WE’RE HEARING a lot of clients still calling with concerns about current market conditions. They are feeling the impact of rising interest rates; the easy refinance volume has begun to go away.
Two weeks ago, I began this three-part series in which I have equated the required market reboot to a computer reboot. I mean, wouldn’t it be great if we could press Control-Alt-Delete and start over with a smooth running machine. Having discussed the
This is probably one of the toughest subjects to tackle. When and how do you start to remove costs from your process? What is the best way to tackle cost reductions? When rates rise and volumes fall, we often find companies that want to make cuts unilaterally—across the board—in order to bring their expenses in line with market conditions.
The first recommendation we typically make is to be sure to adequately model any such cuts with real financial metrics to allow you to see the cost savings you expect and, even more importantly, that the resulting savings are not erased by reduced revenue or higher costs somewhere else in the operation. For example, if you cut too many closers will you see an increase in post-closing deficiencies and then just need more bodies in that department to clean up? And as we move to a purchase market, we may see a lot more end of month closings, and may not be able to reduce the number of closers at all. If you cut too many loan originators, you may fail to take advantage of the opportunity to gain market share as the market normalizes. So, make sure your cuts make sense.
Another important consideration involves how to include customer satisfaction into your decision-making process. We have done of lot of work on this topic, and there are ways to measure how
To my partners at Stratmor, cost containment is not a question of simple arithmetic, meaning you can’t simply subtract your way to a better bottom line. It’s more a question of algebra, solving for the one variable that will have the biggest impact on the bottom line. We often make use of sophisticated modeling techniques that take into account fixed expenses, operational metrics, pull through and other important criteria to find the element in the process that is creating the biggest cost.
Our senior partner, Matt Lind, has a Ph.D. in mathematics from Harvard and a few other degrees from MIT, which makes him a real math whiz. (Matt also has a minor in comedy with a concentration on puns and jokes, although that is less applicable to this situation, at least for serious lenders). So, Dr. Matt has performed an analysis that proves that purchase loan processing is more expensive and more intensive that refinance processing. As the market normalizes back into a purchase money market, does it really help your bottom line to cut processors who are capable of handling purchase loans?
So, obviously, there is a renewed focus on overall head count when the market gets tough. But I challenge lenders to be sure there is not a way to introduce new methods to make employees more productive when you have the opportunity to implement some change. Often, we hear from lenders who know their employees need training, but never have the time to do it. Well, perhaps now is that time. Maybe that investment should be part of your future staffing model, to train and better manage your staff and then expect and measure the results going forward.
For example, we hear from Consumer Direct lenders who lament their ability to convert purchase leads, often citing “Realtors” as the reason. But are call center agents adequately trained to handle the Realtor interactions? Do they know the meaning of the word “escrow” and what it means in California compared to other states? Everyone involved in the loan needs to know that a contingency date is not a backup social plan for the weekend, and a “back to back” closing is not something out of the Kama Sutra.
The final part of the delete discussion ought to be about steps in the process that can be deleted—not just people that can be deleted. Take a good look at your processes and be sure that all of the steps you’re taking are really needed. Could a process be eliminated or automated? What would that do to your overall productivity? Remember, when volumes are high, plentiful revenue can disguise inefficient processes. Maybe you can take this chance, as volumes wane, to streamline your process. Try to automate some steps and explore vendors that can help with some of the remaining steps after that.
Once again, if you model such opportunities with real data, you can often find that such process elimination and automation gives you the efficiency pickup to survive a lower volume period.
So, we have now talked about
As mortgage bankers, these are the times that will separate the winners from the losers. Those that manage through these changes will be better positioned because they will have created a successful model for the future.
Garth Graham is a partner with Stratmor Group, and has over 25 years of mortgage experience, from Fortune 500 companies to startups, including management of two of the most successful mortgage e-commerce platforms. He was formerly with Chase Manhattan Mortgage and ABN Amro, where he was a senior executive during the sale of its mortgage group to Citigroup.
