“I hope it’s a promising sign,” he says. “But is it the
beginning of a trend? I think that’s hard to say.”
That skepticism seems valid. One of the biggest driv-
ers of the production-cost decrease in second-quarter
2015 was an increase in productivity. According to the
MBA study, an average of 2.77 loans were closed each
month per production employee in the past second
quarter. That was a signi;cant increase over the 2.36
mark for first-quarter 2015 and the 2.3 average for
The cost to originate a loan in 2015’s second quarter, however, was still nearly $300 more than it was in
Even the MBA seems to exercise caution when discussing the 2015 quarterly cost decrease.
“The production volume increase resulted in a nominal decrease in per-loan production expenses,” Marina
Walsh, MBA vice president of industry analysis, said.
“However, by historical standards, production expenses
remained elevated [in second-quarter 2015].”
Ron Haynie, senior vice president of mortgage ;nance
policy for the Independent Community Bankers of
America, expects to see mortgage-production costs
on the rise again, thanks in large part to some of the
regulatory issues facing the industry.
This past October, new consumer-disclosure rules,
known as TRID, were implemented. Reporting changes
also have been announced for the Home Mortgage
Disclosure Act (HMDA), with several of those rule
updates set to take place at the start of 2017.
Several important issues face the mortgage industry. The millennials are likely to be a focus point for several years, both in terms of their ranks joining the homebuying market
and joining the mortgage workforce. Regulatory issues
continue to change the way mortgage professionals
do business. And as technology continues to evolve, so
does the way mortgage loan originators communicate
with clients and close loans.
Along with all of those is another lurking issue, however, one that ties in all of the above. It may not be as
interesting as ;nding new millennial homebuyers or
new technologies, or as immediately pressing as compliance, but it may shape the industry in years to come.
“We have to cut the costs of manufacturing a loan,”
says David Green, president of StoneHill Group.
The cost to close a mortgage is a vital statistic for any
mortgage broker, banker or lender. The higher costs
become, the more costs end up getting passed along to
consumers, which can make it tougher for companies to
earn business from would-be borrowers. Higher costs
also make it more di;cult to run a successful business.
And for years, that cost of doing business has steadily increased.
“At the end of the day, making mortgages is a manufacturing process,” says Dan Green, senior business
operations manager with Accenture Mortgage Cadence.
“With every manufacturing process, the goal is to make
it as e;cient and as low-cost as possible. With mortgage
cost-to-close, it’s been going the other way for too long.”
Good news, for now
The Mortgage Bankers Association (MBA) releases a
quarterly performance report that tracks the expenses
and revenues associated with originating and servicing residential mortgages. In second-quarter 2015, that
report ;nally brought the mortgage industry some
The MBA reported that the average production
cost associated with a mortgage for that quarter was
$6,984, a decrease of $211 from the ;rst quarter. That
cost incorporates all expenses related to commissions,
compensation, occupancy, equipment and more. The
cost to originate a loan — production expenses minus
all fee income — was $5,372, a decrease of $225 from
With those reduced expenses came stronger bottom
lines. The average pro;t per residential mortgage was
$1,522 during second-quarter 2015, an increase of $75
from the previous three months.
Dan Green, a self-described “cost-to-close nerd” who
has written several reports and articles on the subject,
calls those numbers undeniably good news for the
industry — although he remains unsure whether the
decreased costs will become the new normal.
Closing the deal is a key cost of doing business
By Rob Crow
Those regulatory changes will require mortgage
companies to undertake preparation work, training,
education and process updates — all of which create a
drag on productivity and increase costs.
“The impact of HMDA on lenders that have to report
is huge, because you’re adding, altogether, about
40-some ;elds (of data),” Haynie says. “We’re just
trying to come out of the TRID implementation, and
here’s another one that the vendors are going to have
to gear up for and be successful on, and it’s going to
The emerging millennial-homebuyer generation could
be good news for the mortgage industry for several
reasons. Among the positives is the impact a massive
in;ux of homebuyers could have on e;orts to lower
the cost of doing business.
“One of the ways you get good at manufacturing
is if you can get to some new market, and then you
can get really productive,” Dan Green says. “The other
thing that a;ects productivity is high peaks in volume,
and low valleys. So you’re always adjusting to that constant change.
“If millennials get engaged and start a steadily
increasing state of homebuying and mortgage origi-
nation, I’m con;dent that we can, as an industry, drive
our cost of production back down again.”
Technology, several experts say, also is key. If fully
electronic mortgages become the norm, for example,
the loan process should become faster and simpler,
making it easier for brokers, bankers and lenders to be
more productive, and making the entire process more
Without some of those changes, however, costs
could continue to rise, which would likely be bad news
for homebuyers and mortgage professionals alike.
“Lenders of all shapes and sizes can’t a;ord to just
absorb all of these costs and be able to price loans the
way they always did,” Haynie says. “People are going
to start putting bigger margins in loans, and what
does that mean? Well, it will impact folks being able to
qualify, especially if rates rise signi;cantly.
“There’s just this huge cost now to originating a mortgage, and it’s going to get passed through. It has to.” ;
Rob Crow is editor of Scotsman Guide Residential Edition.
Reach him at firstname.lastname@example.org or (800) 297-6061.
“With every manufac-
turing process, the
goal is to make it as
e;cient and as low-
cost as possible. With
close, it’s been going
the other way for
Senior business operations manager,
Accenture Mortgage Cadence