4 Common Pitfalls Impacting Your Loan Origination Costs

As a mortgage lender, your loan origination costs have a direct impact on your profitability. Unfortunately, these costs have been on the rise for some time. According to Freddie Mac, average origination costs increased by 35% over the past three years, leading lenders to report an average net loss of $645 per loan in Q1 of 2024.

So, what’s driving this spike in loan origination expenses? One major factor is Fair Isaac Corporation’s (FICO) series of price hikes. Over the past few years, FICO has raised its fees multiple times, including its most recent 41% increase in mortgage credit scores’ wholesale royalty fees.

While FICO’s pricing is out of lenders’ control, it’s not the only cause of rising loan origination costs. Many lenders are also losing money due to workflow inefficiencies. At Certified Credit, we regularly help lenders identify and correct these inefficiencies to streamline their origination costs.

If you want to avoid the most common loan origination pitfalls, you’re in the right place. Below, we’ll explore four expensive lending pitfalls and how to overcome them so you can preserve your profitability.

Table of Contents

#1 Ordering Verifications of Income and Employment Too Early

After reviewing countless lenders’ loan origination workflows, one of the most common mistakes we see is ordering verifications of income and employment (VOE) too early. While these verifications are essential for underwriting, not every applicant will make it that far. Requesting VOEs for these applicants can unnecessarily inflate your operating expenses.

How to Overcome This Pitfall

To reduce your VOE costs, you simply need to order verifications closer to the final stages of your loan origination process. At Certified Credit, we help lenders determine the right time by reviewing their pull-through rate, which measures the percentage of applications that ultimately close.

If your pull-through rate for loans with completed verifications is low, you’re likely ordering VOEs too early, wasting resources on loans you’ll never fund.

Need help determining the ideal VOE timing? Just ask our team. We’re well-versed at pinpointing the best time to order cost-effective verifications. We can also help you save money by employing our automated solution, Cascade VOE. Not only can this tool automate your verification ordering process, but it can also help you leverage the most affordable vendors every time.

Learn More: How Automated VOE Changes Everything

#2 Pulling Too Many Soft Pull Credit Reports

Back in the day, soft pull credit reports were a powerful cost-saving solution. They allowed you to assess applicants’ eligibility for a fraction of the cost of their hard-pull counterparts.

Soft pulls also shield new applicants from competitors’ trigger leads, which have the potential to overwhelm your applicants and steal away their business. By building trust and rapport with your applicants before conducting a hard pull, you can boost the chances that they choose your offer over your competitors, even in the midst of aggressive trigger lead outreach.

To many lenders’ dismay, FICO raised its soft pull prices to match hard pulls in 2023. This price hike has made the once-affordable prequalification process more costly than ever before, particularly for lenders who still order soft pulls at the same rate.

How to Overcome This Pitfall

Despite rising prices, soft pulls still offer some valuable benefits. Most notably, they can shield your applicants from competitors’ trigger leads and preserve their credit scores as they compare offers during the early stages of mortgage shopping.

You can enjoy these benefits while keeping costs low – you just need to be strategic about your soft pulls. For example, you may want to:

Order one- or two-bureau soft pull reports – If offering prequalification or preventing trigger leads are crucial to your strategy, you can save by ordering your soft pull reports from just one or two bureaus instead of all three. Our automated prequalification solution, Cascade Prequal, makes this process a breeze.

Cascade Prequal allows you to customize your credit report ordering preferences, whether you want to pull soft credit reports from one, two, or all three credit bureaus. It also allows you to personalize your eligibility criteria.

After setting these preferences, Cascade Prequal will compare your applicants’ data to your credit thresholds and prequalify eligible leads on the spot. Better yet, it will integrate their data with your loan origination system (LOS) and automatically generate the required disclosures.

Only order hard pulls for certain applicants – In some cases, skipping soft pulls entirely and going straight to a hard pull can be more cost-effective. Since hard pulls can be used for formal decisioning, relying on them from the start can save you the expense of ordering additional reports down the line.

As with your VOE timing, our team can help assess your current soft pull usage. We’ll analyze what percentage of your soft pulls lead to successful loans and compare that against the cost of generating these reports. If you’re overusing soft pulls, we’ll work with you to employ a more strategic approach, ensuring they’re used only when they’re truly beneficial.

#3 Underutilizing Cost-Saving Solutions, Like Smart Select

These days, there are many tools on the market that are specifically designed to help you save money. Unfortunately, many lenders aren’t utilizing these tools to their full advantage.

One solution that’s often underutilized by our clients is Smart Select. This tool helps you reduce unnecessary credit report orders. Here’s how it works:

1. You select your preferred parameters – Smart Select allows you to customize how you order your credit reports. You can choose from the following options:

- - 1 bureau -> 3 bureau
  - 2 bureau -> 3 bureau
  - 1 bureau -> 2 bureau -> 3 bureau

At Certified Credit, we often know which bureau will return the middle score, so we can configure Smart Select to pull from that bureau first.

2. You set your eligibility criteria – Next, you can clarify what criteria you look for in eligible applicants, including your required:

- - Minimum credit score
  - Zip code
  - Collection balances
  - Statuses regarding bankruptcies, delinquencies, defaults, federal tax liens, and foreclosures

3. Integrate Smart Select into your credit ordering process – Once you’ve set your preferences, you can integrate Smart Select into your existing systems. From there, Smart Select will order your applicants’ credit reports according to your preferred parameters automatically. After shedding light on an applicant’s initial eligibility, Smart Select can either upgrade their credit report to obtain more information or pause the process there, enabling you to avoid paying for unnecessary reports.

Smart Select Examples

To illustrate the cost-saving advantages of Smart Select, let’s explore two examples:

You pull a single bureau report for a new applicant and discover that their credit score is 800. Given their high score, there’s no need to pull additional reports from the other two bureaus. You can confidently proceed with the underwriting process, knowing their score is well above your eligibility thresholds.
You pull a single bureau report for an applicant and discover that their middle credit score is 640. To better assess their creditworthiness, you authorize Smart Select to pull a second report from a different bureau. This report reveals an even lower score, confirming that the applicant doesn’t satisfy your requirements.

As you can see, Smart Select can help you assess applicants as cost-effectively as possible. It also saves time and enhances accuracy by automating the process of matching applicants’ data with your eligibility requirements, eliminating the need for a tedious manual review.

Learn More: Cutting Costs & Building Business with Prequalification & SmartSelect

#4 Purchasing Your Lending Solutions A La Carte

The last common mistake we see lenders make is purchasing their lending solutions one by one rather than taking advantage of bundled pricing models. This inefficient purchasing method can significantly inflate your overall origination costs.

How to Overcome This Pitfall

Whether you’re content with your current lending infrastructure or seeking new solutions, make sure to ask your vendors about creative pricing models.

At Certified Credit, we strive to make our solutions affordable for our clients. That’s why we’ll take the time to review your current workflows and pinpoint what products you really need.

From there, we can bundle those solutions together and offer you a closed loan pricing model, which is often much more cost-effective than purchasing our solutions separately.

Learn More: Keeping Costs Down Despite Rising Origination Costs in 2025

Streamline Your Loan Origination Costs With Certified Credit

As origination costs continue to climb, you can no longer afford to fall prey to these pitfalls. Fortunately, you don’t have to – with Certified Credit’s support, you can optimize your lending process and make a meaningful improvement to your profitability.

Along with refining the timing of your VOE orders, reducing unnecessary credit report pulls, and leveraging creative pricing models, we can introduce you to a range of other cost-saving solutions, including our: