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Continuing our discussion from my previous post on the key area of Operational Process for Digital Transformation, I think there’s no better time to focus on what we’ve seen recently in the industry regarding the cost of doing business.

In a relatively recent article, we saw a few key metrics that the Mortgage Bankers Association shared:

  • The net cost to originate a loan grew to $3,540 from $2,827
  • Independent mortgage banks pulled in average profits of $346 per loan on originations last quarter, compared to an average profit of $1,082 per loan in the fourth quarter.
  • Personnel expenses rose to $3,640 per loan, up from $3,124 per loan in the fourth quarter.

As with any analysis of data, many factors of how that data was reported can change the overall picture it paints. But that aside for a moment, let’s just glance back at these numbers really quick as we also touch on what else was said in that article, which is: mortgage companies had difficulty managing staff levels to reflect the drop in loan volume.

By the way, you’re not the only ones feeling the squeeze. In conversations with businesses across the nation, we’re getting similar feedback from title companies experiencing this same issue – to the tune of 8% margins of profit in some cases.

Back to the loan origination numbers – we see personnel expenses are rising, but there’s still a gap in the cost to produce the loan. Do you and your organization think that the only factor is the cost of people? Or do you see room for cleaning up the processes that your people must perform in order to complete the work? And if we revisit the basic business elements of people, process and technology, are we also forgetting that they’re all connected?

Obviously, there’s quite a few variables at play in today’s business landscape, but don’t forget that your sister industries of title, and even realtors, are feeling the same pinch in today’s economy. We’ve experienced how digital transformations have revolutionized the music industry, from Napster to iTunes, and we’ve also discussed how the movie industry shifted in the Netflix vs. Blockbuster square-off. Healthcare has been going down this road for years, and while there’s still progress to be made, they’re getting there.

So what about housing? As we’re all digging through the TILA-RESPA info, and nearing the end of planning for implementation, here’s a few more questions to spur some thought and conversation:

  • What do you see in your organization today that could be improved from an operational process perspective?
  • What portions of your operational process are dependent on business partners outside of your immediate organization?
  • What can be improved in that area to help you do business smarter, faster and cheaper?
  • How is TILA-RESPA, and the 3-day loan estimate delivery and tolerance rules, going to change that for you?
  • More on this to come…

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All information and views expressed or implied are provided without warranty and are only opinion. Each participant should seek legal representation for legal interpretation of the ruling and the CFPB directly for final instruction and interpretation. The final rule can be found here.