Global pandemic and economic recessions aside, average mortgage profit margins are rapidly falling and the competition is quickly rising. It’s no wonder then that MLOs and their companies are finding themselves stretched thin when it comes to the financial upkeep of their business and many may be looking for ways to cut corners.
According to a quarterly survey produced by Fannie Mae, almost 70% of lenders believe profit margins on mortgages will decrease in Q3, which would be the biggest drop recorded since the survey began in 2014.
If this wasn’t enough of a challenge, the competition is rising as almost half of the top 25 loan origination companies are outside of the bank-regulatory framework. Up from a mere 9% share in 2009, non-banking firms have dominated half of the market since 2016, with 7 of the 10 biggest mortgage lenders in the states being non-banks in 2020. In fact, 68.1% of mortgage loans in 2020 originated from non-bank lenders. According to Inside Mortgage Finance, this is up from 58.9% in 2019 and the highest recorded since 2014.
These could be stomach-turning numbers for those just starting out in the industry and may be enough to scare someone away for good. Even the most seasoned MLOs may have a tough time digesting these numbers if they’re seeing the impact it is having on their own business. However, slowing profits and a bit of competition needn’t be a dealbreaker, but rather the fire you need to make a change.
If money is tight and on a downward trend for the foreseeable future, working harder is not necessarily the answer (unless you’ve been dragging your heels), you need to work smarter!
What is cost efficiency?
As the great Peter Drucker once said, “Efficiency is doing things right; effectiveness is doing the right things”. You could be the best at what you do, know everything and everyone you need to know, follow all the processes and have great communication skills… AKA, do all the right things – but, are you doing them right?
Cost-efficiency is a business strategy and is essentially the process of working in a better, or more efficient, way in order to save money. For example, paying for five different tools and using the time of two members of staff to complete a process that one tool could consolidate and one person could quickly update saves money on tools and frees up time to utilize elsewhere in the business.
By monitoring the results of your efforts in comparison with the expense, you can measure how efficient you really are. There is no limit here, you just need to improve results or reduce the input to continue refining your efficiency.
Using this business model will essentially help to grow the value of your customers, raising profit margins in return. As a business grows, the more cost-efficient it becomes, the more profitable it is.
Ways to Increase Efficiency in Business
There are many ways you can look to cut costs in your business, either by speeding up processes, cutting unnecessary steps or exploring cheaper options with expenses. However, it’s important not to cut out essential steps that could lead to mistakes along the way and consequently decrease efficiency in the long run. Below, we have outlined some of our top ways to become more cost-effective.
Automate Your Processes
We’re always talking about automation here on the blog, and for good reason. A lot of lenders use technology that just can’t keep up with the demand of the market, especially if you’re looking to increase the volume of loan applications, which will in turn increase profits. Selecting the wrong type of software with a million different steps to manually complete can actually slow down applications, increase required resources and lead to lower profit margins.
Switching your process to automate emails and reminders will instantly make your time management and client management processes more streamlined, saving time, upgrading the number of connections you make in a day, completing more sales in a month and, ultimately, improving profit margins.
Streamline Accesses
Having a streamlined system allows you and your team to access data and information across locations and devices without needing to be in one place at a time. This is an instant time saver and means that updates can be made immediately, avoiding costly mistakes down the line, increasing acceptance rates, and leaving time for more sales when you get back to the office.
Improve Compliance
Mistakes can be costly in the mortgage industry and, as such, officers take their time to follow regulations and do their due diligence when completing administrative duties required in their work. Optimizing these responsibilities can save some of that time, which can then be used for additional sales and applications. Incorporating rules into your software to provide error feedback can decrease inaccuracies and improve efficiency in this area.
Secure file sharing is also an important system you should look to introduce within your team to avoid desktop or worse – filing cabinet – overload! Warning – the use of a secure file sharing system can lead to less time with your head stuck in a filing cabinet or glued to your screen searching for a specific file, as well as happier customers that know their data is secure!
These are just a few of our top tips to streamline, secure, and automate your workflows in order to gain back some time and manpower in order to improve your profit margins. Have you had any success with cost-efficient methods? Share in the comments below.
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