Editor's Note: This is part five of a five-part series on the strategies lenders are using to make their operations more efficient and profitable. Read part one (compensation), part two (marketing), part three (facilities and equipment) and part four (cost of funds).
There are many costs associated with regulatory compliance and related liabilities in the mortgage business, and while there are signs this could change, how and when remains uncertain.
Until it is clear how or whether the government-sponsored enterprises' rep and warrant relief affects insurance needs, or how changes to federal tax rules or attempts to rollback Consumer Financial Protection Bureau regulation will play out, lenders will have to make plans based on existing compliance costs.
Licensing, taxes, insurance and legal, along with other professional services fees associated with compliance, currently cost the average lender $591 per loan, up from $533 in 2013, according to Richey May. And if the compensation costs were included, the cost would be even higher.
When there is that much compliance to handle, one way to save money on related services is to see what discounts are available for bulk purchases of compliance-related training.
"There are companies that will provide consistent online training and include both the sales and technical-oriented part. The more you do, the more you ought to be able to get the cost down," said Garth Graham, a senior partner at industry consulting firm Stratmor Group.
Lenders like Envoy Mortgage, for example, shop for bulk rates for continuing education that loan officers must take to stay licensed.
Smaller mortgage lenders or loan brokers also can access bulk rate discounts through cooperatives or larger business partners that have large networks.
United Wholesale Mortgage offers a continuing education discount that 2,000 of its mortgage brokers use, according to Brad Pettiford, a spokesman for the company. The discount saves brokers more than $100 per month.
"It's a huge cost savings," said Lynda Danna, president of mortgage broker 1st Residential Funding Inc.
Another strategy for lenders are automated change management systems that help companies stay updated on shifts in industry rules by identifying and analyzing new regulations while filtering out information that doesn't apply to a lender's products.
Quote"There are companies that will provide consistent online training and include both the sales and technical-oriented part."
— Garth Graham, senior partner, Stratmor Group
Waterstone Mortgage, which recently switched from spreadsheet-based technology to Continuity's change management system, hasn't had it long enough to see what the return on investment will be like.
But the company already finds tracking relevant state and federal rules less "labor intensive" than its previous spreadsheet-based system, said Chris Hatton, Waterstone's compliance manager.
The Continuity system on average takes about 90 to 120 days to provide a return on investment and within a year usually saves each company the equivalent of one part-time employee's salary, according to Pam Perdue, executive vice president and chief regulatory officer.
Compliance will no longer be lenders' primary cost concern in 2018, but it will remain a key consideration as they broaden their search for efficiency to encompass the full scope of their operations.
Lenders must broaden their cost-benefit analyses to the full scope of their operations to fully right-size their companies and adjust to new market needs.