What Would You Do with an Extra $3 Million?

By: Dan Green

You may want to sit down for this… The average mortgage originator is out-spending high performing lenders to the tune of about $3 million per year. That’s right… all things being equal (the same loan products and the same type of consumers), according to our most recent annual benchmarking study, low performers overspend by about $3 million every year in closing costs.

Any company that can deliver their product for $3 million less than their competitors has a slam dunk market advantage.

As a career-long numbers guy and resident quant, nothing thrills me more than helping lenders learn the value of being more data-centric. For six years running I’ve spearheaded our benchmarking study which has given our customers a long lens into what high performing lenders are doing to generate extraordinary profits, despite increasing costs and reduced volume.

Success leaves clues.

What we know is that when you study the high performers in any industry you can learn how to duplicate, or even exceed their results but it all begins with the data. The numbers tell the story. For profitable lending, high performers track very high in five key performance indicators.

The key to high performance lending

What the best lenders are doing are focusing on their cost to close knowing that the lower they can go the more they have to reinvest in growing their business. If you attended Mortgage Cadence’s Ascent Conference, you saw the full results of the benchmarking study on high performance lending.

What’s most obvious is that high performers are accomplishing lower cost to close by optimizing the performance equation which I define as the combination of the right people, the right process and the right technology. While their competition is struggling for market share, experts are predicting that some mortgage banking firms just won’t make it, not for lack of trying but rather because they’re not focusing on the profitability metrics.

Our benchmarking study tracks small to mid-market credit unions and community banks, where every dollar counts. If you work in one of these institutions, you can probably imagine what you could do to gain market share by reallocating cost to close to business development. But regardless of the size of your institution, be it small or enterprise, becoming a high-performance lender is realistic and achievable.

The MBA’s survey on origination costs saw a new high in March of 2018, when it reported that the cost to originate a mortgage had risen to $8,475. Then three short months later in June it rose even higher with the survey respondents reporting a cost to close of $8,887 per loan!

Meanwhile, the trade group reported at its recent Secondary Market conference in New York that lenders’ first quarter income will dip into negative numbers for the first time since the first quarter of 2014. This is a vicious cycle that lenders have been caught in for more than eight years. The cycle has been broken by the high performers, and your organization can break it too.

Finding your $3 million

Becoming a high-performance lender will reduce your cost to close, and conversely, reducing your cost to close will turn you into a high-performance lender. In this ongoing series on high performance lending, we will be exploring how to create profitability that puts you out in front of your competition. Stay with us and we’ll shine a bright light on what the nation’s best lenders are doing right. Then, you can start thinking about what you’ll do with your extra $3 million per year.

About the Author

Daniel J. Green is Executive Vice President of Marketing at Mortgage Cadence. He was formerly a credit union lending executive and is a self-proclaimed data nerd. He can be reached at daniel.j.green@mortgagecadence.com.