Upfront Data Collection Improves Loan Quality, Lowers Origination Costs
Patrick O’Brien is CEO of Buffalo, N.Y.-based LenderLogix, a provider of mortgage point-of-sale and automation software for banks, credit unions, independent mortgage banks and brokers
The mortgage industry has a cost problem. Everyone knows it, and the numbers don’t lie. According to the Mortgage Bankers Association, total loan production expenses in the second quarter of 2025 averaged $10,965 per loan. That’s down from $12,579 in the first quarter, but only because volume picked up. At more than $10,000 per loan, costs remain stubbornly high and continue to pressure profitability every time the market slows.
If lenders want lasting improvement, they need to start with loan quality. Stronger files don’t just move faster through the pipeline. They also cost less to produce. And the best place to strengthen loan quality is right at the beginning: the point of sale.
Building Higher-Quality Files Upfront
Too many files arrive at underwriting incomplete. Pay stubs are missing. Income hasn’t been verified. Borrowers are asked for the same document twice because the first one wasn’t classified correctly. Every gap creates another round of conditions, another touch by a processor or underwriter, and another delay that drives up cost.
A data-driven POS addresses those gaps at the source. Income, employment and asset verifications run automatically during the application. Borrowers see a needs list that reflects their actual loan scenario, not a generic checklist. Documents get uploaded once and ingested directly into the system of record.
When that file reaches the underwriter’s desk, it’s cleaner and more complete. The underwriter can focus on decisioning instead of detective work. That improves efficiency and lifts loan quality at the same time.
Loan Quality as a Cost Driver
Here’s the thing about loan quality: it isn’t just about compliance. It’s also about cost. The ACES QC Industry Trends Report for Q1 2025 showed the overall critical defect rate climbed to 1.31%, with income and employment defects jumping 42.5% to make up nearly a quarter of all critical defects.
Critical defects are the kinds of mistakes that trigger repurchase demands. And buybacks aren’t cheap. A joint study by Reggora and STRATMOR Group found the average mortgage repurchase rate is 0.49%, with each repurchase costing an average of $32,288. More than half of those were tied to income or appraisal issues.
The GSEs have found the same pattern: lenders using at least one automation tool reduce defect risk by 33%, while those using multiple tools cut defect rates by as much as 75%. Fewer defects mean fewer conditions, fewer underwriting touches, and fewer loans subject to buyback. Loan quality, in other words, is a direct lever on cost.
Driving Down the Cost to Originate
Even with the second-quarter dip, the cost to originate remains above $10,000 per loan. That number has haunted the industry for years. When volumes are high, lenders can survive it. When volumes fall, costs overwhelm profitability.
The Freddie Mac 2024 Cost to Originate Study highlights what’s possible. In late 2023, the industry average cost to originate was about $11,600 per loan. The top 25% of lenders came in around $6,900. The difference—nearly half—was attributed to stronger adoption of digital and automated tools. Lenders that leaned into automation shortened cycle times, improved pull-through and saved about $1,500 per loan.
Upfront data collection is central to these gains. By validating employment and assets at the application stage, generating borrower-specific needs lists, and ingesting documents in real time, lenders deliver more accurate and complete files. That reduces rework, minimizes defects and lowers underwriting touches. Over hundreds or thousands of loans, those savings add up.
Conclusion
Loan quality and cost aren’t separate issues, but rather two sides of the same coin. Cleaner, more accurate files reduce defects. Fewer defects mean fewer repurchases. And together, that drives down cost per loan.
The mortgage POS has evolved from a borrower convenience into a lender’s most important efficiency lever. Automating verifications, generating smart needs lists and capturing documents at the start doesn’t just make life easier for underwriters. It strengthens loan quality, reduces risk and chips away at the stubbornly high cost to originate.
In an environment where margins are thin and repurchase risk is real, lenders can’t afford to treat upfront data collection as optional. It is one of the clearest ways to improve loan quality and help bring origination costs under control.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
