When transaction volumes are low and origination costs are high, the profitability of your overall lending business is at risk. The ebb and flow of the market is the nature of the real estate business. But with three years of back-to-back declines in loan origination, the pressure has reached an inflection point.

How can lenders remain resilient during historically turbulent times?

While the focus has been on rising interest rates, loan origination costs have also been quickly rising. In fact, loan origination costs have increased by a staggering 35% in the past three years – averaging about $11,600 per loan – according to the 2024 Cost to Originate Study by Freddie Mac.

But closer analysis shows that not all lenders are suffering.

Top performing lenders are dramatically outpacing their lower performing counterparts, according to the same study by Freddie Mac. In fact, the top 25% of lenders have an average cost-per-loan of only $6,900 versus the bottom 25% of lenders who average $16,500 per loan. That means that low performing lenders have an ~84% higher cost per loan!

In addition, the decline in mortgage originations is impossible to ignore. Just look at Freddie Mac’s monthly volume reports and you’ll see that total loan originations in 2021 reached $4.4 trillion. In 2022, originations decreased to $2.8 trillion and in 2023 decreased again to $1.9 trillion. With only five months left in 2024, Freddie Mac is forecasting total originations to be around $1.7 trillion. With volumes that low, it is critical that mortgage lenders squeeze the most profit possible from each transaction.

So, how are some lenders managing to thrive while others are struggling?

Top performing lenders have realized the importance of continuing to invest in technology at every stage of the mortgage loan cycle. By building a strong business case and recognizing how technology can help the business on multiple levels, many lenders have prioritized moving forward with new technology spend, despite budget cuts and the pressure to do more with less. These lenders have been rewarded with lower origination costs and faster turn times, helping them emerge as leaders – landing in the top 25% of all lenders – even in a difficult economic environment.

While the upfront investment increases costs in the short term, technology acquisition costs are quickly recovered through greater operational efficiency and more streamlined communications across loan stakeholders – which result in faster turn times and a lower cost per loan. By digitizing the mortgage process, from origination to appraisal to title and closing, lenders have saved up to 40% in costs by leveraging technology.

Even in low-volume environments, technology adoption is paying off for lenders. The modernization of the appraisal process is one example of how lenders reduce the time spent on appraisals from weeks to days by opting for hybrid and desktop appraisals versus the boots-on-the-ground approach of traditional appraisals.

Freddie Mac’s study sheds light on the fact that personnel make up 67% of the lenders’ total production costs. One of the most valuable assets you have is your people, but when they are forced into rigid processes and labor-intensive work, their productivity potential is constrained. And, if you are forced to cover appraiser travel and expenses for every home inspection, those expenses add up quickly and are never recouped.

Building a business case for investing in digital mortgage technology may feel like an uphill battle right now, but the data shows it’s worth the effort and upfront investment. Just ask any of the top performing lenders.  

Now is an ideal time to invest in technology.

While some lenders may be hesitant to invest when business transaction volumes are down, it is actually an opportune time to make the investment. Rather than being consumed with keeping up with loan transactions, you have the bandwidth to focus on technology implementation, process automation and team training – putting your business in a stronger position to emerge as a market leader as interest rates drop and loan volumes rise.

As you consider modernizing your mortgage process, it’s important to call out a few things. There are dozens of vendors that address individual functions of the loan process. It might be tempting to select a different point solution for appraisal, title and closing – often because they can appear newer and less expensive. The hidden costs, however, are uncovered when you have multiple systems handling various stages of the mortgage process, requiring either extensive integration work or forcing people to toggle between multiple systems to complete critical tasks… not to mention the time spent training your team on multiple new technology systems. Layer in the buzz around artificial intelligence and the options can be overwhelming.

You can cut through this noise by simplifying your approach and seeking out a service provider capable of delivering a more comprehensive technology platform approach. Addressing multiple functions in the loan lifecycle with a single technology platform and a single vendor will accelerate implementation and minimize long-term compliance and maintenance costs. Seek out a proven service provider you can trust, one with the expertise to help modernize and scale your digital mortgage processes. Look for a company that:

• Has experience working with all types of lenders
• Combines appraisal, title and closing functionality in a single platform
• Has a proven implementation track record with a focus on results
• Delivers top-notch customer service

When it comes to profitability, do you want to be a low performer or a high performer?

Accurate Group is the only real estate technology and service provider delivering technology-driven appraisal, title data, analytics and digital closing solutions. Choosing to work with Accurate Group means you’re choosing a proven partner who can guide you through automating, streamlining and optimizing multiple aspects of your loan process, while factoring in your unique business needs and goals.

Many of the top performing lenders trust Accurate Group to help them keep loan origination costs low while delivering a superior consumer experience. Contact us to learn how we can help you, too.

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