What’s Your Plan to Offset the Production and Profit Drop?

0 0

We knew it would come sooner or later. It looks like it may have started. For the 4^th quarter 2016 Independent Mortgage Bankers reported a decline in production and with it a drop in profits.

On average, the net gain on loans originated in the 4^th quarter was about $575, a big drop from the $1773 per loan reported in the prior quarter.

The average number of loans each company originated was about 2811, as compared to the 3072 loans per company originated in the 3^rd quarter. The average loan size was about $245,500 in the 4^th quarter versus the 3^rd quarter average of $248,700.

Lenders were making fewer loans at a smaller average balance, compounded by less favorable secondary market pricing, and increased warehouse costs. This resulted in less income per loan. With these loans being originated at about the same fixed expenses, the outcome is not good for any lender.

• What’s your plan to offset the drop in production and income?
• How will you compete with every lender trying to do the same?
• How will you maximize the revenues generated by each loan?

First, you need to generate loans, then adjust expenses.

There are new products you may want to consider. I’ve covered these in prior blogs. But, now is the time to get serious and set the wheels in motion.

Take a long hard look at your fixed expenses. What can be converted from fixed overhead to a variable expense tied to production?

Don’t put it off. Every day you wait, you’re losing money. One area where you could save is Quality Control. As production declines, your cost of QC should do so as well. If it’s outsourced, it will. If not, your QC cost per loan may increase and eat up profits.

If you decide to retain the process in house, review it for any improvements and efficiencies that can be gained through technology. Leave no stone unturned, every dollar saved is one more dollar of income. Look to automate anything being done manually, including the reporting and action plans.

There are QC platforms available to streamline the process and reduce costs. LoanLogics offers one, along with other technology solutions. It’s well worth a look ( LoanLogics ). You may just find something to help.

The game has changed. Play different.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.