With originations, revenues, and profitability on the decline, most mortgage originators are feeling the impact. The mortgage applications currently stand at a four-year low and loan production expenses, on the other hand, have been reported to be the second highest in the decade, as of early 2018. Production costs have risen from just over $5,000 per loan in 2012 to close to $9,000 per loan in 2018, an 80% increase within the span of five years.
Lenders are facing a difficult challenge. At one end, there is less business due to macroeconomic factors, and at the other end, the complexity of operations has increased due to compliance and regulations, resulting in increased turnaround time and escalated costs. With limited control over external factors, the need of the hour for progressive lenders is to grab the most market share by making the right strategic moves.
Technology adoption to streamline operations and make the process easier for the homeowner ranks high among the limited options available.
Why Technology Adoption?
Technology adoption is rising within the mortgage industry due to the convenience, capability, and efficiency it brings into operations. Technology adoption can minimize manual effort and errors, reduce overall costs, and improve profitability, helping the adopters grab greater market share. Moreover, technology can be used to provide an improved borrower experience.
While technology adoption and its benefits are exciting, much of the outcome depends on the choice of technology. Typically, the choices you have are between picking the subscription of an off-the-shelf product or investing in developing your own custom technology solution.
If you are opting for an off-the-shelf product, it may not entirely fit your requirements, and you will end up making an upfront capital commitment, besides having to manage ongoing upgrade/update/customization expenses.
If you are planning to develop your own custom technology solution, elapsed time for development will be the biggest limitation, besides being very expensive.
Here are some of the key points to consider when lenders are making these decisions.
- Analyze how closely the technology product aligns with your unique business needs and the process setup.
- How does the technology product fit within the budget, timeline, and the associated risks and returns?
- How long it takes to adopt a software solution and to integrate it fully with your existing procedures?
- How will you manage any ongoing technical requirements of the product?
- How will you manage upgrades and keep up with the changing technology needs?
The concerns with a readymade solution include the product fit, upfront costs, and inherent risks involved with making a wrong choice. On the other hand, custom solutions often involve high costs, lengthy development times, and slow improvement cycles.
At this juncture, however, there does exist an optimal answer to the buy versus build conundrum—the "pay-as-you-go" model. Using this model, you can be sure that you are using the best, most specialized mortgage technology without incurring any upfront or recurring charges.
The "pay-as-you-go" model gives lenders the option to pay variably depending on usage without any upfront fixed costs involved. In this fluctuating market scenario, this can help lenders convert their fixed development costs to variable costs. All this can be achieved while making use of the best up-to-date technology available providing the best of value and services to the borrower.
You can read more about these factors and considerations in this white paper.