Joe Ludlow of Advantage Systems: The Importance of Tracking Every Dime in a Rising-Rate, Recessionary Mortgage Market

Joe Ludlow is Vice President for Irvine, Calif.-based Advantage Systems, a provider of accounting and financial management tools for the mortgage industry. More information on the company can be found at   

Joe Ludlow

Mortgage lending has always been a volume game. Traditionally, narrow profit margins have made it necessary for lenders to originate as much as they can at the lowest cost in order to stay profitable — a task that is aided when loan volume is easy to capture.

For the better part of the past three years, lenders have been originating historic volumes (more than $4 trillion in 2021 alone, according to the Mortgage Bankers Association), despite the fact that their operational costs remained high.

If volumes are large enough, lenders can still make money even if their cost to originate is high. But all of that changes once volumes begin dropping, which is where the industry finds itself today. Residential mortgage lending was down more than 32% in the first quarter, representing the fastest decline the industry has seen in eight years.

In late June, MSN reported that mortgage rates had “surged to the highest level since 2008, while making their biggest one-week jump in 13 years. In response, the industry is working to maintain new homebuyer demand while working against high interest rates and rising inflation. Some lenders are reducing  margins, while others are focusing on other types of products, like reverse mortgages, home equity loans and even the once-maligned adjustable-rate mortgage.

The reality is that most lenders will see their volumes drop regardless of what they do, so they are also looking for additional strategies for staying profitable; one place to affect meaningful change is in lowering existing operational costs.

Finding Opportunities For Savings

More than half of a lender’s expenses are generally tied up in personnel, especially salespeople they can’t do without. Technology typically only accounts for about 5% of the lender’s cost to originate, according to MBA. So, where do less obvious opportunities for savings reside?

One area of focus that can generate immediate impact is loan and non-loan expense invoicing.

When volumes are high, vendor invoices flood into departments and human staff have little time to review them as they focus on moving loans through the origination pipeline to closing. When volumes fall, however, lenders have the desire to carefully evaluate their businesses and the flow of money in and out of the organization. What lenders often find is that the amounts they have been paying have changed over time, but only lenders that have the right level of visibility into their accounts payable data can readily make those observations.

In many organizations, the invoice approval process and reconciliation within the accounts payable department is a laborious, manually time-consuming and error-prone step of the procurement cycle.

Increasingly, lenders are automating these processes, which allows them to more quickly and easily approve vendor invoices, journal entries, and employee expenses. With the right software, it suddenly becomes easy to find out where the money is going.

With this level of documentation, lenders can see how individual vendors are invoicing them and determine if changes are being approved that should not be. Part of improving the approval process is in defining exactly who is authorized to approve what and then implementing rules-driven workflows for reviews and approvals.

Money-saving efforts like this are important in any market, but when volumes begin to fall, it is important to remember that vendors are also feeling the pain of the cash squeeze. They may take the opportunity to increase their lender fees via new contract terms, changes to their service level agreements or the frequency of their invoicing.

Without the right technology tools in place, it can be difficult to spot these changes and effectively manage them to the benefit of the lender. And even if there are no problems, enhanced visibility into vendor invoices positions lenders to better evaluate for renegotiation of terms, or switch to another provider, among other advantages.

How much can lenders save by paying closer attention to their accounts payable process? The simple answer is that the more volume the lender is closing, the higher the savings can be when each invoice is carefully considered. For some lenders, it may just make the difference between succeeding through a downturn and a much more painful alternative.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at; or Michael Tucker, editorial manager, at