Kristin Golab of Plante Moran: ‘Fixing’ Fixed Costs in a Downturn–Six Considerations for Mortgage Bankers

Kristin Golab is Senior Manager of Assurance with Plante Moran, Detroit. She is a Certified Public Accountant with more than 15 years of experience in accounting, assurance and tax services, focused primarily in the financial services industry for both private and public companies.

Kristin Golab

As many economists know, in the long run, all costs are variable. With interest rates having jumped into the 7% range and indications from central bankers that they could go higher before they come down, independent mortgage bankers and financial institutions that rely on mortgages for a significant part of their income need to find ways to cut costs in order to manage the slowdown.

Many executives skip over certain “fixed” costs on the assumption that they can’t be lowered quickly enough to have an impact on current financials. Often, that’s not the case. Expenses like salaries, benefits, occupancy, and technology all have components that can be adapted to allow an organization more flexibility in the current economic climate.

If your organization is struggling to manage costs amid rising interest rates and an economic slowdown, here are six considerations to help you weather uncertainty.

Pay structures and benefits can be modified relatively quickly.

Undoubtedly, IMBs and mortgage operations have already been reviewing compensation and benefit packages. At its peak, the market may have demanded that employers seeking to attract or retain top talent  come up with creative pay packages that might include significant amounts of guaranteed salary or upfront/retention bonuses. As mortgage volume is down significantly, both headcounts and compensation terms can be adjusted to take into account current market conditions, so that a larger part of the pay obligation to the employee is contingent upon actual loan production.

In addition, with respect to benefit programs, it might make sense to adopt a nonvesting flexible time off policy that allows employees to take whatever leave they need without accruing specific limited amounts as they work. These policies have to be monitored more closely for potential abuse, but they allow employers to get through the year-end without having to book an expense and an accrued liability. They also provide the advantage of not having to cash out the unused accrued leave of employees who leave the institution for another position.

Performance matters.

Whether it’s a review on an individual-by-individual basis or a broader look at which offices may be underperforming, IMBs and financial institutions that work in the mortgage sector can’t afford to assume they’ll be able to carry all of their employees through an economic slowdown. Organizations should look for low-performing loan production offices that can be eliminated completely to reduce property overhead as well as salary costs. If additional belt tightening is still needed after the underperforming locations are shut down, managers will need to initiate the uncomfortable process of identifying individuals who aren’t making the numbers necessary to keep the business moving forward.

Outsourcing could be a part of the solution.

So many functions of the mortgage banking process can now be performed on a contract basis by outside third parties that it’s hard to list them all here. Whole departments previously viewed as “sunk costs” can be evaluated against the cost of a third party that provides a just-in-time version of the service. This is true for everything from client-facing loan-servicing functions to staff augmentation options. Any evaluation of this type of outsourcing needs to consider not only the potential dollar savings but also the potential loss of control and ready access to key functions in the business.

New healthcare options to consider

Many smaller and medium-sized organizations have been learning about self-insuring using group captive insurance plans that give them the option to pool their insurance risks with similarly situated employers in order to spread those risks across a larger group and, in turn, lower costs. In addition to their cost effectiveness, these plans also offer greater flexibility to the employers that choose them. For example, some offer patient advocacy resources that can take a load off of an organization’s internal HR staff as well, as the insurer is usually well positioned to handle questions from employees about benefits that would otherwise route to internal human resources personnel.

Reducing occupancy costs

Like any other business coming out of the pandemic, mortgage lenders need to look closely at their space needs now that so much of the workforce has gone virtual. While there will always be a component of this sector that needs some office space, much of the process has been automated to the point that most lenders can significantly reduce their commercial real estate footprint. Some jobs, like call center support, may never need to come back to the office.

Some key points to remember when evaluating space requirements in the months and years ahead include:

  • Does the business have an effective lease management system that can identify the types of penalties that will be incurred in the event executives decide to break a lease?
  • With the current conditions in the marketplace, does it make sense to buy commercial real estate where the business can consolidate those functions that require office space?
  • Understand that any lease can be broken or renegotiated, it’s just a matter of calculating the cost associated with that action to make sure that’s considered in the analysis of whether a different solution would be more cost-effective.
  • What functions are currently operating successfully from a remote location, and are there others that could be handled similarly?

Can spending on technology save costs in the long run?

For many organizations, the answer to this question is “Yes.” For lenders that currently have the liquidity to invest in technology during this period, the cost of technology has come down slightly in the economic downturn. An investment in a top-notch loan origination system, for example, could bring increased automation to the lending process. These types of new systems can also be programmed to interface with servicing and accounting systems in order to further reduce manual processing and potential input errors. 

In the long run

The key to understanding financial flexibility during challenging times like these is to keep an open mind about which costs typically considered “fixed” can in fact be modified. The more creative you can be in terms of reducing costs, the better the chances you’ll outlast the economic downturn and position yourself to thrive when the cycle eventually starts to move upward again.

(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