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Play # 5 - Has The Hunger Games Come to the Mortgage Business? That's the $12,450 Question

The Mortgage Bankers Association (MBA) recently released their compilation of the industry’s 4Q 2022 financial results. It ain’t pretty. Lenders know the back breaking cost of over $12k to originate a mortgage threatens survival in this high rate, cutthroat environment. Some industry veterans are invoking Darwinian concepts to describe the mortgage market's current survival of the fittest, winner-take-all environment. This Hunger Games movie clip succinctly explains how winners take all, and losers are left only with hope.

But the response by most lenders to losing over $2800 per loan is to cut staff and scramble for every new loan they can, hoping to survive. But hope is not a strategy. They are missing the immediate bottom-line impact from acting on Quality Control’s business intelligence. Driving a few hundred dollars per loan of cost out of the manufacturing process could make the difference in keeping the doors open. And QC tells them exactly where to look for such efficiencies without cutting staff or falling for the latest Fintech software pitch. Here is a simple example of how QC identifies waste and inefficiency in the current process.

A lender originates 500 loans a month. Pre-funding QC, through its 10% sample of 50 loans from last month’s originations, identified 1 serious and 4 moderate defects on missing income documentation. Or 10% of the QC sample had this type of defect. The cost of time spent in remediating each defect is $300 per loan.

Assuming QC results implies similar inefficiencies across all originations, 50 loans potentially incurred unnecessary work to fix income documentation. Developing an action plan to reduce rework in fixing income documentation by 50% would save expense on 25 loans at $300 per loan, or $7500. Profitability increased $15 a loan by improving the process on just one defect. Replicate this approach across your QC defects for developing a competitive advantage in the cost of doing business.

Many lenders assume quality control is only about avoiding repurchase and ensuring they have mandated controls in place. Quality Control is about informing the loan manufacturing process on conformance to standard work process and procedure. Defects lead the list of the 8 wastes of Lean Management Principles depicted below. But also note the other expensive wastes that apply to loan manufacturing.

Mortgage lenders are behind other industries that embrace quality control as real time business intelligence, helping drive down cost and improve product quality and customer satisfaction.

When a lender wants to stop hoping and start controlling their destiny, an effective QC team might be their most valuable business partner in the race against time to achieve break even before the money runs out. It’s a precision weapon like Katniss’ bow and arrow shown in this iconic “shoot the apple from the pig” clip from the Hunger Games.

Call SWS Risk Advisory today about adding another weapon for not only survival, but competitive success. Lenders can also find specific ways to reduce expenses by learning to “Monetize the Defect rate” and creating a “Cost of Quality” metric. SWS Risk Advisory LLC is the industry leader in translating quality control results into increased profitability. We will find you several hundred dollars per loan in potential savings.

For current and past “plays” (editions) to “The Two Minute Drill” click here. And to learn how our awesome sponsors can help you with your Risk Management and QC needs go to:

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