Tune Up or Overhaul

By: Nizar Hashlamon for CBInsight

We’re unabashed mortgage nerds. Our teams and our clients hear us say it all the time. We’ve been passionate about residential mortgage lending since the beginning. It’s a fascinating, ever-evolving, constantly challenging area of finance where the end result – putting people in homes – is infinitely satisfying. We’re fortunate to work with a fantastic group of people who feel exactly the same way.

Somewhere in our travels we acquired a passion for espresso. At first, this particular obsession was a practicality: we were working for a start-up that, as all successful start-ups do, required constant, almost round the clock attention. Turns out, caffeine is pretty helpful when you have little idea of the time zone you are in or what time of the day or night it might be. Practicality turned to fascination; we are just that way when we’re keenly interested. We had to know more. We had to figure out how to make really good espresso at home.

It seems a simple thing, espresso. Two ingredients. Coffee beans. Water. How hard can it possibly be? Pretty hard as it turns out. Just like making mortgage loans, people, process and technology are required in abundance to efficiently and consistently produce a quality product. And similar to mortgage loans when the product is good it is very good. When it’s bad, it’s worse than bad.

Not long ago, we were out to dinner with our wives. Perfect evening, better company, really great meal. Coffee seemed like the right way to end the evening, so we ordered espresso, reasoning since the food was good and we knew where they got their coffee, that it should be as good as dinner. Logic did not prevail. The drip coffee from a can that my mom makes is quite a bit better. How could this be? Investigation was called for.

We knew the ingredients were high quality. We spied on their technology. Great equipment, equipment we wish we both had, and machines we’ve had terrific espresso from in many places around the country. What gives? Turns out, professional baristas say great espresso results from more than just beans and water. It also requires the right equipment and a trained barista. We surmised after our sleuthing that their barista probably needed more training and practice and that their equipment likely needed a tune-up.

We have been working on a performance benchmarking study with a segment of our customers since spring of this year. The results are fascinating as well as gratifying. We’re fortunate to work with some lenders who are defying the seemingly inexorable gravitational forces that are impacting industry productivity. The Mortgage Bankers Association published an article in June with the horrifying news that productivity had declined to less than two closed loans per employee per month. Our top producing lender is closing more than nine, with the overall average in the high fours.

Our lender group all use the same technology, yet their productivity results are not the same. Just like our restaurant espresso experience illustrates, their use of the technology probably needs a tune-up. The past several years of stupefying industry change likely means configurations are not what they could or should be to produce optimal results. Still, averaging almost five closed loans per month when the broader industry cannot get to two is something of which to be proud. Tune ups are easy, and once complete, call for additional staff training. Technology, when used correctly, produces great results, but users must be taught how to leverage it.

Many of those within the MBA lender group use disparate technologies. With performance at less than two loans per employee per month, the question becomes: overhaul or tuneup? Tune-ups will help in some cases for the same reasons mentioned above. Superior performance, approaching pre-recession levels of more than nine closed loans per employee per month, likely calls for a more drastic overhaul – an essential project if best-in-class performance is the desired outcome. And it has to be; higher productivity results in lower cost-to-close. Lowering the labor component of cost-to-close, the single largest variable and the only one over which lenders have almost complete control, is the only avenue to more competitive pricing.

Mortgage technology overhaul or tune-up? This is the question every lender should ask and answer after reviewing their productivity results. Many lenders are overhauling, and now is the perfect time to do so. In addition to greater productivity, new technologies are likely to put lenders in a better, more compliant position for next August’s upcoming RESPA/TILA changes.

We do make great espresso in our respective homes, by the way. It’s taken us a few years, and it has required technology upgrades. Not to mention tune-ups plus additional training, lots of practice, and a constant search for great ingredients. Yet anything worth doing is worth doing in the best possible way, be it espresso or mortgage loans.