Most banks and credit unions have faced the same challenge over the past few years: balancing efficiency with the rising cost of lending. While this is a universal problem, there is no universal solution. Instead, every lending institution has to evaluate its own internal processes and identify areas where it may be possible to cut costs while maintaining — or improving — efficiency.
Many turn to mortgage origination software, both to improve the backend of lending and to provide customers with an optimized online experience. With greater workflow demands as one of the leading contributors to higher costs, a digital lending solution can go a long way to streamline operations.
Rising Mortgage Origination Costs
Specifically, experts point to the housing crash of 2008 as the source of new, comprehensive regulations that create more work for the underwriter and increasingly higher costs to originate each mortgage. According to a recent report from the Mortgage Bankers Association (MBA), total loan production expenses, “…increased to $7,938 per loan in the fourth quarter, up from $7,452 per loan in the third quarter. From the third quarter of 2008 to last quarter, loan production expenses have averaged $6,594 per loan.”
Banks and credit unions are often caught between a rock and a hard place. Introducing an entirely new system can be expensive and time-consuming, while also carrying the risk that it won’t provide the functionality you need. Alternatively, a piecemeal approach could cause some processes to lag behind others, reducing productivity, and increasing the cost per mortgage — worsening the exact problem you’re trying to solve.
If you want to be confident that your investment will pay off, it’s important to evaluate your existing mortgage loan origination system (LOS) and its pain points. From there, you can get a clearer idea of exactly what you’ll achieve by investing in new technology solutions, whether it’s a cloud-based LOS or a premise-based digital lending solution that integrates with your core platform.
Here are a few key questions to consider when assessing your need for digital lending software.
What Is Your True Cost-Per-Loan?
You may know that you’re spending more money and resources on your mortgage LOS, but do you know exactly what each origination costs you? Before you can assess the potential savings from new software, you need to understand your starting point.
Cost-per-loan and loan production expenses are made up of a few key categories: commissions, compensation, occupancy, equipment, and additional expenses. By calculating these individual elements and summing them, you can assess how close you are to the average cost-per-loan, which “rose by almost $500 per loan from [Q3 to Q4 in 2020], as personnel costs increased across sales, fulfillment, production support, and corporate overhead,” according to a study done by MBA. Ask yourself how much of a priority it is for your business to reduce this mortgage origination cost.
What Does Your Customer’s Complete Mortgage Experience Look Like?
Even though most origination work happens behind the scenes, the efficiency of your mortgage LOS directly impacts your customer’s loan experience. By mapping out the entire customer journey from application to funding, you can gain clearer insights into how your mortgage origination system functions from a consumer perspective and where you might be providing lower-quality service than you’d like.
This evaluation should consider active consumer touchpoints, from the simplicity and accessibility of your application process to mortgage LOS interview questions that you’re using. It’s also important to consider the back-end processes and how information is communicated to consumers, how long they wait on average, and how disruptions are handled by your team.
This type of evaluation will reveal exactly where a mortgage LOS could have the most impact. While cloud technology with a smooth UI/UX is desirable, a mortgage LOS that can add speed and improve communication may have the greatest impact on the consumer experience.
How Automated Is Your Existing Quality Control System?
As we discussed earlier, one of the biggest causes of increasing origination costs is the added work created for the underwriter. And if you choose to invest in the efficiency and ease of your application process, you may find yourself with even more mortgage applications than usual. While this may seem positive, if your mortgage LOS is already struggling to keep up, additional business could cause even more strain.
One important point of evaluation is to look at how you’re leveraging automation in your existing quality control system. Many mortgage applications will follow standardized protocols and can be easily fed through automated technology; mortgage applicants with sufficient standard documents are unlikely to need manual review. If your company isn’t utilizing technology to automate these cases, you may find yourself wasting important employee resources that would be better used on any unconventional applications.
Is Your Mortgage LOS Built to Maintain Compliance & Scale Accordingly?
The additional work of underwriting is closely tied to increased mortgage loan regulation. Even if you’ve built a solid system to handle the current set of regulations, it’s also important to maintain a long-term view: Are you positioned to respond well to any new regulations that come into effect? If not, you want to make sure that any new technology supports this need.
Top mortgage loan origination systems will have built-in compliance configurations that can ensure you remain in compliance with regulations now — and in the future. The ability to adjust for new requirements and scale seamlessly can have a significant impact on the bottom line.
Can Your System Adapt to the Constant Evolutions of AI & Automation?
On a similar note, the need for flexibility and adaptability in your system extends more broadly to technological advances in automation. If you’re going to invest in new technology, you want to be sure that this new mortgage LOS will be able to grow with your business. Top mortgage origination software will have the capability to adapt to future advances in AI and automation, so that you can access the most up-to-date services and stay at the forefront of your industry.
Investing in technology is a common choice for lending institutions looking to improve their origination strategy. Understanding your exact needs requires a thorough evaluation of current systems, a cost-per-loan analysis, and a realistic look at the member experience from start to finish.
While mortgage LOS technology may seem like a steep investment, it should be weighed against the potential long-term costs associated with overhead and staff hours. Choosing a single solution over a piecemeal approach to digital lending can ultimately save time and money.
That is why we created MeridianLink Mortgage: a cloud-based mortgage LOS that allows consumers to quickly apply for mortgages online. As part of the MeridianLink One platform, MeridianLink Mortgage also allows you to offer online account opening and the ability to cross-sell consumer loans to your mortgage customers. MeridianLink One also includes debt collection software, analytics, and all the reporting your organization needs.