Just in case you were one of the last holdouts, hoping against hope that the refinance train would keep chugging along, the MBA has some bad news for you. That purchase market we’ve been talking about for months isn’t just coming. It’s pretty much here.
Housing Wire did a great write-up on the MBA’s Quarterly Performance Report for the 4th Quarter of 2020. Even then, although refinance still made up the majority of mortgage origination volume, purchase climbed to 46% of the total. More importantly, production costs rose, eating into lenders’ profit margins.
The report explains, in great detail, why production costs were up. It points especially to personnel cost increases across sales, fulfillment, production support and more. Of course, we know that lender production pipelines were strained to the point of bursting most of 2020, and that staffing-up is the industry go-to when there’s more business. That’s not a bad reaction to a rising market at all. However, as origination volume begins to fall (and it will, after hitting a historic high last year), staffing will inevitably be ramped down. While that may help on the margins to some degree, it will also likely slow production times and, in other, small ways, exacerbate the small, costly inefficiencies already existing in many workflows, impacting overall profit negatively.
In the mortgage industry, the little things add up in many ways, both positive and negative.
We know that the best firms in the business have made substantial investments in their technology solutions over the past three or four years. Loan origination systems and point-of-sale solutions have been flying off the shelves—if such systems came on shelves. I still believe, however, that our industry has a lot of work to do on streamlining its production process—the “back end” of the operation. It doesn’t have to be a global, full operation system. There are many, many great solutions to some of the smaller, more notorious speed bumps in the process—many of which integrate or operate seamlessly alongside the most common LOS. Many or most of these “local” solutions won’t break the bank, either.
I’d predict that the next MBA report, for the first three months of 2021, will show lender profit per loan will decline again, in spite of the fact that all reports suggest the market is still more than robust. And I’d further suggest that at least some of those declines can be offset by increased efficiencies in the production process. It’s never too late to revisit your workflow and the tools you use to bring a mortgage from application to closing. After all, this purchase market will likely be with us for some time.
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