This year, many mortgage lenders have faced huge hits to their revenues. According to the Mortgage Bankers Association, independent lenders reported an average net loss of $543 per loan origination in the second quarter of 2023. Meanwhile, mortgage demand has plummeted to a 28-year low.
With rising loan origination costs and dwindling demand, many mortgage lenders are feeling the pinch on their profits. If you’re one of them, it’s important to optimize the areas of your business that you can control.
Below, we’ll outline eight steps you can take to improve your bottom line. This article is the third part of our three-part series about taking control of your mortgage lending success.
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5 Ways to Lower Your Loan Origination Costs
If you want to boost your bottom line, you need to start by re-evaluating your expenses. After all, every dollar you save on loan origination can bolster your profits.
Here are five ways to slash your loan origination costs without sacrificing quality control or customer service:
1. Use More Soft Pull Credit Reports
Since FICO’s recent price hike, tri-merge credit reports are more costly than ever before. Some lenders are paying 400% more than they did back in 2022.
You can avoid paying these inflated prices by qualifying new leads with soft pull credit reports instead. An easy way to facilitate this strategy is to offer prequalification on your website—simply leverage an automated prequalification solution, like Cascade Prequal.
Cascade Prequal compares applicants’ information to your pre-set credit thresholds, so you don’t have to add any extra work to your plate. Better yet, your applicants can receive instant responses regarding their eligibility. Most importantly, you won’t end up spending more money than you need to on non-qualifying applicants.
2. Don’t Pay For Inaccurate Credit Reports
While soft credit checks can help you and your applicants assess their initial eligibility, you’ll eventually need to run hard credit checks on them, too. When you do, you want to make sure you order the right person’s credit reports.
Unfortunately, it’s all too easy to misspell an applicant’s name or to mistype their Social Security number (SSN). If these mistakes go unnoticed, you could end up paying for the wrong person’s credit report.
An easy way to avoid this issue is to employ Flex ID. This tool can save you money by:
- Verifying critical information, including your applicant’s name, birth date, SSN, and phone number before you submit a credit report request.
- Enabling you to customize what conditions must be met before the order goes through (if your criteria aren’t met, Flex ID won’t order the official report).
- Catching fraudulent misrepresentations before you invest in a hard credit check.
3. Be Savvy With Your Credit Report Ordering
Another way to save money on credit reports is to order them one credit bureau at a time. This way, you can rule out non-qualifying applicants before you order all three of their reports.
While you can conduct this process manually, it’s much easier and faster to leverage a tool like Smart Select. This customizable solution helps you eliminate non-qualifying applicants as cost-effectively as possible. Here’s how:
- You establish your eligibility criteria – Every lender’s eligibility criteria are different. That’s why Smart Select allows you to customize your credit score, zip code, bankruptcy, delinquency, default, and foreclosure requirements.
- You select your preferred credit bureau – With Smart Select, you can also decide which credit bureau you want to pull from first, whether that’s Equifax, Experian, or TransUnion.
- You set your credit ordering parameters – Next, you can choose your credit ordering parameters from the following options:
- 1 bureau -> 3 bureau – If the first credit bureau passes your credit thresholds, Smart Select will automatically upgrade it to a three-bureau report.
- 2 bureau -> 3 bureau – If the first two credit bureaus pass your credit thresholds, Smart Select will order the three-bureau report.
- 1 bureau -> 2 bureau -> 3 bureau – If the first bureau passes your credit thresholds, Smart Select will order a second credit bureau report. If this report also passes your thresholds, Smart Select will upgrade you to a three-bureau report.
As you can see, Smart Select can help evaluate applicants’ creditworthiness using the least credit reports possible. Better yet, it can standardize your credit report ordering process, rather than leaving it up to your loan officers’ discretion.
Note: You can pair SmartSelect with Cascade Prequel to streamline your soft pull credit reporting costs, as well.
4. Use the Lowest Cost Verification of Income and Employment (VOE) Vendors
Verifying applicants’ income and employment ensures they have the means to make their mortgage payments. While VOE is a vital process, it doesn’t have to be expensive or time-consuming.
You can make VOE easier and more affordable with the help of Cascade VOE. This VOE solution cycles through third-party verification vendors and alerts you as soon as it receives a hit. In turn, you can skip the hassle of manual VOE or setting up several accounts to access different third-party portals.
The best part? Cascade VOE is highly customizable. You can arrange your third-party vendors in your preferred order. If you want to save the most money, simply place the lowest-cost vendors at the top of your cascade. By doing so, you can ensure that you receive the lowest cost verifications every time.
5. Prevent Loan Fallout And Repurchase Demands With Undisclosed Debt Monitoring (UDM)
Once you’ve put in the hard work of approving an applicant and underwriting their loan, you ideally want a seamless closing. Unfortunately, some applicants do things during the quiet period that alter their eligibility. For example, an applicant may purchase expensive furniture for their future home on a new store credit card, incurring a new hard credit inquiry and higher debt-to-income ratio.
If you’re not privy to these events, you could experience issues upon closing. For instance, you may have to re-underwrite the loan, repurchase it from a secondary market investor, or deliver the bad news to your borrower that they no longer qualify for their mortgage. Each of these events can cost you money and spoil your borrower’s experience.
Luckily, you can safeguard yourself from such surprises with Cascade UDM. This affordable tool monitors your applicants’ credit reports continuously throughout the quiet period. It can alert you of relevant changes within 24 hours, giving you and your applicant time to rectify the situation before closing. With Cascade UDM in place, you can also skip the extra step (and expense) of ordering a Refresh Report.
3 Ways to Bring in More Business
After lowering your expenses, it’s time to optimize the other side of your bottom line: your revenues. You can attract more business using the following strategies:
6. Make a Bid for Borrowers’ Repeat Business
Winning over past or present borrowers is often much easier and more affordable than attracting new applicants. Thus, your current database of borrowers is a valuable place to look for future business.
With Cascade Alerts, you can identify opportunities for repeat business without lifting a finger. That’s because this automated credit monitoring tool scours your past and present borrowers’ credit files for mortgage-related inquiries, which suggest that these borrowers are in the market for a new mortgage product, whether that’s a new purchase loan, refinance, or HELOC.
Cascade Alerts can notify you of these business opportunities within 24 hours, enabling you to reach out before your competition seals the deal. While Cascade Alerts can provide a wealth of worthwhile leads, there’s no firm offer of credit required.
7. Coach Applicants Into Higher Credit Scores
Anticipating past clients’ needs is one way to build borrower loyalty and win over referrals. Another way is to help non-qualifying applicants improve their creditworthiness.
Many mortgage applicants are eager to own a home, but unsure of how to raise their scores. With the help of our credit score improvement tools, you can provide these applicants with personalized credit score improvement tips.
After following your advice, these applicants can finally pursue homeownership. Thanks to your support and guidance, there’s an excellent chance that they’ll choose you as their lender.
8. Provide Ample Home-Buying Education
Credit scores are just one of the many topics that borrowers are under-educated about. From down payment assistance programs to the mortgage application process, homebuyers often have a lot to learn before they feel ready to buy a home.
You can help these applicants become confident enough to enter the housing market by educating them on various homebuying topics. Simply produce educational materials and share them online.
If you need some inspiration, check out our First-Time Homebuyers Guide. You can share this resource with your applicants if you don’t want to create your own content.
Take Control of Your Bottom Line with Certified Credit
By following these steps, you can cut costs and attract more business. Together, these tactics can move the needle on your bottom line.
If you want tailored advice on improving your profits, schedule a credit consultation with Certified Credit. With nearly four decades of experience, we’re well-versed in helping mortgage lenders optimize their profitability. Want more tips and tricks? Find out how to take control of your loan origination process and borrower experience by downloading our Take Control of Your Mortgage Lending Success Guide.