With Record High Mortgage Origination Costs, Can You Actually Save with Outsourced Fulfillment?

Mortgage origination costs keep climbing, reaching a record $9,299 per loan in the first quarter of 2019, according to the Mortgage Bankers Association. This upswing has been fueled by rising compensation, benefits, technology and compliance costs, putting pressure on margins and leaving originators in a tight spot.

shrinking mortgage margins graph

Source: American Banker

Outsourced mortgage fulfillment is recognized for its ability to help mortgage lenders manage costs and remain competitive in the face of ever-increasing built-in expenses. Many forward-looking lenders are embracing comprehensive outsourced fulfillment solutions to improve results, save time and free up resources to focus on the customer experience and contribute to overall business growth. But where can lenders actually save by outsourcing their mortgage operations? Does outsourcing really reduce cost and increase lender profitability?

In a word: Yes. The key is to control what you can – and you can control fulfillment costs (and gain added savings along the way).

When it comes to mortgages, loan officer compensation is the biggest expense for most mortgage lenders; but fulfillment operations aren’t far behind, soaking up thousands of dollars per loan.

There are armies of people handling the steps adding up to a fulfilled loan, including processors, underwriters, due diligence experts, closers and funders. The costs of delivering such services rose more than 10 percent in 2018 and has doubled since 2014, according to data from Stratmor Group. Add dedicated mortgage compliance and legal personnel and you’re looking at significant all-in costs to maintain a mortgage offering.

Outsourcing fulfillment is an efficient strategy to eliminate these fixed costs while increasing operational control. Rather than maintain the same staffing levels and overhead costs – or regularly downsize and restaff – as market volumes fluctuate, outsourcing creates a cost structure that ebbs and flows with the loan market. Staffing levels become your partner’s responsibility.

And unlike maintaining internal fulfillment operations, you only pay as loans move through the system and ultimately close. Plus, outsourcing enables you to quickly respond to increased volume or activate specialty products, creating a scalable solution without the overhead.

Offering a technology-enabled mortgage experience is critical to remaining successful in today’s highly competitive mortgage market. But implementing new tech can be costly and time-consuming.

A good outsourced solution is built on and integrates with best-in-class technology capable of delivering a consistent borrower experience, driving process efficiencies, ensuring data integrity and enhancing cross-selling competition.

Outsourcing to partner with advanced tech solutions included as part of their service offering eliminates the monthly and/or annual costs associated with maintaining this cutting-edge technology throughout the mortgage origination process – leveling the playing field with the largest lenders and fintechs, without the investment in technology or additional implementation and maintenance staff.

In ABA’s recent Residential Real Estate Survey Report, 96% of surveyed banks indicated they’d experienced higher mortgage-specific compliance costs in light of the recent regulatory reforms, citing increased personnel, time- and resource allocation, efficiency loss, third-party services and compliance-specific technology as the main drivers of rising compliance costs.

Outsourcing to a partner with a strong compliance reputation, deep industry expertise, and best-in-class vendor due diligence can reduce compliance-related expenses while safeguarding your reputation.

The right third-party fulfillment provider ensures consistent compliance practices, standardized reporting, enhanced data quality and continuous monitoring. This allows far-fewer committed resources for your TRID compliance efforts, data security functions and controls, and vendor due diligence and monitoring; the fulfillment provider carries the required primary infrastructure for these activities. With outsourced fulfilment, the regulatory burden is significantly shifted to your third-party partner, reducing your mortgage-specific compliance costs.

With the right partner, outsourced mortgage fulfillment is a profitable lending strategy – helping lenders of all types and sizes realize significant savings. Comprehensive solutions, tailored to your culture and mortgage processes, can convert fixed mortgage-related expenses into variable costs, totaling less than $5,000 per closed loan. So, does outsourcing really reduce costs and increase lender profitability? In a word: Yes.

July 18, 2019
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