How to Revamp Your LOS to Drive Down Cost Per Loan
June 07, 2022
Cost per loan has been up nine quarters in a row, even though mortgage lenders have been adopting all kinds of “cost-saving” automation. With high interest rates driving volume down, minimizing cost per loan is more important than ever.
But adding another point solution to an already complex tech stack won’t do the trick. Instead, lenders have to take a more holistic look at their loan origination software (LOS) to ensure it’s providing as much value as possible.
Typically, that involves making three types of changes: simplifying, consolidating, and automating. In this piece, I’ll explain how each can help mortgage lenders minimize cost per loan.
Simplify: Rethink Workflows
Mortgage lending is a complex, multi-step process. But often, there’s room to simplify existing workflows. Maybe some steps duplicate each other; maybe they could be reordered to improve efficiency. Maybe they’re redundant given the technology you currently use.
To help lenders simplify, we look at various workflows as they currently exist. Then we ask: Do you really need to do all of these things? If so, we ask whether there’s another, simpler way they could be done.
For example, maybe there’s a way to have technology process 80 percent of initial applications so that human workers can focus on the 20 percent that have non-standard elements. Another way of framing this: do people really have to touch every loan at every phase of processing? Do they have to actually touch paper to do their work?
In many cases, the biggest hurdle for simplifying is a cultural one. When some mortgage lenders introduce new technology, it fails not because it doesn’t work as promised but because teams don’t use it (often because they don’t fully understand it and therefore don’t trust it).
Solving for this is a subject for an entirely different blog post. Until then, check out this helpful piece from Harvard Business Review on how to inspire skeptical employees to adopt new software.
Consolidate: Unify Silos
Over time, a lot of lenders and banks end up with what I like to call a “sea of stovepipes.” The point solutions they’ve adopted over the years to improve various functions act as spokes that connect to the hub of the LOS. When a lender wants to update the LOS – often to take advantage of new features or bug patches the LOS provider has pushed out – the many spokes attached to it might break.
What ends up happening is that updating an LOS becomes a huge project that requires lots of the IT team’s time and energy to manage so that pushing the new version of the LOS doesn’t cause downstream problems in connected systems that could lead to problems in processing applications.
This can become particularly painful when business leaders recognize an opportunity to bring a new product to market – but because of the time-consuming technology updates required, the lead time is 12 to 18 months. In other words, you end up with a system where technology is dictating the business rather than enabling it.
Consolidation can help. When we work with banks and lenders, we first look to see whether we can replace multiple point solutions with a single solution. Then, we look at the points where various systems interact with each other. Instead of having them all tightly coupled to the LOS, we look for opportunities to have them communicate in such a way that changes to the LOS won’t affect their operations.
The outcome is a nimbler, more streamlined tech stack that lets banks and lenders operate more efficiently and adapt more quickly to changing conditions.
Automate: Outsource Rote Tasks to Tech
Automation can do wonderful things for mortgage lending.
Let’s start at the beginning of the process: when an application comes in via LOS, lenders have a limited amount of time to send the first round of disclosures. Rather than having workers scramble to get them out every time a loan comes in, we can automate that process. Ditto for estimates. Ditto for when there’s a material change to the loan and new disclosures have to be sent.
The reality for lenders who don’t automate these tasks is that they often miss deadlines and end up with heavy fees on their hands. In this context, automation is an obvious win.
We can also apply automation to the conditions management and decisioning processes. Because the LOS captures relevant fields in a digital hub, adding automation is fairly straightforward.
Just as important: automation doesn’t make human workers any less valuable. By integrating automation to your processes, you eliminate the rote work from your employees’ plates and let them focus on the more complex tasks that machines and algorithms can’t handle.
The result is more rewarding work for your workers, fewer fines, and faster processes that make borrowers happier.
An LOS Overhaul Can Help Manage Mortgage Lending Costs
Over the last decade, technology has transformed mortgage lending – though lenders have often experienced that transformation incrementally as they adopted hyper-focused solutions to digitize single points of the lending workflow.
Now, most mortgage lenders can benefit from taking a holistic look at their tech stack and how it ties to their LOS – and identifying ways to simplify, consolidate, and automate existing processes and workflows to reduce costs and improve efficiency.
Curious about how your organization could benefit? Get in touch. We love helping lenders achieve new levels of productivity and efficiency by rethinking their tech.