The mortgage origination process is among the most cost-intensive stages in the value chain. As the global economy has worsened in recent years, origination expenses are also rising. For instance, during the pandemic, the average unit cost increased by 5% while mortgage origination fees doubled. 87% of respondents in a 2021 survey said that they face rising origination costs.
Owing to these factors, it can be difficult for mortgage businesses to maintain the profitability of their origination functions. Very often, the inefficiencies lie deep in your processes, and simply outsourcing to an offshore vendor doesn’t solve the problem. Instead, you need to take a cold hard look at your mortgage origination process from the perspective of profitability and efficiency.
Once you conduct this assessment, you need to follow a set of crucial steps that can help offset rising mortgage origination fees and drive profits.
1. Adopt mortgage process automation
Origination is a data and documentation-driven process that relies hugely on manual efforts. It involves several hours spent on manual data entry and document collection from the borrower. Not only is this time-consuming, but it is also prone to human errors, both of which contribute to higher mortgage origination fees for the lender.
Further, a traditional mortgage origination process suffers from fragmentation – i.e., data silos, fragmented communication between stakeholders, and systems that are difficult to integrate. All of this adds to your origination timelines and eats up costs.
Finally, companies face an ever-growing regulatory burden that’s difficult to keep up with when you rely only on manual effort. For example, lenders have to be careful about avoiding any possible discrimination and treat every borrower in accordance with stringent consumer protection laws.
Automation can help in all of these three areas of the mortgage origination process, reducing the risk of error and inefficiency so that you can save costs.
Modern automation tools also use artificial intelligence (A) and machine learning (ML) to adapt to a continuously evolving mortgage landscape. For instance, you can easily update a business rule whenever there is a regulatory change, and the tool will bulk enforce the update on the relevant mortgage origination processes.
2. Focus on improving the customer experience
The next strategy for improving mortgage origination profits is to double down on experience. 2023 research shows that 78% of “very satisfied” mortgage customers are very likely to use their lender again, up from 60% in 2022. In other words, the value to be had from better origination experiences is now higher than ever before.
You can streamline the mortgage origination process for your borrowers through interventions like chatbot-based workflows, self-service portals, mobile apps, personalized origination guides, and more – strategies that also help attract the Generation Z homebuyer. When you increase your overall profits as a result of more memorable origination experiences, your bottom line improves.
3. Employ smarter data models for risk assessment
Inadequate risk assessment and credit decisioning can also impact your bottom line. Traditional, outmoded models may rely on limited data and subjective opinion. For instance, they may not be able to process big data sets like social media chatter.
As a result, businesses make sub-optimal lending decisions that lead to potential losses. Smarter data models that employ data fabrics, AI, and big data capabilities can address this by giving you a clearer picture of creditworthiness and increasing origination volumes compared to the competition without increasing risk exposure.
4. Measure the correct mortgage origination process metrics
Lenders may overlook the profitability of an origination process until it is too late simply because they do not keep an eagle eye on the correct metrics. Some of the key performance indicators (KPIs) that hint at early red flags about your origination profits include:
- Loan abandonment rate
- Average loan origination value
- Average charge-off (unrecovered debt per loan)
- Pull through rate (percentage of applications approved during a period)
- Decision to close cycle time
5. Aim for greater scalability
Origination expenses can suddenly spike when you are unable to scale up or down seamlessly. Let’s say the economy is going through a period of high inflation, and borrowers have less disposable income, driving down origination volumes. This means that your FTEs and fixed resources are sitting idle, and as volumes dip, your origination costs per unit go up.
Now consider a scenario where market optimism or government relief measures have led to an increase in home-buying activity. There’s a sharp increase in origination volumes, but your resources are unable to keep up. As a result, FTEs are overburdened, errors occur, you buy expensive tools, and conduct a costly hiring spree.
As you can see, difficulties in scaling mortgage origination processes up or down lead to additional costs and reduce profitability.
Lenders can take several steps to address this, such as spending less on hardware infrastructure and using the cloud instead, relying less on FTEs and more on outsourcing, and adopting technologies that transform the very DNA of a process to make it more agile.
Transforming Your Mortgage Origination Process for Digital Future
Today, mortgage origination processes can no longer afford to be inefficient.
In a volatile economy, origination volumes may fluctuate, and lenders need to adapt fast without compromising their bottom line. That is precisely why so many mortgage providers are adopting technologies like AI and ML, according to a recent survey by Fannie Mae. 73% of respondents said they are looking to use these tools for operational efficiency and combat rising costs.
At Nexval, we help lenders prepare for this transformation by conducting a detailed assessment of the origination process flow and planning the most effective technology interventions.
To know more, speak to our experts today.