Get Every Penny Out Of Every Mortgage Loan

As sources for revenue decrease, lenders must get the most out of each loan and be aware of how their pricing stacks up to the competition.

 

By myCUmortgage

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Home financing is a lender’s most profitable activity and how it’s managed has serious implications (positive or negative) for the bottom line.

Mortgage loans are a commodity; differentiation through a better process and better service yields a competitive advantage, which is important for today’s relationship-based lending activities,” explains Prime Alliance in their Mortgage Lending Performance Benchmarking Briefing Paper. Accurately measuring the amount of work done and how well it’s done is an essential part of improving productivity in this area.  

As lenders, many credit unions have become overburdened with new compliance and underwriting requirements. However, this has been somewhat lost in the huge volume associated with the latest refinance boom. As loan volume slows in the future, lenders who maximize productivity in their mortgage offerings will be the winners.

The two main efforts that must be managed maximizing efficiency and lowering costs are directly connected.  Improved efficiency equals lower operating costs and potentially lower borrowing costs, but how do you monitor and manage these efforts?

3 Forms Of Measurement:

Pull-Through rate
  • How do you measure it?  Divide loans closed by loan applications taken.
  • What does it tell you?  This rate identifies your success in moving applications to closed loans and shows lost opportunity.
  • A good lender will be in the 45%-55% range. With an average 20% denial rate, this means most lenders are missing out on as much as 35% of mortgage applications.
Productivity
  • How do you measure it?  The number of loans closed per mortgage team member, divided by number of applications taken (in a given period of time).
  • What does it tell you?  How productive your lending personnel are.  
  • The average is 2-14 loans per employee closed per month.  8-10 loans per employee, per month, is consistent among top producing lenders.
Cost-to-Close
  • How do you measure it?  This is not a simple measurement and is the most important of the three mentioned.  Generally, lenders that are more productive have a lower cost-to-close. 
  • What does it tell you?  How profitable the mortgage lending program is. Loans can be closed for only $830 by low-cost producers, while high cost lenders average more than $3,000 to close a single loan.

With a holistic lending strategy in place during the lowest part of the recession, Wright-Patt Credit Union ($2.5B, Fairborn, OH) and its wholly-owned subsidiary, myCUmortgage, generated an upward trajectory and proved that rapid growth does not hinder productivity.

graph-1

Image Source: Mortgage Lending Performance Benchmarking Briefing Paper by Prime Alliance, 2012

This strategy included:

  • Focusing on affordable housing and first-time home buyers
  • Increasing head count to add outside loan originators
  • Adding HARP to the product offering
  • Using a single system technologies to increase efficiencies and eliminate redundanciesgraph-2

Image Source: Mortgage Lending Performance Benchmarking Briefing Paper by Prime Alliance, 2012

In order to improve lending performance, credit unions should concentrate on these three areas:

  • Determine mortgage lending strategy
    To do so, evaluate your market, community, and member demographics. Commit to being great at a few things instead of trying to be all things to all members.
  • Be competitive with pricing
    Position borrower rates competitively and in combination with outstanding service to improve your cost-to-close.
  • Monitor existing operations
    Measure your pull-through, cost-to-close, and closed loans per employee to help establish benchmarks. Determine where your bottlenecks are and seek to implement new efficiencies.

Tim Mislansky is President of myCUmortgage and Senior Vice President for Wright-Patt Credit Union. He sits on the ACUMA Board of Directors, is an active member of Prime Alliance Advisory Council and serves on several local non-profit housing boards. Tim has over 20 years of credit union experience. He can be reached at (877) 630-3399.

Built, owned and operated by one of the nation’s most successful credit unions, myCUmortgage has been providing mortgage solutions to credit unions for more than 10 years. As a result of working with us, our credit unions partners have saved millions of dollars and have added tremendous value to their membership.

This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.

If you are interested in contributing an article on CreditUnions.com, please contact our Callahan Media team at ads@creditunions.com or 1-800-446-7453.

 

Jan. 7, 2013


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