Rob Chrisman's Perspectives


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A Penny Saved is a Penny Earned

By Rob Chrisman, Senior Advisor

When analyzing their business, lenders must take into account the huge increase in costs which the MBA has pegged at over $10,000 per loan. Lenders of every size must contend with the guarantee fee imposed by Freddie and Fannie (unlike jumbo or non-QM loans which have none), increasing compliance costs, servicing compliance, foreclosure, and buyback reserve costs. These costs, even though for prior funded loans, have to be covered by the current fundings and eat into margin and the spread. Some companies have more or less cost depending on their book of business.

So, what is STRATMOR seeing in how lenders are saving money? To begin, some of the best ideas are the simplest. Lenders are advised to analyze post-closing conditions, adjust for shipping to minimize paying warehouse line fees, and reduce shipping delays, especially given the cost of warehouse lines. Some lenders automate the conditions’ import from investors into the LOS.

Vendors and automation are a source of potential savings, given how much lenders spend on these every month. Which vendors are truly cost-effective and can help speed up the processing of a loan without sacrificing adherence to compliance standards? In terms of CRMs, some lenders have embraced various services, citing cost effectiveness. Other specific software is being adopted by some lenders, particularly in the back office with HR/IT/Admin, travel requests, and the like. Processors and loan officers are encouraged to do credit soft pulls first at a huge cost savings. If one score is below a certain level, then stop there and save money. And soft pulls don’t trigger the bureau selling the lead to the other mortgage providers.

Tolerance cures are being examined: Where are they coming from, why did they happen, how much are they? Lenders are creating business rules to stop them from happening in the first place, which is the best solution.

Is your company looking at health care costs? For insurance, some lenders are considering self-insuring or are offering various plans to employees.

As a lender, are you examining skillsets to prioritize coverage and making sure to cross-train so people can play to their strengths? Are you taking steps to minimize file touches, moving more duties from underwriters to less expensive personnel? Is the team minimizing the number of times income is being calculated?

Some of the best ideas come from employees. Hold an “Efficiency Meeting” where you have a round-robin discussion asking each employee to submit their ideas on how to make their department more efficient. (Perhaps with no managers, but with all the employees for each department.) Cost savings may occur, but these meetings also increase engagement. Make it into a contest to make people excited for the idea. Managers, of course, can do the same thing, and give presentations. Having lunches onsite saves time and can be used for these meetings… and builds camaraderie.

The pandemic led to many lenders reducing their branch network to save money. But there are additional savings to be had in the branches. Loan officers who want to spend money should be required to type up a proposal/ROI to be evaluated by management. Custom marketing costs should be given a hard look, and comparing marketing pieces to how many loans they do. Review recent job ads and make sure those are all cancelled, and any “premium” accounts cancelled if not being used. Existing office space can be shared.

As 2022 ended, overtime was nearly extinct. But as we move through 2023, and staff levels are lean, overtime may make an appearance. If it does, lenders should do a specific audit on overtime, looking at reports specifically on OT and check to see who is using it, and whether it was really justified. Timely reporting of OT is important so that management can stop it before it goes to next payroll approval, making OT exception-only so that it has to be approved by a manager.

In the capital markets departments, there is a renewed effort to maximize every penny out of the loan sale. This involves not only understanding what the capital markets are doing but digging into the details. Make sure that you are taking advantage of CRA credits. The use of bid tapes is encouraged: After getting bid tapes, go back to the investors that are in second or third place and ask them to step up 4-6 basis points for the loans if they have the appetite. High Balance loan production pricing can be encouraged, since negotiation can occur with investors to yield better pricing. Warehouse lines should be scrutinized for savings, as many banks are hungry for business. Some lenders run a dual AUS: Running DU and LP before executing the loan sale in order to maximize options and pricing.

Another technique used by lenders, though not addressing higher costs, is premium pricing. This has long been allowed, but there is evidence that use of this mechanism has increased. Premium pricing is when the lender agrees to pay the borrower’s closing costs in exchange for a higher mortgage rate. For example, a 25-basis-point increase in mortgage rate adds only $25 to the monthly mortgage payment for a $180k loan. A borrower may find this an attractive tradeoff if it means not having to pay upfront closing costs. In addition, lenders can frequently recoup the cost immediately by delivering the loan into a higher coupon.

A change in business climate and cycle is never easy. But we all knew it was coming. “In the trenches” discussions with borrowers may not have been as easy as they’ve been in the last few years, but mortgage loan originators need to be prepared for it, and lender management teams are training them. Trained and compliant loan officers are adding value every day through educating and coaching their clients. Also, lenders are using the right technology to “step up their game” to improve efficiency and lower costs, redirecting marketing budgets, shifting the mindset of their employees toward customer service in a purchase environment, and adjusting prices to remain competitive. It is what management is all about!

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