While at this year’s Annual MBA Technology conference, I found myself once again sitting in the regularly scheduled ‘Economic Update’ session. During which it was highlighted how the per mortgage loan cost went up again and is now at a staggering $12,450, per loan.
Despite a couple slight decreases during the last twenty-one quarters, each new high watermark over the last 5 years has resulted in a 32% increase since 2017. On this day, I find myself, once again, shaking my head in disbelief.
However, I started to reflect a little more intently on this five-year trend. Because analyzing trends, people, and conditions to define strategies of what to do next, is in fact what I do. So I started to reframe the question of how did we get here and why is there no end in sight? Considering all the technological advancements, additional compliance requirements, new regulations, and higher FTE costs in our industry. It struck me to look more broadly at what we are doing as an industry?
I also asked the question, what can we do to reduce the mindset of passing on the fee on to the consumer. Isn’t the reality that the increasing per loan cost is just the cost of doing business today in mortgage banking? Let’s face it, lenders by in large do three things; work to mitigate risk and stay compliant, be competitive by using the most cutting-edge technology so they get the app fastest (stop the shop), and lastly, to make the loan (revenue); whereby they help drive the American dream of homeownership. In the end, our industry traditionally relies on volume to cure all these costs – but what do you do when markets changed like they have since 2022. The cost of the loan inevitably is paid by the consumer in fees or a higher above par interest rate to offset some of these costs.
Now, I’m not saying that is the right answer, but it is the stark reality of where we are today. Taking this one step further, since we are at mortgage tech conference, consider that mortgage lenders at community banks, credit unions, and IMB’s will have to continue to make significantly more investments in technology to realistically move the percentage of fully digital mortgages to being more than 50% of the loan volume, over the next five years. Even with all the recent advancement in mortgage tech and lender investments, turn time rates remain at 48 days for purchase and 55 days for refi. E-Signature Note, E-Signature Deed, and RON are all great digital concepts that should improve Operational Efficiency and turn-times, but the adoption of these remains less than 30% to 43%. Moving to these digital tools will continue to take years to implement, and if used could have meaningful progress in lowering the consumer cost of a loan. I believe when looking back on the process of moving to a digital mortgage in 20 years, our children and grandchildren in the business will reflect on this time as the ‘digital mortgage movement’ age. So, to make the most of this ‘digital mortgage movement’ age, what can the mortgage teams at IMB’s, regional community banks, and credit unions be focused on most today? Our recommendation, outside of the standard % of IT budget at a bank for mortgage, to remain and become more competitive, is a three-pronged strategy;
Analyze and define the firm’s long-term mortgage technology strategy roadmap. Defining the granular blueprint of the required tech stack strategy to compete in the fully digital mortgage age.
Optimize the features, functions, and capabilities of current systems. Especially when considering, based on BlackFin research, that every lender ONLY uses 60% of their technology capabilities. Leaving a ton of Operational Efficiency on the table and reduced ROI with every single loan. .
Begin to effectively ‘migrate’ your firm off the outdated current technology and start incrementally implementing the new long-term tech stack strategy. The results will ultimately provide the agility, flexibility, and baseline system that allows you to integrate ANYTIME and ANYWHERE with new technology services that come to market in the next decade to come.
To effectively lower the cost per loan for consumers the industry will not be able to get there by just moving from one outdated LOS to another, or one that sounds newer. It’s going to require a strategic approach to evaluate and implement the vast number of technology options currently in the marketplace. The result will actually support lowering the cost-to-produce, improve upon team’s workflow through Operational Efficiency improvements, impact your customer reputation and cycle times to sell the loan in the Secondary Market.
Keith Kemph is President & CEO of BlackFin Group, a management consulting firm that specializes in the banking, mortgage, and financial services industry. Keith has dedicated his career to helping firms ensure successful execution of critical business and technology projects to help them operate more efficiently and effectively. Keith's career includes management and executive roles with Citigroup, Bank of America, Dime Bank, Merrill Lynch and nearly a decade with a traditional top tier consulting firm in the financial services industry. For more information contact info@blackfin-group.com