Five Critical Steps to Improve Profitability in 2022 and Beyond

January 31, 2022

Mike Fratantoni, Chief Economist of the Mortgage Bankers Association just published this revised forecast for 2022:

A pretty brutal forecast for lenders coming off two great years.  2023 and 2024 are also forecast down 35% from 2021/2020.  The world has clearly changed.  So how do you build a resilient business model that remains profitable in 2022 and beyond?

First, we have to internalize that what worked in 2020 and 2021 isn’t going to work in 2022 and beyond.  Margins will further compress.  The industry has about 100,000 employees too many.

Second, decisive action is required right now to rapidly adopt a data driven business model to ensure profitability, liquidity and to manage risk.

Following are five critical steps to take right now:

  1. Rank your originators and AEs on five key metrics: Purchase Volume, Margin after Concessions, Pull-Through, Turn Time and Cures.  Using these five metrics, we’ve discovered volume is not representative of profitability.  Be proactive, and recruit more purchase oriented originators.  Cut the low performers now.  Focus on Margin, Pullthrough and Cures to find the true high performers on your team.  It’s not just volume, it’s the confluence of these five key metrics to identify the true top performers.  Share the results to recognize high performers and to instill some healthy competition.  Consider inviting low performers to begin their careers at competitors.
  1. Rank your operations team. Measure the number of cases and speed of throughput.  You may be surprised at the variation in productivity.  Consider degree of difficulty of each employee’s workload (credit metrics, loan type, etc.)  Share this with the team to encourage transparency and to encourage high performers. Consider inviting low performers to begin their careers at competitors.
  1. Analyze fall out. It’s not a ‘cost of doing business.’ Certain fallout can be hidden treasure.  It can also be an indicator of poor customer service that can be corrected. Know how to find these ‘hidden treasure’ opportunities.
  1. Make sure you forecast cash every day, and track your loan closings and warehouse dwell constantly. Liquidity and cash are life, especially for IMBs.
  1. Manage counterparty repurchase risk. Two years of wide open throttles may mean there are loans that have incorrect data.  Identify the loans most likely to be subject to repurchase requests (i.e., layered risk, etc.) and ensure the data is correct.  Fix any issues now and you can save a lot of expensive headaches later.  Act today to prevent needlessly giving back hard earned profits later.

Lenders must implement these five initiatives now, and repeat the effort monthly thereafter.  Use Loan Vision and your LOS data to perform these initiatives every month.

Coheus from Teraverde offers you an out-of-the-box solution to perform all five of these initiatives quickly for Loan Vision and Encompass Users.   Whether you perform the initiative manually or use a Coheus, you will be well rewarded in terms of future profitability for your efforts.

Coheus Loan Vision application loan officer profitability created actionable data out of the box.

James M. Deitch

Co-Founder & CEO, Teraverde
About the Author

James M. Deitch founded Teraverde® nine years ago, after serving as President and CEO of five federally chartered banks for over twenty-five years. Teraverde® now advises over 200 clients in mortgage banking, capital markets and financial technology, ranging from some of the largest U.S. financial institutions to independent mortgage bankers to community banks. Jim founded two national banks, including a top 50 national mortgage lender. Jim’s experience in residential mortgage banking for the last three decades on a retail, wholesale and correspondent basis led to an intense desire to learn about how technology could be applied to financial institutions. His experience includes multi-channel loan origination and sales management, mortgage product design, credit policy, hedging, securitization and loan servicing, and his beginning to end experience – and his love of high performance aircraft — has fueled his “need for speed” in applying technology to mortgage banking. He has served on the Mortgage Bankers Association Residential Board of Governors and served on CEO panelist and speaker for major financial institutions, financial industry associations, corporate clients, the Department of Defense and universities. Jim is a thought leader and has published numerous articles in the industry publications.

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