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Mortgage Cadence to provide Minnesota-based credit union with a comprehensive platform to enable increased growth

DENVER; Oct. 9, 2018 – TopLine Federal Credit Union (TopLine) selected Mortgage Cadence, an Accenture (NYSE: ACN) company, to modernize its mortgage operations using Mortgage Cadence’s full product suite.

TopLine has replaced all legacy systems with Mortgage Cadence’s Loan Fulfillment Center, Borrower Center, Document Center, Imaging Center, and Collaboration Center, paving the way for increased lending profitability and a better borrower experience.

Collaboration Center — Mortgage Cadence’s newest offering — is a secure, private network that connects the people, data and systems involved in the loan origination process. It includes automatic document comparison and secure real-time messaging that provides easy access to title agents and other third parties. By eliminating tedious, labor-intensive tasks to simplify the mortgage process, Collaboration Center helps to increase efficiency through a streamlined workflow.

“We selected Mortgage Cadence as our comprehensive mortgage solutions partner knowing they are committed to innovation and are dedicated to providing superior service to help us get the most out of our technology,” said Tom Smith, president and CEO of TopLine Federal Credit Union. “We are excited to launch our new highly automated digital platform to provide our members an entirely paperless and seamless experience – from application through closing.”

Paul Wetzel, executive vice president and managing director of product management at Mortgage Cadence, said, “We’re thrilled to have TopLine as an early adopter of Collaboration Center, our newest offering that helps to improve productivity and minimizes time to close, two of the critical lending KPIs that drive profitability. We look forward to an enduring, collaborative relationship that benefits the credit union and its members through the most innovative services and best possible loan experience.”

About Mortgage Cadence
Since 1999, Mortgage Cadence has been providing the best people, process, and technology for enterprise and mid-market lenders who desire to deliver an exceptional borrower experience. From point-of-sale through post-closing, Mortgage Cadence offers reliable software and dedicated people, supporting lenders every step of the way.

About TopLine Federal Credit Union
TopLine Federal Credit Union is Minnesota’s 13th largest credit union with assets of more than $450 million. Established in 1935, the not-for-profit cooperative offers a complete line of financial services, including mortgage, investment advisory and insurance agency services from its five Twin Cities metropolitan area branch locations —as well as by phone, mobile app and online. To learn more, visit http://www.TopLinecu.com.

DENVER; July 12, 2018 – Mortgage Cadence, an Accenture company, has integrated ComplianceAnalyzer®, a leading compliance solution from ComplianceEase®, with the Enterprise Lending Center (ELC), Mortgage Cadence’s proprietary loan-origination platform.

The integration enables ELC users to systematically audit loans for regulatory compliance without leaving the platform.

ELC facilitates lending for forward and reverse mortgages in retail, wholesale and correspondent lending channels and across a multitude of mortgage products, including home equity lines of credit. The integration of ComplianceAnalyzer provides a comprehensive, real-time auditing and monitoring solution within the ELC.

“The cost to produce a loan has been on the rise, largely because of compliance demands that have given way to inefficiencies and slower speed to close for many lenders,” said Trevor Gauthier, Mortgage Cadence’s president and chief operating officer. “Mortgage Cadence is committed to providing lenders with the tools to help solve for these increased compliance demands, and our integration with ComplianceAnalyzer will do just that.”

ComplianceAnalyzer enables lenders of all sizes to improve asset quality and value, reduce compliance risk, negotiate better execution with secondary market investors, and capture the data needed to prepare lenders for regulatory exams. The solution performs audits for federal high-cost and higher-priced loan regulations, the Secure and Fair Enforcement for Mortgage Licensing Act, state high-cost and anti-predatory regulations, and state license-based consumer lending laws and regulations, as well as compliance guidelines from secondary market investors and government-sponsored enterprises. It also performs TRID, RESPA 2010 and pre-2010 forms tests to validate California’s per diem interest calculations, a key differentiator in the market, as compliance for California originators remains a top priority to avoid penalties and fees.

“Our automated loan-level compliance technology helps lenders comply with federal and local regulations and minimize operational risks,” said John Vong, ComplianceEase’s president. “We’re pleased to partner with Mortgage Cadence to help more lenders improve loan quality, reduce risk and increase profitability.”

About Mortgage Cadence
Since 1999, Mortgage Cadence, champions of the lending process, have been providing the best people, process and technology for enterprise and mid-market lenders who desire to deliver an exceptional borrower experience. From point-of-sale through post-closing Mortgage Cadence offers reliable software and dedicated people, supporting lenders every step of the way. Visit www.mortgagecadence.com for more information.

About ComplianceEase
Headquartered in the Silicon Valley, ComplianceEase®, a division of LogicEase Solutions Inc., is a leading provider of risk management solutions to the financial services industry. ComplianceEase’s patented platform includes ComplianceAnalyzer®, the mortgage industry’s most adopted automated compliance solution with the most comprehensive TRID auditing. ComplianceEase combines regulatory expertise with innovative technology to power end-to-end risk management solutions that help financial institutions improve compliance controls and increase profitability. The company’s growing client base includes financial institutions, service providers, law firms, GSEs, and three of the top five mortgage lenders in the U.S. ComplianceEase’s automated compliance solutions have also been adopted as e-Exam tools by federal and state banking and mortgage regulators. For more information, visit ComplianceEase.com or call 1.866.212.3273.

The metrics that reveals high performance lending & overall profitability in the mortgage industry.

Traditionally, summer is the peak of the new home buying season, but currently the industry is struggling. While the MBA has not revised its most recent annual loan volume prediction downward, competition for overall profitability through new mortgage business comes down to high performance lending.

This shouldn’t surprise anyone, as the Mortgage Bankers Association (MBA) told us in October, 2018 that this would be a tougher year for lenders. Overall, MBA now expects mortgage business to decline 3 percent from last year to about $1.6 trillion in 2018. The refinance share will fall off dramatically but purchase money business is expected to increase to about $1.2 trillion this year. MBA said earlier this year that it expects to see rates rise another four times this year. Since then, the Fed has already raised rates once. There’s an upside to rising rates, however. They spark FOMO (fear of missing out); buyers don’t want to miss their chance at a low rate.

This means that all lenders must target purchase money business to at least hold on to their historic volume numbers. This will be increasingly difficult, as Freddie Mac increased its expectation for mortgage interest rates in February, moving the dial on the 30-year-fixed rate mortgage to 4.6 percent, on average, for 2018.

The need to compete

The need to be competitive in the mortgage lending business has never been greater. Fortunately, depository lenders have an advantage in this area as their existing customer base is a ready-made prospect database for mortgage lending, if they can tap it. Historically, this has been very difficult to do.

Six years ago, we began performing an annual study to determine exactly what impact technology could have on a lender’s ability to be a high performance lender, not just from existing customers, but from the greater community the institution serves. In the process, we learned a great deal about how lenders define their success and how, as a segment of the overall mortgage lending industry, these firms performed competitively.

In all, we found five critical measurements, five key performance indicators (KPIs), that when taken together tell us – and lenders – exactly how any lender is performing. Even better, we aggregated the data from a number of institutions, all using the same technology in their lending departments, to arrive at a set of benchmarking data that, once understood, places lenders on the path to high performance lending. This research is now known as the Mortgage Cadence Benchmarking Study.

Why use benchmark assessments?

Knowing where you stand in regard to the five KPIs we are about to define in any given year is very important. It is a good management tool that informs decision making and reveals the institution’s progress on its mission and objectives.

Understanding performance over a period of years is even more valuable. It shows how management and staff react to market forces, and how well the institution is able to adapt its business to those changing forces and continue down the path of high performance lending.

But without benchmarking data to compare the institution’s performance to the broader set of competitors, it only reveals part of the story. There are many good reasons every institution should be benchmarking their lending performance against a larger industry dataset. And that’s what our study does: if understanding your own performance over a period of time is valuable, then comparing your performance to that of your peers over the same period of time is invaluable. This is especially true in a year when we know competition for a limited number of new purchase money mortgage transactions will be fierce.

Leveling the playing field.

The battle for this business will not be a one-year phenomenon. Market forecasts through 2020 predict that 75 percent of all mortgages through that time will be for the purchase of a home. This marks the beginning of a new mortgage lending era, foreshadowing an end to the historic boom-bust refinance cycles that dictated strategy and tactics for more than 30 years.

Unfortunately, benchmarking data is difficult to come by. Studies comparing and contrasting lender-to-lender performance are challenging because gathering data from a homogeneous set of lenders is difficult, both in terms of finding such a set and in getting those firms to give up the required information. While there are some excellent studies performed by national trade associations, they often compare very different institutions, rendering their results less useful.

Our study addresses this by focusing on a homogeneous set of lending institutions that all submit data to a regulator that makes that information public. In addition, we went back to the lenders in our study and asked for additional information to complete our data set. Since there were only a few data points required to complete our analysis, we enjoyed a high degree of participation from the lenders.

We know that there are three factors that influence the performance of a lending institution: their people, their process and their technology. The way the lender combines these three critical elements will determine their performance lift. Getting them right results in high performance lending. The benchmarks are guideposts that help the leader move along the path to this goal.

Our study isolates the technology variable to further expose the correlation between performance and the other two factors, over which the institution has complete control. Our study, therefore, used a large pool of data from a set of lenders all operating under the same business model and using the exact same technology. We believe there is no better apples-to-apples performance comparison available anywhere in the industry.

Given the commonalities of lenders in our study, one would expect every lender in the study to achieve a similar level of performance. While we might expect some slight variation between institutions, perhaps based on customer size or geographic location, we might expect overall performance to fall fairly close to a common baseline. Instead, we found that differences in the way these institutions organized their staff and their process workflows led to a wide variance in performance levels between institutions.

In fact, after performing the study for 6 years, we found that some lenders are surpassing their peers in high performance lending, even when competitors are operating under the same business model and using the same technology. We needed to find out why.

What benchmark data should my institution measure?

After analyzing the data, we found a number of metrics that were indicative of the performance of an institution, but five stood out as the best predictors of the institution’s ability to continue down the path of high performance lending. We now believe that these five key performance indicators are of critical importance to management and so for the last six years we have been collecting benchmarking data to help lenders understand how well they are performing relative to their peers.

In this section, we define each of these critical KPIs.

Velocity

Stated simply, this is a measure of the time to close, from the moment the application is received until the loan is signed at the closing table. To be clear, this is not the only time that speed matters. Our Borrower Survey, for instance, revealed that the amount of time it takes for a loan officer to return a call to a prospective borrower who has not yet completed a loan application was a critical measure of the borrower’s willingness to follow through on the loan app. However, for this study, the amount of time the loan was “in process” was found to be a critical performance indicator.

Borrower Share

As mentioned earlier, borrower share, or the ratio of applications taken to total customer base in the same calendar year, is an indication of how well the lender is doing serving the prospective borrowers who are already customers of the institution. This is a largely untapped resource for most lenders and holds the key to uncommon success in a highly competitive environment, such as these firms are lending in today.

Pull-Through

This is the ratio of closed loans to applications taken and is a key driver of the institution’s profit. Lenders will tell you more than half of the total cost to close has been spent by the firm by the time the application is taken. That represents the money lenders must spend on advertising, marketing, public relations and sales staff to prospect, sell and close a full application for a new loan. If that loan is not closed, those funds are lost and the cost to close ratio increases for all other loans in the pipeline. On the other hand, the more loans the lender can pull through to close, the lower the cost to close and the higher the profitability.

Productivity

Calculated simply, productivity is the measure of closed loans per mortgage production employee per month and it is the primary profit driver for every lending operation we studied. In fact, we now believe that productivity is the single most important metric in any mortgage lending operation and it is the primary driver of profit. Get this one right and cost to close falls in line and declines.

This was borne out in our discussions with lending executives, where we found productivity to be the KPI most indicative of profitability. If we know a lender’s productivity we have a very good idea of how profitable the institution is. According to our most recent study, the average productivity for lenders in our study in 2017 was 3.34 loans per employee.

Cost to Close

Cost to Close is the total cost of manufacturing a single mortgage loan. While the Mortgage Bankers Association put the total cost to originate for mortgage banks at nearly $8,000 per loan in 2017, our study revealed that our lenders, on average, experience a cost-to-close of $5,291 per loan in 2017. Better, but there is still a ways to go.

Arguably, these five metrics are macro-level measures that are really designed to offer two advantages to management. First, four of the five are quick and easy to calculate, offering a swift measure of the health of the institution. Some will argue, perhaps persuasively, that cost to close is more difficult to calculate. While true, if a good measure for the productivity KPI is available, cost to close becomes much easier to estimate accurately. We have the tools to do so. Once productivity is known, cost to close is easily and accurately estimated.

Second, the results institutions find by measuring these metrics will always lead to important questions, or at least they should. These KPIs are macro-diagnostic in nature, revealing areas where management must continue down the micro-diagnostic path to configure their companies for high performance lending.

What our 6th annual benchmarking study data told us was that a set of high performing lenders were consistently outperforming their competitors on every metric we tracked, despite competing for the same basic client base, offering the same basic loan products and using exactly the same technology.

Amanda Phillips, EVP of Legal and Regulatory Compliance at Mortgage Cadence, explains how having the right people understanding and regulating compliance can make it a manageable task.

By: Jim Rosen, "Pixelation Nation: E-Closing in the Mortgage Industry," for Progress in Lending

Digital photography was invented 43 years ago. Today, we have grown so accustomed to taking photos with digital cameras – including our cell phones – that we no longer think twice about this technology. Sure, most of us grew up taking rolls of film to the store to be developed, but would you really trade the immediacy we have today for film? For most of us, the answer is “no way.”

The all-digital mortgage is similar to digital photography. It has gone from being a novel concept – something for lenders to strive for – to being something we hear about all the time. The need for all-digital-everything in mortgages has been driven by a number of considerations, including consumer demand for more timely and efficient interactions, complex compliance requirements, and a need to expedite lending activities. Non-bank lenders add to this mix with non-traditional lending practices and different risk profiles, creating a hyper-competitive lending environment.

In light of all of these factors, tack-on solutions or limited technology that only supports digital disclosures is just no longer going to cut it. As we adapt to the needs of today’s borrowers, we believe that embracing the all-digital mortgage experience is the best option for lenders to ensure that they have a lending platform that will support their future activities. Just as camera film has become all but obsolete, so too will be paper-based mortgage processes. Here’s how you can ensure you are at the forefront of this part of our digital revolution.

As mentioned, digital disclosures have long been an accepted first step in the digital revolution. Electronic signatures on early and upfront disclosures carried low risk and were simply implemented, and the options and flavors of eSign are numerous. However, lenders are realizing – and consumers are demanding – that you can’t just offer digital disclosures and then revert to paper for closing to realize the benefits of the digital mortgage.

There are two reasons for this. First, because of increased regulations that require compliance checks and procedural validations, lenders today automatically face higher costs per loan. And while increased costs can be mitigated with procedure redesign and staff training, lenders can only retrain so much without having to rely on technology to go further. Second, many of today’s mortgage borrowers seek automated, efficient financial solutions that they can control at the time and place of their choosing. While digitizing disclosures is a great start, today’s borrowers demand more and will go where they can find that all-digital experience.

That brings us to eClosing. The digital camera revolution took nearly fifteen years after its invention before consumers had a viable product they could buy. Similarly, the industry “standard” over the past decade for eClosing required lenders and platforms to dig deep. Their options included:

In the cold calculus of cost/benefit, lenders often could not make the conversion-to-payoff based on the large investment required. Costs to implement and maintain could not justify the potential or perceived benefits in consumer efficiency and/or backend reductions in cost, time, or processes. Faced with these tack-on approaches, many lenders waited for better options to come along.

Fortunately, just as digital cameras now are ubiquitous, all-encompassing digital mortgage solutions have proliferated, as well. Digital experts in the financial services industry have begun banding together to create fully-integrated solutions for lenders of all sizes. Lenders can now adopt the complex underlying technology for eNotes without the heavy investment in research, development, or infrastructure. With the availability of these solutions, consumers will begin demanding all-digital mortgages exclusively. Paper-based mortgage processes, while already on the way out, will hopefully become completely obsolete.

That brings us to the key question for lenders: Where are you on your digital mortgage journey? The movers and shakers in the industry are already providing borrowers with an all-digital mortgage origination experience. Taking the next step today can help meet borrower demand tomorrow.

By: Matt Hydrew and Amanda Phillips, "Compliance Can Be Easy," for Tomorrow's Mortgage Executive

We’ve entered a new paradigm in mortgage lending. Unlike the historical risks to lending like rate fluctuation or other market changes, lenders today know the greatest risk to their business is compliance. Those market-based storms of yester-year were weathered by the most prepared lenders in the space. Now, the compliance-based storms of today bring new risks, which must be properly prepared for in order to stay successful. Fortunately, this seemingly uphill battle is not yours to fight alone. The fast approaching Home Mortgage Disclosure Act (HMDA) Regulation C changes to the Loan Application Report (LAR) bring with it over 30 new data points to collect and report on, and staying compliant can seem hard, but it doesn’t have to be. With proper preparation and technology, even the most complex regulations can become more approachable – almost, dare we say, easy.

eNotary Expansion to Evolve eMortgage Market, Seeking Approval as Official Fannie Mae Technology Service Provider

BOSTON; October 25, 2016 – At the annual Mortgage Bankers Association (MBA) conference and expo here today, DocuSign – the global eSignature and Digital Transaction Management (DTM) leader – announced a series of expanded features that will allow lenders and title companies to complete a mortgage 100% digitally.

Known as eMortgage, the new service will empower lenders and their clients to electronically-sign the mortgage paperwork associated with the more than 12 million real estate documents and 2.5 million real estate transactions already DocuSigned every year.

The news marks an expansion of DocuSign’s ‘lead to close’ strategy for the real estate industry, first announced by the company’s Chairman and CEO Keith Krach in July this year. The strategy entailed DocuSign making its biggest investment in the real estate industry to date.

“DocuSign’s vision is to make the home buying process fully digital, from lead to close. DocuSign has transformed several aspects of home buying, but enabling a seamless, digital mortgage remained a paper-burdened experience for home buyers and sellers. Today’s expanded investments in eNotary demonstrate our commitment to making a completely paperless eMortgage reality,” explained Georg Gerstenfeld, general manager: Global Real Estate Solutions, DocuSign.

“This is against the backdrop of the real estate industry's widespread adoption of DocuSign, and is helping to add more than 130,000 new users to the DocuSign Global Trust Network every day. eMortgage is a natural next step to simplifying the end-to-end experience.”

Today’s announcement centers around two key areas:

eNotary – this enhancement ensures that in-person eNotarizations can now be performed via DocuSign in Florida and Washington (in addition to North Carolina, which has been available since 2014). It is also expected that more than ten other states could be added before the end of the year. With eNotary, there is no need to print, scan or mail closing documents – all actions can be performed within the DocuSign platform, including applying a seal and exporting a notary log.
Fannie Mae – reflecting the potential for the DocuSign platform to help speed the adoption of the broader eMortgage process, the company (with eOriginal as a partner) is seeking certification as an official Fannie Mae eMortgage Technology Service Provider – a certification that only a handful of technology organizations have been granted by the mortgage lender. Certification is expected by the end of year.

Several of DocuSign’s partners and customers have thrown their weight behind today’s announcement – including Fannie Mae and Accenture Mortgage Cadence.

“Fannie Mae is pleased that DocuSign is undergoing technical compliance testing with us for delivery of eMortgage loans, and is seeking approval to join our eMortgage Technology Service Provider listing,” said Cindy McKissock, Vice President of Customer Digital Experience, Fannie Mae. “Supporting our customers’ transition to digital closings is a priority for us – and we expect DocuSign’s platform to help remove barriers and obstacles to the adoption of eNotes, thereby increasing usage across the industry.”

For its part, Mortgage Cadence, an Accenture Company – an existing DocuSign partner – is excited about this focus on eMortgages.

“Mortgage Cadence is committed to making digital mortgages a reality. Combined with DocuSign’s digital mortgage strategy, these additional enhancements align well with our own vision to provide the last lending solution our customers will ever need,” said Jim Rosen, Document Center Product Manager at Mortgage Cadence.

“Today, lenders and title companies tend to rely on paper or hybrid processes to complete loans,” explained DocuSign’s Chief Product Officer, Ron Hirson. “We are supporting our Real Estate customers for today’s launch by delivering new eNotary and eNote features to our DTM platform – that helps more organizations move to a paperless process that is fully auditable, less prone to errors, and results in faster closings.”

The enhanced features are being shown this week at the MBA conference and expo are slated to come to market towards the end of the year. For more information, visit www.docusign.com.

Contact:
Adrian Wainwright
DocuSign, Inc.
media@docusign.com

About DocuSign, Inc.
DocuSign® is changing how business gets done by empowering anyone to send, sign and manage agreements anytime, anywhere, on any device with trust and confidence. DocuSign and Go to keep life and business moving forward. For more information, visit https://www.docusign.com/, call +1-877-720-2040, or follow us on Twitter, LinkedIn and Facebook.

Copyright 2003-2016. DocuSign, Inc. is the owner of DOCUSIGN® and all of its other marks (www.docusign.com/IP). All other marks appearing herein are the property of their respective owners.

By: Dan Green for CBInsight

Community bank mortgage lending takes on many shapes. Every community bank has a unique set of processes, products and supporting technology, so what are the unifying factors that all mortgage lenders should watch to determine their performance?

Last month we talked about mortgage customer share and mortgage employees per 1,000 closed loans. Among a dedicated group of bank mortgage lenders we surveyed, the former is down — an indicator of opportunity — and the latter is up. Because mortgage lending is changing in ways we still do not fully understand, it is too soon to know what the increasing number of employees per 1,000 closed loans means. While the original mortgage performance indicators remain valid, their new levels are currently unknowable.

So what do we know? The two most important mortgage performance indicators, productivity and cost-to-close, worsened from 2013 to 2014. The tide has shifted from refinance to purchase, and we all know purchase loans take more effort. TILA-RESPA’s regulatory tidal change plays a part, too, as we mentioned in last month’s article. As a result, productivity decreased while the cost-to-close increased. These two indicators have a very strong inverse relationship; when one goes up, the other goes down.

In fact, the relationship is so strong that when productivity is known, cost-to-close is highly predictable. All that is needed is a large body of data covering several years, as well as some careful, thoughtful analysis. And productivity is easily knowable; it should be almost automatically quotable by every mortgage operations manager. The ratio of closed loans per mortgage employee per month is a powerful metric.

Cost-to-close is also a powerful metric, some would say the single most important piece of information every mortgage lender should have. This is so, the wisdom goes, because it is the only variable in the formula used to calculate the rate presented to the borrower that is in the lender’s control. Every other factor — such as servicing value, hedging cost, and servicing revenue — is established externally. Knowing cost-to-close opens the possibility of controlling both profitability and competitive positioning. Productivity is so important because it represents labor, the largest component of cost-to-close, which takes us right back to employees per thousand loans closed, the focus of last month’s article.

Labor makes up 45% to 65% of the cost of closing a mortgage. Highly productive lenders typically operate on the low end of that scale; lower productivity lenders can count on their labor component being much higher. We are asked all the time about ways to reduce the cost of mortgage manufacturing. The answer that delivers the biggest bang for your buck is to increase productivity. Direct and indirect costs, the other two main cost-to-close components, are much harder levers to pull. At some level, corporate overhead is what it is. Many direct costs are often hard to adjust, at least in the short term. Focus on closing as many loans as possible per mortgage employee and your costs will decrease.

If this sounds like we’re saying ‘cut your head count’, we are not. There are two variables in the productivity equation — mortgage employees and closed loans –which lead us to customer share, the other subject of last month’s article.

We simply do not know, given the evolutionary phase of the mortgage market, exactly what mortgage staffing levels optimally could or should be. Rather, what we are suggesting is focusing on customer share. We know it dropped 25% between 2013 and 2014. We also know community bank membership grew at a pace more rapid in 2014 than at any time since 1995. This spells opportunity. The way to increase productivity is to increase mortgage production.

Right now we have a purchase market overall with many geographies reporting strong, if not over-strong demand. Boomers are right-sizing as well as positioning themselves to age in place. Millennials are forming households with an eye towards first-time homeownership. Both segments need financing assistance, though Millennials represent the single biggest opportunity, in terms of size, that our industry has ever seen. Help a first-time buyer and create a borrower (and a customer) for life.

Productivity did indeed decline while cost-to-close increased. The former dropped 32% to 3.32 closed loans per employee per month while the latter increased almost 60% to $4,398. Substantial changes such as these are common when significant market shifts occur. This may not be ideal, but it is the reality of the situation.

Our take on this is that community bank are built for growth and are now in the perfect position to leverage their decade-long work of building mortgage infrastructure, expertise and the single best reputation for residential mortgage lending service in the industry. The way to increase productivity and decrease cost-to-close is to increase mortgage production and market share.

That leaves us with the unanswered question: what are the optimal levels for employees per thousand loans closed, customer share, productivity and cost-to-close? We will have a much better idea one year from now and, we think, a solid answer this time in 2017. In the meantime, concentrate on the remarkable opportunity this market represents!

By: Dan Green for CBInsight

There are many ways to answer the question, “What does it cost a credit union to close a mortgage loan in 2013?”

The quick answer is, “A lot more than it once did.” Those of us who lent in the 90s through the early 2000s watched the cost of closing a mortgage drop for high-performance mortgage lending credit unions. They were among the first to take advantage of the Internet, employed technology at every possible turn and empowered their teams far beyond the traditional silos of processing, underwriting, funding and closing. Their innovative experiments delivered many positive benefits. Members originated their own loans for the first time using the World Wide Web. Paper, plus the processes it required, slowly disappeared, giving way to (sometimes) fully electronic processing. Individual team members were able to handle increasing amounts of loans. Costs decreased.

Physics being what it is, what goes down doesn’t often go back up. However, physics knows little about costs, which have a tendency to rise, defying not only gravity but the desire of business operators everywhere. Costs have indeed risen. A June 10, 2014 article published by the Mortgage Bankers Association had this to say:

“Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $8,025 per loan in the first quarter, up from $6,959 in the fourth quarter of 2013. First quarter 2014 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008…Productivity was 1.7 loans originated per production employee per month in the first quarter, down from 2 loans in the fourth quarter of 2013.”

High performance credit union lenders fared better. In an ongoing study we are conducting, we have found the average cost of closing a credit union mortgage to be $3,185. Productivity, the single most important mortgage lending metric, was 4.4 closed loans per employee per month. While lending costs may have risen during the first quarter, and productivity may have slipped, it is safe to say high performance credit unions lenders generally remain ahead of the overall industry.

Managing the Cost

High performance credit union mortgage lenders have high productivity in common. The number of loans closed per employee per month is the single largest determinant of every lender’s cost to close because labor is the largest component of the metric. Lenders achieve higher productivity in three ways:

  1. Focus. Do a few things and do them well. A credit union lender we met with recently drove this point home repeatedly. The mortgage industry, like every other industry, offers many opportunities to wander. Wandering, it turns out, is expensive. Pick a niche, focus intently, lend efficiently.
  2. Process. Making mortgage loans is like a manufacturing operation. Efficiency and quality depend on rigorous adherence to well-defined processes. High performance lenders define these processes well and watch them closely.
  3. Technology. Comprehensive lending technologies that guide loans through the entire mortgage cycle from origination to delivery are essential in the battle for productivity. Another of the positive lessons from the early 2000s: leveraging automation pays off demonstrably in dollars and cents.

The Cost/Benefit Analysis

An early mentor taught us that it is possible – easy, in fact — to cost-account your way out of any business. He told a funny story about a small business owner who did exactly that. He saved a lot of money until he wasn’t making any at all. Mortgage lending still makes sense, even at today’s costs, when you consider how much income a mortgage loan produces. The net present value of the net interest cash flows during the first five years of its thirty year life is about $5,000, still a good ROI when stacked up against a $3,185 closing cost. Not so great, however, when the cost is over $8,000. Focus on productivity, drive lending costs down, make more loans and make them profitably.