It may seem incredible that the average mortgage originator is spending about $3 million more each year than top performing lenders to originate the same loan products.
I know this to be true because for the last six years I’ve been running our Mortgage Cadence performance benchmarking study. I’ve stopped apologizing for my love of data. Instead, I’ve embraced it by digging into what the best lenders are doing right. As a class, they are reducing their cost to close. They accomplish this by optimizing the other four key performance indicators. These metrics are the easiest way to spot a high-performance lender.
The key to high-performance lending
What the best lenders are doing is reducing their cost to close by millions each year. Then, they are reinvesting that money in growing their businesses. You may have heard me speak about high-performance lending at this year’s Ascent Mortgage Cadence users conference.
They are accomplishing this by optimizing the performance equation. They are combining the right people, process and technology for optimal lending performance. Meanwhile, everyone else is struggling through a market so competitive that experts are predicting that some mortgage banking firms just won’t make it.
Our study focused on credit unions and community banks, where every dollar counts. If you work in one of these institutions, you can probably imagine what you could do with that kind of money. But becoming a high-performance lender can save even more money for the nation’s largest banks.
The MBA’s survey on origination costs saw a new high earlier this year when it reported that the cost to originate a mortgage had risen to $8,475 in March. Then, in June, it rose even higher with the survey respondents reporting a cost to close of $8,887 per loan!
Meanwhile, the trade group reported at its recent Secondary Market conference in New York that lenders’ first quarter income will dip into negative numbers for the first time since the first quarter of 2014. This is a vicious cycle lenders have been caught in for more than eight years.Finding your $3 million
Becoming a high-performance lender will reduce the cost to close. Our data shows the average lender will save $3 million per year. It will also provide the cash cushion required to insulate lenders from the twin terrors of extremely high cost to originate and persistent low profitability. Lenders have been trapped between them for years.
In this series, we are exploring what it takes to be a high performing lender. Stay with us and we’ll shine a bright light on what the nation’s best lenders are doing right. Then, you can start thinking about what you’ll do with your extra $3 million per year.