Efficiency is Essential for Boosting Profits

MBA recently reported that total loan production expenses, including commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations, ballooned to $8,025 per loan, up from $6,959 in the previous quarter. Q1 2014 production expenses were the highest recorded in any quarter since the Performance Report was created in 2008. That’s huge.

Additionally, independent mortgage banks and mortgage subsidiaries of chartered banks had a net loss of $194 per loan originated during Q1 2014, down from $150 in profit per loan Q4 2013, (source: Quarterly Mortgage Bankers Performance Report). The decline can be blamed, in part, on the overall production volume decline in the first quarter of the year, along with a lag in purchase volume pick-up. Average production volume was $274 million per lending institution in Q1 2014, down from $367 million in Q4 2013.

Why is this happening? Perhaps because lenders are bringing in more people to fix outdated processes and to comply with new regulations. The cost of compliance in the fall of 2012, according to a study by the Competitive Enterprise Institute that was aptly titled “Tip of the Costberg,” estimated that the total unreported cost of all government regulations, not just those affecting the mortgage industry, could be as high $1.8 trillion. That was two years ago, before the CFPB introduced Final Rules for ATR/QM and other provisions. And as TILA/RESPA looms large in the background, costs will only rise higher in the very near future.

The only way to combat costs in today’s highly-regulated mortgage industry is to be more efficient--in other words, spend less money on originating loans. Luckily, Ellie Mae’s Encompass mortgage management solution can help. Encompass streamlines the entire mortgage process, eliminates paper processes, keeps pace with new regulations and helps lenders avoid quality and compliance issues that can drive costs up and delay closings. Furthermore, our success-based pricing model helps lenders tie their expenses to their production. In a study conducted by Forrester Consulting, Encompass users experience an average savings of $232 per loan, an ROI of 57 percent and a payback period in less than a quarter--savings that go straight to the client’s bottom line.

To illustrate, let’s consider Gold Star Mortgage Financial Group, a direct mortgage lender headquartered in Ann Arbor, Michigan. The company needed software that could scale effectively as it grew and branched out from its Michigan headquarters to more than 20 branches nationwide. They replaced their legacy LOS with the self-hosted version of Encompass, later moving to the on-demand delivery model. As a result, the company:

  • Eliminated manual paper processes from the loan lifecycle.
  • Reduced overall loan processing time from just over 45 days to less than 25.
  • Reduced post-closing errors by more than 20 percent.
  • Increased loan volume by more than 200 percent over a 3-year period.
  • Reduced underwriting turn times from 20 to seven days.
  • Centralized the appraisal process to reduce processing time from 21 days to seven days, and borrower fallout by 25 percent.

How did they do that? Well, everything about Encompass screams efficiency, from centralized document management, to integrated quality and compliance checks, SaaS based delivery and features to take you completely paperless. Our team of 25 compliance experts makes sure you’re always up to date with the most recent compliance changes, so there’s less risk, and less of a need for you to spend time and money handling compliance issues. The result is increased loan capacity, lower costs, and ultimately, higher per-loan profits.

Read more about the economic impact of Encompass on our clients’ businesses.

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