Automation & technology

Six steps to reduce the cost of loan origination

With lower volumes, compressed margins and the steadily increased cost of origination, mortgage companies continue to focus on improving profitability and reducing expenses, particularly in the origination stage of the process.

However, to bring origination costs down, mortgage lenders need to examine their per loan costs, where their processes are operating efficiently, where there is room for improvement and how to standardize and regularly measure against key performance indicators (KPIs). Here are six steps you can take today to reduce your cost of loan origination.

1. “Walk the assembly line” of your current origination process

One of the most effective exercises a lender can do is to walk the “assembly line” of their loans; meaning follow the manufacturing process step by step, from the moment they come through the door through closing. During this process you’ll want to document the steps, including how long each one takes, and identify any bottlenecks. Collect that data and talk to the people who are doing the work — particularly those performing both the most efficient and least efficient parts of the process. This will help you identify why some areas of the process run smoothly, while others do not. Pay attention to how long the loan process takes you, and how it compares with your peers. All this information will give you the insights needed to drive positive change.

2. Make full use of the features and functions in your existing technology investment

Technology solutions are loaded with features, many of which are often not used to their full potential. Perhaps you implemented a solution to minimize change management and didn’t enable all functionalities, maybe you aren’t using all the features in a new release or you haven’t looked at your system configuration in a while. For Encompass® by ICE Mortgage Technology® customers, our SaaS-based approach to software enhancements allows for more frequent releases with far less involvement on the lender’s end. This makes it easier for our customers to maximize all the capabilities within the platform and get the most from the technology they’ve already invested in. As an example, lenders who took advantage of the HELOC and home equity lending capabilities within Encompass were not only able to meet the recent rise in demand for these types of loan options, but also saved $13 per loan by leveraging a more efficient and streamlined process. This relatively low-hanging fruit is maximizing the technology you already invested in to take full advantage of the utility within your existing stack. If you spend $900 on a solution, but you’re only getting $500 of value out of it, you need to look for ways to gain that additional $400 plus. Taking the time to identify where you could gain more value from a solution and further reduce costs can be the difference between profitability and loss in this market.

3. Fill in costly cracks in your workflow

Anything that prevents a seamless, end-to-end workflow can impact profitability. The vast majority of the lenders who have the highest ROI are those that have plugged up any leaks within their workflow and rely on an integrated ecosystem. Any opportunities for leaks in the process will negatively impact the operational leverage lenders have the potential to gain. Click here to see the ROI lenders are seeing with the end-to-end workflow provided through Encompass. Beyond the native automated configuration functionalities in Encompass, which deliver increased efficiencies, our robust set of APIs built on the industry’s largest partner network of thousands of service providers, allows lenders to significantly save both time and money throughout the loan manufacturing process.

4. Create a prioritized plan of action

After identifying process inefficiencies or bottlenecks, it’s time to formalize a prioritized plan of action. Treat it like any other business initiative, with timelines, defined responsibilities and ROI projections. Most importantly, get executive buy-in, leadership support and a commitment to the training and enablement resources required for effective execution.

5. Effectively manage change

Putting technology, processes and procedures in place is only part of the equation. You must ensure that your entire team is prepared, well trained and enthusiastic about the changes. This won’t happen overnight, but the time you spend communicating not only what is changing, but the benefits those changes bring and the steps to reaching your target goal, can help you ensure a smoother change management process. Don’t forget to check with your technology partner to see if they offer resources to help you navigate this process too. Our Encompass team offers trainings and other resources designed to expedite our customers' time to value.

6. Measure the results and continue to optimize

Measure and share your progress, but don’t stop there. Make it a priority to regularly assess your end-to-end processes and benchmark your performance. As technology evolves, make sure you’re continuing to automate and streamline where you can to operate as profitably as possible.

Looking for more ways to reduce origination costs?

Staying informed about your origination process is the most important thing you can do to reduce origination costs and increase profits. These efforts, combined with the integration of technology and automated workflows, will provide the agility and profitability to stay competitive in an ever-evolving mortgage environment. Learn more by downloading a free copy of our eBook, entitled Lender’s guide to improving efficiency.


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