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Managing Loan Production Expense

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On June 6th, the MBA released its Quarterly Mortgage Bankers Performance Report for the first quarter of 2017. The findings, while not surprising, do provide further evidence that mortgage lenders will have to continue their efforts to maximize efficiencies to maintain and grow profit margins.

Over the past nine years, mortgage lenders have seen loan production expense increase by close to 100%. During the first quarter of 2017, the MBA reports that total loan production expense increased yet again to $8,887 per loan. A sizable 38% increase when compared to the fourth quarter of 2016 and the highest production expense figure the MBA has reported since it first Quarterly Report in the third quarter of 2008. On the revenue side, total production revenue during the first quarter of 2017 grew but at the much slower pace of 14%. This resulted in lenders realizing a 61% decline in net gain per loan between the fourth quarter 2016 and the first quarter 2017, further stressing profit margins.

In a market where the increase in loan production expense is out-pacing the growth in total production revenue, mortgage lenders need to act immediately to better control expenses or increase revenue. Assuming that mortgage lenders in business today have already maximized revenue per loan as much as the market will allow, it is the better controlling of expenses that will help improve net gain/ profit margin per loan.

All too often, better control of expenses translates into a reduction in staff. While staff reduction will have a direct and positive impact on production expense, it does leave the mortgage lender vulnerable in two areas. First, by reducing staff the mortgage lender may be unable to effectively and efficiently handle unexpected spikes in business. The lender’s ability to gain market share in a growing market will be hindered and customer service levels will take a hit as fewer staff are left to service a growing customer base. Second, as the real estate business is cyclical in nature, controlling expenses through the constant resizing of staff places mortgage lenders in the time consuming and costly cycle of hiring, training, laying off – rehiring, retraining, laying off.

A better alternative to managing production expense is to seek a business partner, such as String, through which individual or groups of back office loan production processes can be outsourced. Since our founding in 2004, we have assisted mortgage lenders nationwide in streamlining their back-office loan production processes. With a range of services covering the areas of Loan Processing, Underwriting, Closing Services and Post-Closing Services, our mortgage lender partners can pick and choose individual process or suites of process that they can outsource to our team of experienced loan processors. The resulting benefit of a partnership with String is not limited to the reduction in production expense when compared to handling the work in house, but the ability for our mortgage lending partners to maintain optimal staffing levels at all times, rapidly adjust for and handle spikes in business and greatly reduce loan processing time frames. Each of which brings our partners improved efficiencies and profitability.

For more information on Strings loan processing services, please visit this.

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