The Rising Cost of Originating Mortgages. Let’s Stop the Madness!
Homeownership remains a cornerstone of the American dream, but the rising cost of originating mortgages is pushing that dream out of reach for more and more Americans.
And while lenders are drinking from a firehose right now thanks to low-interest rates, the underlying problems – high costs and inefficient systems – haven’t gone away. When the euphoria calms down, those problems will still be here and lenders will have to deal with them.
Note that this isn’t a problem with the cost of borrowing money – interest rates remain at all-time lows. And it’s not a problem with the cost of actual houses, which, when you consider inflation and square-footage costs, haven’t really gotten that much more expensive over the years.
This is a problem specific to mortgage production: mortgage origination costs have been climbing for more than a decade, and everyone involved is starting to feel the strain.
Here’s a look at the current state of the cost of mortgage origination along with a vision for bringing that cost down to make borrowing more accessible.
Why Mortgage Origination Costs Keep Climbing
For the 2018 calendar year, average per-loan mortgage production profits came to $367. That’s about half of 2017’s average ($711 per loan), which was well below average profits in 2012, which exceeded $2,000 per loan. In Q1 of 2019, per-loan profit sat at just $285.
Obviously, that’s not good for lenders. But borrowers also suffer: because they’re paying more for their mortgage, they’re able to afford less home.
So why have mortgage origination costs gotten so high lately? In some ways, it’s a story of unintended consequences. As fintech startups have become more competitive in the mortgage space, pulling market share away from traditional lenders, those lenders have sought ways to improve their customer experience via tech-forward solutions.
But these solutions haven’t quite lived up to their promises.
Consider this 2018 piece in HousingWire about 11 mortgage tech companies “revolutionizing” mortgage lending. Each of the 11 technologies featured promises to streamline one part of the mortgage lending process and thereby solve one particular pain point.
While that may seem helpful at first, consider the implication: if you’re fixing only one part of the lending process, that means you’re ignoring the rest of it.
And unless a technology solution addresses the permutations that ripple through the entire process, it will likely only add complexity (one more login and system to hook into every other system lenders are already using) and cost (one more monthly fee).
Indeed, depository institutions noted last year that technology expenses accounted for 10 percent of their mortgage origination costs.
This phenomenon is most visible in the form of solutions that offer a streamlined front-end application for borrowers. Digital applications make it easier to apply for a mortgage, which means lenders receive more applications.
But without any increased efficiency on the back end, a glut of applications can actually increase the cost of originating each mortgage: now, the same number of people have to use the same systems to review more applications.
In 2018, this glut meant that per-loan production expenses rose to $8,278. In Q1 of this year, they were up to $9,584. Something has to change.
Cutting Mortgage Origination Costs and Improving Customer Experience
If fintech startups pulled ahead of traditional mortgage lenders by using technology to improve many parts of customer experience, traditional lenders can regain their competitive edge by going one step further – that is, by using technology to improve the mortgage lending process from end to end.
Rather than focusing solely on the customer-facing portions of the mortgage origination, they must focus on streamlining the invisible (to borrowers) back-end components that account for the biggest delays. By speeding up the mortgage origination process (which currently takes an average of 42 days), lenders will also greatly improve customer experience.
That means investing not in dozens of point solutions that each improve one part of the mortgage origination process but rather in a single solution that ties together data from multiple sources to let Originators run credit, qualify borrowers, check DTI, pull products and pricing, lock rates, present loan scenarios, run DU / LP with one click, get e-consent, deliver disclosures, and ultimately get borrower commitment at the initial conversation.
This isn’t a pipedream. Cloudvirga makes it possible.
Because mortgage DNA is key to solving this problem, our digital mortgage platform is uniquely capable of accommodating the challenges faced by mortgage lenders and Loan Advisors in a tech-first era. And because it sits on top of your existing LOS, it does all this without disrupting existing processes Originators have become accustomed to.
Interested in seeing it for yourself? Set up a demo today to discover how you can create underwriter-ready loan files in just 10 minutes, shave four hours off the loan origination process, and reduce touch time between your Loan Advisers and customers by 70 percent.
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