the Rise
Mortgages aren’t getting any cheaper to produce.
According to the MBA’s latest data, total loan production expenses for independent mortgage banks amounted to $8,082 per loan in 2017, representing a 12% increase over 2016. For their trouble, lenders netted an average of just $711 of profit on each loan originated last year. That’s nearly a 50% decrease over last year’s $1,346 average-per-loan profit.
To put these numbers in perspective, consider the following:
One of the biggest expenses lenders incur in loan production is labor. In Q1 2017, the MBA reported that the average cost of operational labor to manufacture a loan was roughly $2,600. In comparison, General Motors reported that it costs them $2,350 in labor to manufacture a car.
Think about that. It cost roughly the same amount to originate one loan as it cost to manufacture one car. On top of that, consider the number of cars produced every day versus the number of loans that are originated.
According to the MBA, only 1.9 loans were originated per production employee per month last year. Output at the average auto manufacturing plant easily outstrips that pace. This begs the question, “Why has it become so expensive to produce a loan?”
Unfortunately, the mortgage industry has yet to perfect the assembly line approach that made auto manufacturing so successful, nor has it been able to effectively leverage automation to augment human labor. There are simply too many disparate systems at play in today’s mortgage manufacturing operations, both in terms of software and processes, and these systems do not work cohesively, creating a disjointed and inefficient loan production environment.
In addition, these disparate systems make it nearly impossible for lenders to gather a comprehensive view of data across their organization. Without the full picture, lenders are at a loss for how to make the necessary adjustments to maximize efficiency, productivity and, ultimately, profitability.
So, what’s a lender to do? Find out in Part II, where we’ll explore solutions for driving down operational expenses and turbo-charging productivity.