Mortgage Industry Trends

Expenses Up; Profits Down for Mortgage Lenders

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MBA-report-shows-expenses-up-profits-down-newsboyIt’s little surprise that the most recent MBA first quarter Performance Report reflects a major drop in net gains on loans sold by independent mortgage bankers and those operating as subsidiaries of chartered banks. Not such good news.

According to the report:

  • Net income declined to $224 per loan from $575 prior quarter
  • Average volume per company declined by $235 million
  • Number or loans declined to 1,944 from 2,811 in 4th Q2016
  • Pre-tax profit per loan was 10bps compared to 24bps last quarter

 

Unfortunately, the only things on the up side were:

  • Loan production expenses at $8,887 per loan compared to $7,562 prior
  • Personnel expense at $5,802 vs. $5,001

 

So volumes are down, income is down, and expenses are up. Not a good recipe for success.

Interestingly, the increase in loan production expense appears to be the net result of the increase in personnel costs. This is the direct result of fewer loans being handled by the same number, or worse, more people.

It had been reported earlier in the year that non-bank mortgage lenders were hiring more staff in 2017. Why?

Understandably, lenders may increase their sales force to try and generate more business. In most cases, such employees are commission based so they should not have a drastic impact on overall employee expense.

However, support staff, along with related/required office space and equipment, is a different story. These expenses need to be tied to the roller coaster ups and downs of loan volume.

Lenders need to find ways to streamline operations through the use of technology and outsourcing to minimize the effects of reduced loan production. As production declines, so must related expenses.

It’s a balancing act as lenders need to have trained staff. If that staff is released in down times, it may be difficult to adequately staff back up when things improve.

Employees need to as efficient and productive as possible through the use of technology. Now is the time to explore all options, including:

  • Online applications allowing LO’s and processors to handle more loans
  • Automated on boarding and disclosures
  • Use of programs like “Fannie Day 1 Certainty”
  • Automated verification processes
  • Integrated technology/platforms pre and post close reviews and loan deliveries;
  • Outsourcing tasks that are loan volume dependent, reducing staff and related resources and office expenses.

 

Now is the time to get lean and mean. Find ways to do so without sacrificing quality, compliance, and customer service.

It is time to move into the digital age and take advantage of what is available to help you reduce costs while increasing productivity. It ain’t easy, but it can be done.

You just need to get the ball rolling…

Michael Vitali

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.
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Michael Vitali

About 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.
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