TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/257884
Th e M Rep o RT | 25 Feature D oing any business in today's economy is becoming increasingly more difficult and expensive. With new government oversight and regulations, higher costs of goods and services, and the ever-increasing cost of personnel, how is a company to continue to compete and survive? There are few ways a com- pany may increase income: 1) increasing price, 2) increasing sales, 3) decreasing expenses, or 4) some combination. But when you increase price, watch out for the negative effect on sales. If you operate an ongoing business producing a product or provid- ing a service also produced or provided by competitors in the same markets, like a mortgage, it's tough, especially in today's economy. That is why many companies in competitive mar- kets look to maximize resources and decrease expenses as a recipe for success. For years, successful manufac- turing businesses have learned ways to streamline their produc- tion operations to maximize output while minimizing the cost to produce. This is done through the increased use of automation, where possible, to reduce overall expense—the largest being the cost of full-time employees. That cost is constantly going up, with wage increases and the ever-in- creasing costs of benefits, coupled with staff training and the reten- tion of experienced people. So manufacturers have learned to outsource functions that are not conducive to their core operation. Automakers, for example, often obtain standard parts from spe- cialized producers who can man- ufacture those parts more cost effectively. The idea is to limit the number of people involved in the manufacturing process while also limiting the number of touches per person. That way, the auto- maker can concentrate on their high-value design and production competency and the assembly of a finished automobile. A similar approach could be effective in mortgage lending. As the anticipated and well-docu- mented decline in the refinance business occurs, it will be difficult for most lenders to increase their production. In fact, most lenders may struggle to maintain any- where near the levels of produc- tion they experienced over the past few years. With increased competition for a smaller pie, it also seems unreasonable to expect a lender will be in a position to increase price. That leaves de- creasing expense as a strategy for profit growth. Since staff is the single larg- est cost in mortgage lending, to optimize or reduce that expense a company needs to make its staff more productive and take advantage of outsourcing, such as we have seen in the manufactur- ing industry. These changes need careful consideration, as a lender will not survive if it doesn't have the resources to produce a qual- ity product. The idea is to retain the experienced, qualified staff necessary to assemble a quality loan, while making them more productive and also reducing the cost to produce some of the underlying parts needed to manufacture the loan. For example, most lenders no longer have in-house apprais- ers for property valuations. Due to the limitations and expense involved with having an in-house appraisal operation, most lend- ers now utilize the services of qualified licensed or registered appraisers. The same holds true for credit and liability informa- tion. This process has been outsourced to companies that spe- cialize in this area and can do it cheaper, with much more reliable information. The reality is, lenders now successfully outsource many parts of the loan manufactur- ing process, including things like flood research and certification, IRS tax return verifications, and even mortgage insurance. And, contrary to popular opinion, it is possible for lenders to continue to reduce expense and streamline operations through the use of outsourcing while retaining con- trol and developing the needed quality product for sale. Okaying Information O ne place to start is with the information verification process. To produce a qual- ity mortgage, the lender must validate the information used to approve the mortgage—that be- ing the applicant's employment, income, and assets. At present, this is the role of an experi- enced processor, one who is paid well for his or her knowl- edge. Is it absolutely necessary for your experienced processor to actually take the time to perform all the tasks needed to obtain the verifications, or just Maximizing Resources for Total Success encouraging efficiency within a team is the ultimate ingredient for a successful shop. By Michael Vitali, SVP and Chief Compliance Officer, LoanLogics