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Key Takeaways from Two Mortgage Conferences: Rising Loan Costs and The Need for ROI

Leadership Steve

Last week, I was invited to attend two executive conferences where I had some great discussions with mortgage and banking executives from all over the country.

By Steve Butler, AI Foundry Founder & President

Last week, I was invited to attend two executive conferences where I had some great discussions with mortgage and banking executives from all over the country. My first stop was the California Mortgage Bankers Association (MBA) Chairman’ Conference in San Diego. Later in the week, I attended the Executive Roundtable for Mortgage Finance.

Several leading economists attended these events and shared some very interesting insights that were backed up by great data and analytics. These insights and trends are too good not to share…so h­­ere are some of the key takeaways that I learned from the experts.

The Cost to Manufacture a Loan is the Highest That it Has Ever Been – Nearly $9,000

This cost issue is a big concern for many executives and is getting a lot of attention in the industry. An MBA analytics researcher said that as an industry average, about $2,400 is spent on lender labor per mortgage. They also anticipate that this figure will increase next year and beyond.

Other sources find similar costs increases. A January 2019 article in BCG stated that “Despite production revenue per loan increasing 20% between 2012 and 2017, production costs have risen more quickly, going from just over $5,000 per loan in 2012 to more than $8,000 per loan in 2017, a 57% increase.”

Because margins are already tight, many in the industry are looking for ways to drive loan costs down. For example, because about 50% of the $9,000 comes from broker fees, the MBA is pushing for new regulations that limit what loan officers can make in commissions.

Loan Processing Costs are Rising, Despite Investments in Technology

While technology has the potential to reduce the costs of loan processing, attendees are still seeing high overall costs, and customers want to know why. To put things in context, the mortgage industry stopped investing in innovation and technology for about 10 years, choosing to focus on compliance since the 2008 financial crisis. Now, many lenders are playing “catch up” to try to innovate and evolve their processes with new technology. However, even with lenders in catch-up mode, there is still going to be pressure on providers of POS, LOS and OCR solutions to show a return on investment (ROI) for their offerings.

Companies are investing in technology now, but there is a general feeling of pessimism about the ROI of many solutions. How can we overcome this pessimism? At AI Foundry, we believe that we can save lenders, on average, $575 per loan through the automation of loan compliance tasks and performing automatic document review and classification. We’ve created an ROI calculator, an online tool that gives a view into the FTE savings that can be attained by reducing loan costs and increasing profitability.

Technology Investments Will Only Increase When Cost Reductions are Passed on to the Consumer

At the MBA Conference, one executive in attendance stated: “When my internal costs get lowered, we will definitely pass that on to our customers because it will be a competitive advantage for us.” This could be an important trend in the future, because other executives expressed similar thoughts around technology investments only ramping up when internal savings get passed along to consumers – either in the form of 1) Lower interest rates; or 2) Lower closing fees.

Overall, there is a market opportunity for both lenders and technology providers, but first we need to find ways to drive down the high cost of processing loans. Reducing these costs can benefit consumers, lenders and technology providers. Fintech providers can lead the way in this effort, but they must show a convincing ROI first. I invite you to try the AI Foundry ROI calculator to estimate your annual cost and time savings.

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Contact the Author: 

Steve Butler 
AI Foundry Founder & President
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