Solutions
Rising Costs
What’s Next
Resources
Let’s bring these costs
Origination Costs
Continue to Climb
Driven by
Strategy
Trends Gaining Traction
Why Costs are Rising
Average Loan Production Revenue, Expense*
($ per Loan & Loan Volume)
Average Cost Per Loan
Using Loan Product Advisor® (LPASM) Pays Off
Total Additional Net Production Revenue*
Digital Investments Today and Beyond
$6,900
8 days
$1M
$21M
$16,500
Get the Full Story
Gone are the times of wide spreads and high production volume. Today, lenders are increasingly experiencing higher costs and depressed revenues. As average origination costs have risen 35% over the past three years, how can lenders stay efficient and competitive in today’s market environment?
Sustained growth and efficiency in loan originations requires ongoing innovation, industry partnership, proactivity and strategic investment in technology. Freddie Mac can help lenders successfully implement best practices and adopt solutions that meet your unique business objectives.
Challenges include rising technology costs and integration as well as customer and employee adoption. Top performers set themselves apart through strategic investments. The right mix emphasizes scalability and balances efficiency with their customer base and growth.
Don't miss opportunity cost savings. Lenders leveraging LPA digital capabilities can decrease origination costs, reduce loan production cycle times and garner positive net margins, benefiting the bottom line.
Mortgage respondents are optimistic that a fully digital origination process would help significantly reduce the cost per loan—as much as 40%. Tech-forward industry leaders express optimism about advancements in technology.
Inflation
EVP of Mortgage Technology,
Luminate Home Loan
Top 25% performers
Annual Benefits Can Add Up to a Big Impact
Bottom 25% performers
for small-sized lenders
for large-sized lenders
We're in a huge downturn right now. It's shaping all our decisions. All our technology projects are around automation and are pointing towards trying to do more with less.
+
How Technology Impacts Savings, Cycle Time and Revenue
2024 Cost to Originate
Click to reveal
Average
Download Full Study
Inflation
Elevated inflation has had a significant impact on vendor technology costs and fees, including credit reports and third-party verifications.
X
Production Mix
+
Economies
of Scale
+
Increasing Technology/ Digital Tools Stack
+
Cost Management and Partnerships
+
Communicate, Educate and Incentivize
+
Comprehensive Digital Integration
+
Large-sized Lender
Medium-sized Lender
Small-sized Lender
Artificial Intelligence (AI)
+
Digital Underwriting
+
Integrating Technology Across the Process
+
DOWN
DOWN
DOWN
Overcoming the Challenges
Potential Solutions to Lower Origination Costs
Increasing Technology/Digital Tools Stack
While the interviewed lenders generally note the value of technology outweighs the costs, our analysis of lenders’ financial data shows that technology-related expenses per loan have risen from 2% to 4% in the past three years.
X
Production Mix
Today’s production volume mix is dominated by purchase originations, which tend to be more complex, labor intensive and time consuming, making them more prone to errors and defects and driving up origination costs.
X
Economies of Scale
The market is experiencing much lower production volume than two or three years ago, which typically drives a higher per-loan allocation of total costs and inefficiencies.
X
Download Full Study
Discover how embracing innovation and strategically investing in technology will propel you to a competitive and resilient future.
Go Beyond the Data
Play Video
Originate loans up to
Potential Solutions
X
Cost management and partnerships: The leading organizations are managing costs by:
Meticulously scrutinizing contracts and renegotiating fees.
Eliminating duplicative and redundant work.
Creating groups to manage orders for validation tools.
Shopping for alternative solutions.
Initiating peer discussion to assess tools’ value.
Ensuring technology solutions align with their current goals.
Developing measurable key performance indicators (KPIs) of successful implementation and adoption.
Aligning the right resources to work the right loans.
Strong relationships with technology partners emphasize collaboration, better alignment, flexibility and sharing of best practices.
Potential Solutions
Communicate, Educate and Incentivize: Successful change management necessitates a delicate balance between automation and maintaining accountability. Leading institutions recognize the strategic importance of employee training, development and the right adoption strategy.
It’s About the Digital Journey: Borrowers are increasingly wanting faster and easier ways to maneuver through the mortgage process. The way to maximize adoption is to promote the digital experience/journey as an added benefit.
Make Incremental Changes and Solicit Feedback: Instead of overhauling entire processes, make small, incremental changes and bring on new tools slowly and thoughtfully. This allows customers and employees time to adapt to new processes and gather feedback on what’s working and what can be improved.
X
Potential Solutions
Comprehensive Digital Integration for Optimal Efficiency: Many lenders are implementing a digital strategy and building an infrastructure that adopts “easy to maneuver” technology that is scalable, structured to incorporate various digital platforms and tools and accompanied by effective change management. Integration of various solutions allows mortgage lenders to flexibly scale operations and optimize resource allocation though examples like online platforms and partners’ digital offerings.
X
Artificial Intelligence (AI)
While many lenders are in the initial stages of investigating how AI can change mortgage production and fit their needs, digital leaders see the potential for AI across several functions, particularly in underwriting, lead sourcing, quality control and compliance/risk functions.
X
Digital Underwriting
The adoption of technology in underwriting is identified as a critical area for improvement, with the majority feeling it remains very costly and time-consuming. Automation is seen as a solution to streamline these processes and reduce manual workload.
X
Integrating Technology Across the Process
Top performers’ emphasis is on managing "leakage" in costs and ensuring investment in technologies that bring the most value and efficiency. That's why they're on the lookout for systems which better integrate tools and data from different parts of the process, with connection points along the way that talk to each other, creating a smooth and seamless digital experience for both employees and customers.
X
Kevin Kauffman SVP and Head of Single-Family Seller Engagement Freddie Mac
We have the unique view of seeing best- and worst-case scenarios of cost effectiveness. The common thread of best-in-class lenders for reducing loan origination costs is leveraging digital capabilities.
Sudamys Alfonso Senior Director, Seller Strategy & Optimization Freddie Mac
One of the biggest expenses for lenders is personnel. If we can enable them to do their jobs more efficiently with automation, they can handle more loans with better quality.
faster
$600
Save up to
per loan in personnel and funding costs
in pull-through rate
1.3%
Achieve an average increase of
in closing costs
$600
Save borrowers up to
Reduce Costs Per Loan by Adopting a Digital-First Mindset
Listen to the HousingWire discussion on optimizing technology process and change management to reduce the cost to originate.
All
Volume
Revenue
Expense
Click to reveal
Large-sized Lenders defined as lenders with total loan volume greater than $500M quarterly; Medium-sized Lenders defined as lenders with total loan volume between $150M to $500M quarterly; Small-sized Lenders defined as lenders with total loan volume of less than $150M quarterly.
Automated Collateral Evaluation (ACE); Asset and Income Modeler (AIM); Collateral Representation and Warranty Relief (CRWR).
*View Notes
X
Cost management and partnerships: The leading organizations are managing costs by:
Meticulously scrutinizing contracts and renegotiating fees.
Eliminating duplicative and redundant work.
Creating groups to manage orders for validation tools.
Shopping for alternative solutions.
Initiating peer discussion to assess tools’ value.
Ensuring technology solutions align with their current goals.
Developing measurable key performance indicators (KPIs) of successful implementation and adoption.
Aligning the right resources to work the right loans.
Strong relationships with technology partners emphasize collaboration, better alignment, flexibility and sharing of best practices.
Meticulously scrutinizing contracts and renegotiating fees.
Eliminating duplicative and redundant work.
Creating groups to manage orders for validation tools.
Shopping for alternative solutions.
Initiating peer discussion to assess tools’ value.
Ensuring technology solutions align with their current goals.
Developing measurable key performance indicators (KPIs) of successful implementation and adoption.
Aligning the right resources to work the right loans.
Strong relationships with technology partners emphasize collaboration, better alignment, flexibility and sharing of best practices.
Note: Cost and revenue production results include retail/consumer direct only lender data. Source: Freddie Mac, Moody’s, MBA’s Quarterly Mortgage Bankers Performance Report; www.mba.org/performancereport
*View Notes
Explore LPA
REGISTER
less costly
$1,500
Using LPA at high rates can originate loans that are
Additional Resources
Watch the webinar, “Reduce Costs Per Loan by Adopting a Digital-First Mindset” for an overview of the research findings and insights to reduce the documentation burden and get an edge with data.
Get Actionable Strategies
PLAY PODCAST
Learn how to maximize LPA’s capabilities to uncover more homeownership opportunities.
Boost Your Efficiency
EXPLORE TRAINING
Download Full Report
Listen to the HousingWire discussion on optimizing technology process and change management to reduce the cost to originate.
Go Beyond the Data
Download Full Report
Listen to the HousingWire discussion on optimizing technology process and change management to reduce the cost to originate.
Go Beyond the Data