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By all accounts, it cost a lender more money to originate and close a mortgage loan today than it did 10 years ago. But then again, what doesn’t cost us more today than it did 10 years ago? The question is how much is the increase, why, and is it worth it? That’s something each lender needs to decide.
Recently, at a housing symposium, Debra Still, President and CEO of Pulte Mortgage, a builder owned mortgage company, talked about the changes in lending over the past 10 years and what contributes to the increased costs for Pulte to originate loans today. You can read the details HERE. Pretty interesting stuff.
But, that is Pulte’s story. They are a large national builder, not a traditional mortgage lender. Some of their costs and changes are the result of where they build and the type of properties built. This will obviously determine the type of buyer they service and the financing needed. Each of these has their own challenges.
But, let’s try to compare apples to apples. No doubt the cost to originate a loan has increased. Ten years ago we were originating mainly refinances using low or no doc loans. The paperwork required was minimal and the only thing holding lenders back was their ability to process more loans in a timely manner. The sky was the limit and everyone was making money hand over fist. Times were good and few worried about costs.
Now, we’re paying the pricing for playing fast and loose. As a result of the crash, regardless of who want to blame, we again need to fully vet an applicant and validate everything used to qualify them for a loan. This takes more time, documentation, and money.
Today, we see better loans with fewer defects, buybacks, and defaults. The loans being made today are compliant, of better quality, and perform better than those loans of yesterday. To attain such quality, lenders needed to invest some additional time and money.
The fact is, that it does cost more money to originate a mortgage today than it did 10 years ago; no argument. The key is what does a lender get for the increased investment? Was the reduced cost of loans made 10 years ago the result of short cuts and additional risks taken by lenders? What did that cost the lenders, the industry, and the economy? We reap what we sow.
Some of these increased costs can be offset, or eliminated, through the increased and targeted use of technology and outsourcing. Much of the work to ensure compliance and quality can be done using in-house technology, or vendors, to perform required and discretionary pre and post-close audits. This minimizes the costs of additional staff, office space and equipment now needed to accomplish these tasks while continuing to originate the same quality, compliant loans.
No doubt costs have gone up, for everyone, for just about everything. The key is how to control the costs, minimize the increase, and benefit from the investment.
What are you doing about controlling your costs?
