Strategies to Improve Efficiency and Maximize Margins
Many successful mortgage bankers use efficiency as a tool to increase profits. In today’s purchase market with refinance opportunities decreasing, many mortgage bankers are focused on optimizing purchase opportunities. However, profits can also be increased through improved efficiency and maximized margins.
Here are 8 basic strategies to consider when looking to increase profitability:
- Replace Outdated Systems
- Focus on Consistent Processes and Procedures
- Invest in Loan Officer Education
- Continue Marketing
- Review the Fee Amounts You Charge
- Don’t Indiscriminately Cut Compensation
- Strive for High-Quality Home Loans
- Seek an Analysis from Your Warehouse Lender
Replace Outdated Systems
Mortgage lending has changed dramatically in the last 20 years. Have your systems and processes kept pace? More and more prospective homebuyers are expecting a completely digital mortgage process from application through closing. Can your borrowers apply online, upload documents at their convenience, and electronically sign their application, disclosures, and other mortgage forms? If not, it’s time to update.
Mortgage and loan software with add-on features that can be customized for your needs is readily available. Due diligence, conversations with colleagues, online reviews, and product demos can help you choose one that is right for your operation. When you make updates to your systems, remember to allow adequate training for your team. Using a new system without the knowledge to operate it is both inefficient and frustrating.
Focus on Consistent Processes and Procedures
Although each borrower and every loan is unique, a loan’s journey through your pipeline is a step-by-step process. Consistency can result in a relatively smooth process, which can mean more loans funded and increased revenue.
Loans that deviate from the normal, orderly process reduce efficiency. Create specific procedures for handling exceptions to normal processing.
If a loan is evaluated before it’s made an exception, it can be determined if a disruption to the process is truly necessary. Too many loans that disrupt the rhythm of your processing system can eat away at efficiency.
Invest in Loan Officer Education
The mortgage industry is dynamic — guidelines change, disclosure requirements are updated, new products become available. When it comes to closing a loan, knowledge is power. A knowledgeable loan officer is more likely to gain the confidence of a borrower. They won’t miss out on a sale because they are unfamiliar with a loan program. Plus, efficiency is gained when a borrower’s application is submitted correctly and flows smoothly through the pipeline. New disclosures, additional underwriting, and lengthy conversations with a borrower can all disrupt the processing system.
Educate your loan officers so they become familiar with all the products you offer. Although they may choose to specialize in certain areas, the more product knowledge they have, the more borrowers they can assist. Consider lunch-and-learns where products and guidelines can be reviewed. Encourage the sharing of information and tips. The time spent training new loan officers is a good investment. Preventing errors and misunderstandings is much more efficient — and less costly — than correcting them.
When business slows down, your first thought may be to cut your marketing budget. Many marketing professionals advise against it. Companies that continue to market during industry slowdowns are more successful in keeping their market share than competitors who have cut back.
You can make better use of your marketing dollars through targeted marketing instead of taking a blanket approach. Define what sets you apart from your competitors, identify your target audiences for these unique selling propositions, and determine which forms of marketing can be used to reach your target audiences. Consider more online and email marketing. Look for media deals. During slowdowns, paid advertising rates often decrease.
Review the Fee Amounts You Charge
The cost of doing a loan has continued to rise. According to the Mortgage Bankers Association, in the first quarter of 2018, total production expenses were at $8,957 per loan on average. Has your fee structure kept pace? Are you turning a profit or losing money when it comes to the fees you charge?
Review the amounts you’ve set for your loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, deed-recording fees, credit report charges, and other fees to make sure they aren’t set too low. Also take a look at what competitors with similar operations are charging. Are their fees higher? Although individual fees may vary, the total amount of closing costs should be similar to the amount you are charging.
Don’t Indiscriminately Cut Compensation
After you review your fee structure, look at your other production costs, such as commissions, compensation, occupancy, and equipment. Although personnel costs will generally account for a majority of your production expenses, you can’t just make cuts indiscriminately. To operate successfully, you need strong loan officers and capable back office employees. You don’t want a downsize in operations to hurt sales. Before reducing staff, evaluate performance and offer supplemental training to underperformers. Balance adjustments to your compensation plan against the cost of losing valued loan officers to a competitor.
Also, consider investing in new technology that adds efficiency. Review your facilities contract and equipment leasing agreements for cost-saving strategies.
Strive for High-Quality Home Loans
It’s easier and more cost effective to manage a pipeline filled with high-quality loans. A few challenging loans can be found in most pipelines, but the cost of these loans should be weighed against the actual income they generate. They can cause a bottleneck in your pipeline, become a drag on the back office, and eat up a loan officer’s valuable time. Despite all your efforts, some of them won’t make it to the finish line.
Encourage your loan officers to seek out high-quality home loans.
Consider developing a process to review challenging loans before they enter the pipeline and a clear strategy that will minimize disruptions and increase the odds of their coming to a successful close.
Seek an Analysis from Your Warehouse Lender
Your warehouse lender can be a valuable resource when evaluating your productivity. With intimate knowledge of your operation, as well as many others, they can provide expert advice and offer personalized assistance in developing strategic partnerships and infrastructure to improve efficiency and save money.
Reach out to your warehouse lenders and ask for a full analysis of your warehouse operation and deposit relationships. Your warehouse lender can provide suggestions on pricing, products, operating procedures, cost-saving measures, and enhanced pipeline management.
There is often an ebb and flow to the mortgage market. However, regardless of the movement of interest rates or the mix of purchase to refinance, operational efficiency should be a constant priority. Staying up to date on technology, focusing on consistency, investing in marketing and education, monitoring expenses, and seeking out high-quality loans can all improve efficiency and help you maximize profitability.
Strategies to Improve Efficiency and Maximize Margins
This blog post was published by Axos Bank on December 19, 2018 and last updated on December 19, 2018