Jason Doshi of Paymints.io: In the Battle against Margin Compression, Don’t Overlook These Opportunities

Jason Doshi is CEO and Co-Founder of Paymints.io, Charlotte, N.C., a national provider of electronic disbursement technology developed specifically for the mortgage, title and real estate industry. Email him at Jason.Doshi@paymints.io. Learn more at www.paymints.io.

By now, mortgage lenders have gotten the message. We’ve entered a different market cycle. 2022 has been about cutting unnecessary expenses, improving efficiencies and taking measures to otherwise contain margin compression. The adoption of technology and automation strategies have consumed lenders in the understanding that origination volume won’t be reaching 2021 levels again for a long time, if ever.

The result so far is margin compression. The hard numbers tell a very clear story. MBA’s Quarterly Performance Report for Q1 2022 showed a pre-tax production profit of 5 basis points ($223) per loan—the lowest we’ve seen since Q4 2018. At the same time, it’s getting more and more expensive to originate a mortgage. While lower production revenue is an obvious culprit for decreased profits, the primary reason was cost: commissions, compensation, occupancy, equipment, other expenses and corporate allocations. The result? Expenses amounting to $10,637 per loan in the first quarter of 2022—a new high for the study.

While lenders are doing their best to leverage new technology in the battle against cost and inefficiency, for many, the efforts are almost entirely an in-house effort. Considering that production of a mortgage lies in the hands of multiple entities—the lender, perhaps a mortgage broker, the title and closing company, the appraiser and the like—that may well be a mistake.

Automation having a real impact on costs

Clearly, more than a few factors, compliance among them, have converged to influence the cost to originate. At the same time, however, the mortgage industry has come to understand that strategically chosen and implemented technology can impact a lender’s bottom line. Freddie Mac’s Cost to Originate Study: How Digital Offerings Impact Loan Production Costs set forth a compelling set of data strongly suggesting that lenders “exhibiting both lower costs and reduced cycle times…all use digital offerings at a high rate.” The findings further suggest that digital automation likely improves pull through rates and customer satisfaction. The report also recommended that “it is important to consider partnerships that can offer tangible benefits by leveraging their digital and automated solutions.”

A weakness in the chain

And yet, in spite of all of the evidence, many lenders still tolerate partnerships and vendors—especially around the title and closing process—which exhibit numerous inefficiencies. Manual processes outdated and/or proprietary technologies and inefficient integrations with their lending clients’ LOS all add cost to the origination process, directly and indirectly. Unnecessary expenses are passed to the lender and the consumer. Turn time slows. Pull through rate declines. The consumer experience is mediocre. All of these amount to unneeded and unnecessary costs. At a time when the most successful mortgage lenders will exploit every advantage, examining the vendor chain and its inefficiencies should be part of a comprehensive strategy to reduce production costs.

How automated is the potential service provider?

Lenders have been “automating anything automatable” for some time now. However, it should also be  expected that a lender’s potential service provider partner is doing the same. How much manual data entry or “stare and compare” can be found in a title agency’s or escrow company’s own production process? How many labor hours and human resources are devoted to tasks and functions for which automated solutions are readily available? This comes right down to processes like issuing or receiving paper checks (with the ancillary delivery costs and time delays) for earnest money or routinely playing voice mail tag with REALTORS or borrowers. Service providers—especially those who directly touch a lender’s borrowers—who still rely on manual or outdated processes don’t only slow cycle time and impact borrower satisfaction. They also end up impacting the lender’s cost to produce a loan.

What is the potential provider doing to protect against fraud or cyberattack?

If you think wire fraud or ransomware are the title company’s or closer’s problem, think again. In 2021, depository mortgage originators lost an average of $5.34 for every dollar of fraudulent transactions. Nondepository originators lost $4.66 for each dollar, and title/settlement firms on the front lines of such fraud lost $4.91 per dollar. Clearly, while not directly a production cost, every dollar lost to mortgage fraud is a dollar against a lender’s profit. If that fraud could have been prevented on the front lines by a prepared service provider, then why aren’t more lenders making that determination on the front end? While entire conferences are now devoted to how businesses can protect against fraud and cybercrime, lenders should, at a minimum, know that their potential partners have expert and updated resources dedicated to cyber security and fraud prevention. The potential partner should be combining expertise, effective technology and overlapping defenses to do its part to ensure the security of all parties involved.

Does the potential service provider’s technology align with that of the lender?

Even the most technologically savvy service provider creates huge inefficiencies for its lending partner when the lender’s technology doesn’t integrate or align with that of the service provider. Admittedly, this is a fairly basic determination for lenders doing their due diligence on potential vendors. And yet, if that same service provider is planning to swap out its production platform within a year of partnering, it’s important that the lender know this before signing any agreements. Any place in the workflow where a partner’s technology is not smoothly integrated with the lender’s is an opportunity for unnecessary rekeying or manual processing.

Does the service provider—or its own service providers—stay current with technology updates?

On the origination side, it can be easy to forget that a title agency or escrow provider likely has several vendors of its own, each with some access to the borrower or customer and its own vulnerabilities. It’s important to understand how a service provider vets and monitors its own partners for inefficiencies and weaknesses. Similarly, there are few truly “futureproof” technologies in the world. Even those that are “futureproof” won’t change if the users of the technology don’t regularly update their systems and track emerging solutions as well. Just as lenders seeking to leverage automation to battle margin compression can’t expect to make that happen on a one-time only basis, lenders expecting to improve efficiencies by managing a tighter vendor panel must be sure their partners are committed to the same.

The mortgage transaction is truly unique in the amount of disparate entities and parties that must touch a loan before it becomes final. Unfortunately, time and time again, some lenders forget that the weaknesses, shortcomings and inefficiencies of their third party service providers do have an impact on the lenders’ bottom line. The good news is that the solution, although it can be time-intensive, is fairly straightforward. In a time when every little bit helps, it’s probably time for lenders to scrutinize vendor efficiencies that much more.

(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 msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)