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The third quarter of 2023 shows significant shifts in the performance of teams reflecting both the decline in housing sales activity and the pressure on margins occurring throughout the brokerage business, according to the Streamlined Quarterly Team Benchmarking Report, which looked at the financial performance of more than 200 teams across the nation.

This report covers the period from April 1, 2023, to June 30, 2023. In five of the six size categories of teams both gross profit margins and net income margins declined from the second quarter 2023 results.

Steamlined, based in Arizona, has a roster of hundreds of U.S. real estate teams and individual agents as clients for their accounting and bookkeeping services. The firm confirms actual financial and operational details of these businesses and assemble the data in useful benchmark studies to help their clients assess how effectively they are operating. 

“This is extremely valuable information, not only for teams but also for the brokerage firms with whom they are affiliated,” says Steve Murray, senior advisor to HW Media. “A clearer understanding of the performance of teams helps everyone understand the impact of the growth of the organization and performance of teams.”

The latest financial insights for the residential real estate teams and agents present a picture of resilience and strategic adaptability, even in the face of shifting economic landscapes.

To note, the financial data sets analyzed in Q3, 2023 are the same number of data sets in Q2, 2023. This consistency is a testament to the solid foundational practices that these businesses have established, which is crucial for long-term sustainability. 

Despite the anticipated reconfiguration in revenue streams—with a notable contraction in the number of teams closing between $800,000 to $1.5M in annualized revenue—the broader context remains one of continued activity. This realignment can be viewed as an evolution in market dynamics, with sales dispersing into lower revenue categories (Gross Commission Income), teams and agents are still running profitable companies. For those managing real estate businesses, this signals an environment ripe for strategic repositioning and diversification.

Most teams saw a decrease in gross margin

Teams in five of the six size categories saw a decrease in Gross Margin (GM), with the smallest sized teams (annualized revenues of less than $300,000) having the greatest decline from 83% to 76%. 

Teams with annualized revenue between $800,000 and $1.5 million were the only category that experienced an increase, with their GM rising from 65.1% to 67.2% from the second quarter to the third quarter.

“It is normal to have gross margin decline during the course of a calendar year,” says Steve Murray, founder to RTC Consulting and a senior advisor for HousingWire. “As agents grow their volume during the course of a year, the share of gross revenue paid to them rises under most commission plans. This is also in line with what occurs among brokerage companies, in general. The only category that saw a rise ($800,000 to $1.5 million) is also the category that had a significant decline in the number of teams in the category. 

“We suspect two things may have happened,” says Murray. “Some teams in this category suffered disproportionately from the decline in sales and dropped down in size leaving a smaller group of better run teams.”

On the other side, a number of these teams grew larger and moved into a larger category. “Weaker firms shrank and stronger teams grew faster than the market,” says Murray. “The remaining teams in the category were the strongest of the category.”

Net income declines

In five of the six categories Net Income (NI) declined with the smallest category of teams seeing the largest absolute decline from 49.3% to 40.6%.

In terms of percentage decline, however, both the smallest teams and those teams with annualized revenues of $1.5 million to $3 million had roughly the same decline of approximately 20%.

The correlation seen in the first two quarters of 2023 remains true for the third quarter. The smallest teams have the highest NI percentage while the largest teams have the smallest NI percentage.

“The combination of the decrease of gross margins and the increase in operating costs had the expected impact of lower profit margins for teams in five of the six categories. The decline in annualized existing home sales also had an impact that may have been the biggest impact. 

“The third quarter of a calendar year is normally the highest sales period of the year, but this year, we saw housing sales decline versus both Q2 2023 and Q3 2022,” adds Murray. “Given all these factors it is surprising how durable the results were.”

Shift in teams in each category

One interesting outcome of the Q3 2023 results was the significant shift of the number of teams in each category. For instance, teams in the size category of revenues between $800,000 to $1.5 million declined from 66 in the Q2 2023 to 46 in Q3 2023. Other big movements were that the number of teams with annualized revenue or $300,000 to $550,000 increased by 14, going from 30 to 44. Teams with annualized revenue of $1.5 million to $3 million also increased by eight, going from 45 to 53.

“The significant shift of a large number of teams out of medium-sized teams to both smaller and larger team categories would seem to indicate that not all teams are alike,” says Murray.

“Under the stress of declining home sales and fewer leads at the top of the funnel, some teams owners are as likely to step up their own listings and sales to generate the income to finance their team and their lifestyle. This is not unusual for teams or any real estate agent’s practice.” 

Some teams will prosper in this kind of a downturn and others will seek to optimize profit in the short run by cutting costs and increasing personal production rather than by investing scarcer dollars into growth for growth’s sake.

Teams in all six categories had an increase in their operating costs.    Teams which had the largest increases in costs were those with annualized revenues between $550,000 – $800,000 (costs up 2.8 points from 30.7% cost of operations to 33.5%) and teams with annualized revenues between $1,500,000 – $3,000,000 which saw their operating costs rise from 29.0% to 31.5%)

Strategic financial oversight at play

The trend towards decreased profitability percentages does not overshadow the evident strategic financial oversight at play. Businesses are clearly demonstrating proactive expense management, an essential skill in ensuring business health. This foresight is particularly evident in the way companies have leveraged the scalability of their variable expenses, ensuring they remain positioned to maintain profitability. This ability to pivot and adapt cost structures in response to revenue fluctuations is a hallmark of agile and forward-thinking businesses.

As presented in the data, an increase in operating expense percentages across all tiers is certainly a challenge; however, it also reflects a calculated investment in two critical growth areas: Salaries and Lead Generation.

By maintaining these areas, businesses are investing in their workforce and future sales pipelines, laying the groundwork for future growth and market share expansion.

Moreover, the minimal fluctuations in general and administrative expenses reveal a tight control over the day-to-day running costs, with businesses showing they can keep a lid on the majority of their expenses despite a tougher economic climate.

Overall, the narrative here is not one of decline but of calculated adjustment and strategic realignment. The real estate businesses that are holding their ground in these times are those that are demonstrating agility, financial acumen, and a commitment to investing in their core assets—people and prospects.

With these strategies in place, there’s every reason to be optimistic about the capacity for real estate businesses to navigate current market shifts successfully and emerge even more resilient.

Streamlined, RTC Consulting and HWMedia are teaming up to share this data with our readers to help create transparency in the results of over 200 teams. We will publish these results on a quarterly basis roughly 45 days after the end of each calendar quarter.

David Pittiglio is the CEO of Streamlined Business Solutions.

Source: housingwire.com

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Mortgage tech firm Blend Labs has launched its first AI-powered chat tool, which it says will allow loan officers to be more efficient and offer a far more personalized touch for prospective borrowers.

The AI-powered assistant ‘Copilot’ executes precise tasks and assists borrowers in giving timely answers to borrower questions on behalf of loan originators, Nima Ghamsari, Blend’s co-founder and CEO, said in an interview with HousingWire on Friday. 

In addition to a chat feature that Ghamsari said a lot of lenders are using via SMS or messaging, Blend connects all the providers that are required internally to the bank and the lender, and externally to the customer, to get a full understanding of the consumer’s financial situation and the lender’s products and services.

The AI layer of Copilot goes a step further to deconstruct nuanced questions, which is what Blend said sets the new tool apart from other existing chat features. 

“If you ask a really nuanced question, like ‘Can you show me a monthly payment with a 15-year fixed and no down payments, or a 30-year fixed, and a 10% down [payment]?’ You can then go and actually break that down into seven different systems with companies, run those seven things twice for two different scenarios, and then come back to the consumer with the answer side by side and say, ‘Here’s your monthly payment and your upfront cash the monthly payment compared to this one,’” Ghamsari explained.

In a previous interview with HousingWire, Ghamsari noted AI is about combining an understanding of what the client is trying to accomplish.

“Now that a system can understand the essence of the question the consumer is trying to understand, it (AI) can actually do that work for the LO in the background, and then when the LO shows up, that work is already done,” Ghamsari had said.

“Some of these borrowers have hundreds of products that they can choose from. How is an LO supposed to keep that in their head? It’s too much context, and this will be a supercharger for them,” the CEO explained. 

The goal is to make Copilot practical and useful for LOs’ workflow.

“A lot of the AI use cases I’ve seen today are not immediately utilitarian. So people look at it, they like it, they try, [but] it doesn’t actually serve some natural function in their life,” Ghamsari said.

The company announced the tool this week but won’t be rolling it out to its clients immediately.

Blend is working with a few LOs internally to test the tool and plans to expand it to its customers on the waitlist gradually.

“We just announced it Tuesday and we have a really good solid waitlist already. My approach with products like this is to make it work extremely well,” Ghamsari noted.

The San Francisco, California-based mortgage tech firm reported a non-GAAP net loss of $22.7 million in the second quarter, narrowing the loss from $35.6 million in Q1 and $45.1 million in Q2 2022. 

Its financial improvement was largely driven by its resilient customer base and growing mortgage market share, the company said in its Q2 financial earnings call with analysts. 

Blend has focused heavily on cutting costs to adjust to the rising interest-rate environment. Ghamsari noted the company conducted layoffs in Q3 as part of rightsizing efforts.

Source: housingwire.com

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Four large UK lenders are cutting mortgage rates for the second time in three weeks, as competition in the home loan market intensifies on the back of better than expected inflation data.

Nationwide, the second-largest mortgage lender, on Wednesday reduced prices on some fixed products by up to 0.55 percentage points. HSBC, the sixth-biggest provider, trimmed costs by as much 0.2 percentage points, while tenth-placed TSB lowered rates by up to 0.4 percentage points.

Halifax, part of Lloyds Banking Group — the largest mortgage provider in the UK — is also cutting prices on fixed mortgages by as much as 0.71 percentage points from Friday.

The reductions from the four big providers will further bolster hopes that mortgage rates have peaked, although borrowers still face near-record costs.

While the cost of a two-year fixed mortgage has fallen a few basis points from the 15-year high it reached at the start of August, it is still at 6.83 per cent, compared with 3.99 per cent a year ago and above the peak reached last October in the wake of the “mini” Budget.

The latest moves mark the third week of mortgage rate falls after data last month showed UK inflation fell to a 15-month low in June, reversing a sharp increase earlier in the year driven by concerns about persistent price pressures.

Mortgage rates have continued to fall despite the Bank of England lifting interest rates to a 15-year high of 5.25 per cent last week because providers base costs on the swaps market, which reflects predictions of the future level of BoE rates. The level at which borrowing costs are expected to peak early next year fell slightly following the BoE decision.

Lenders have also had to cut rates to compete as the market has slowed, with borrowers adjusting their spending in response to the challenging economic environment.

“Higher rates means fewer mortgages for banks and building societies,” said Aaron Strutt, director at broker Trinity Financial. “The people we deal with on a day-to-day basis would rather rates were lower so they could do a bit more business.”

Smaller lenders Market Harborough Building Society and MPowered mortgages also said on Tuesday that they were cutting costs.

On a results call last month, William Chalmers, Lloyds’ chief financial officer, told reporters that the mortgage market had been quiet in the first half of 2023.

“Overall new business has been pretty slow in the first half of the year [and] mortgage margins are at exceptionally low levels,” he said.

Brokers have also cautioned that major reductions in mortgage costs are unlikely in the short term, with inflation still high despite the promising data for June and the BoE expecting rates to remain higher for longer.

David Hollingworth, director at London & Country Mortgages, said providers would have to “see what next year brings”, adding: “The bottom line for borrowers is they should expect that rates are not going to return to the ultra-low levels they’ve enjoyed over the last 10 to 15 years.”

Source: ft.com

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Mortgage tech firm Blend Labs narrowed its financial losses in the second quarter on the strength of its platform business as well as cost-cutting measures.

Blend, whose white-label software processes billions in mortgage transactions for lenders, reaffirmed its goal of reaching profitability by 2024.

The San Francisco, California-based company reported a non-GAAP net loss of $22.7 million in the second quarter, compared to $35.6 million in Q1 and $45.1 million in Q2 2022. The company’s GAAP net loss in Q2 was $41.5 million, down from a GAAP net loss of $66.2 million in the previous quarter, according to the documents filed with the Securities and Exchange Commission (SEC) on Wednesday. 

Nima Ghamsari, head of Blend, said Q2 results exceeded expectations for the second quarter in a row largely driven by its resilient customer base.

“We’re driving adoption and utilization growth of our value-add features, maintaining strong retention, and growing mortgage market share – all while continuing to set the foundation for our next-generation mortgage products on our Blend Builder platform,” Ghamsari told analysts. 

The company posted $42.8 million in revenues in Q2, above the guidance provided by executives of between $39.5 million and $41 million. 

Blend Builder — a cloud banking platform designed to help businesses in the financial services industry streamline processes for mortgages, loans, deposits and accounts – is a “key driver of the company’s growth strategy,” Ghamsari noted. 

Blend’s platform segment — which includes the mortgage suite, consumer banking suite and professional services under the changed reporting structure — came in at $30.3 million in revenues. The Title 365 segment revenue posted $12.5 million.

The mortgage banking suite revenue declined by 17% year-over-year to $22.3 million, performing better than a 37% mortgage market volume decline over the same period as reported by the Mortgage Bankers Association (MBA), the company said.

Blend’s white-label technology powers mortgage applications on the websites of major lenders such as Wells Fargo and U.S. Bank. With client’s increases in adoption of add-on products and renewals, mortgage suite revenue per transaction increased from $77 to $93 from the same period in 2022. 

Add-on products released in Q2 include a soft credit inquiry function for lenders that would save them about $50 per file. The company previously noted that lenders that adopted soft credit into their workflows saved up to 71% compared to lenders utilizing all hard inquiries. 

Blend deployed 18 consumer banking products this year, bringing in $5.8 million revenue in its consumer banking suite – a 27% increase from Q2 2022.

Professional services revenue increased 10% year-over-year to $2.2 million.

Ghamsari’s priorities for the rest of the year is to roll out value-add features like soft credit pulls and add-on products such as Blend Close and Blend Income.

Blend’s cutting costs, accelerating path to profitability

On the expenses side, non-GAAP operating costs in Q2 totaled $41.7 million compared to $65.3 million in the same period of 2022. 

As part of the internal efficiencies gained with Blend Builder, the company announced Wednesday that it streamlined its workforce, positioning its customers and Blend for more efficient growth and value creation.

Blend’s fifth round of layoff affected 150 positions, about 19% of the company’s current onshore workforce and about 20 vacancies across the firm, according to its 10 Q filing with the SEC.

The company conducted three workforce reduction initiatives in 2022 and two in 2023.

“The restructuring initiatives are expected to reduce Blend’s operating expenses an additional $33 million on an annualized basis,” Amir Jafari, Blend’s new CFO, told analysts.

​​As of June 30, 2023, Blend has cash, cash equivalents, and marketable securities, including restricted cash, totaling $277.9 million with total debt outstanding of $225.0 million in the form of the company’s five-year term loan. 

Going forward, Blend will be charging customers a recurring Software as a Service (SaaS) fee to increase the stability of its future cash flow.

Blend’s $25 million revolving line of credit remains undrawn.

“We are increasing the stability of our future cash flows by adding a recurring SaaS-like fee while retaining the upside associated with our consumption based model,” Jafari said. “We believe this shift in payment terms should improve our overall free cash flow with more fees being paid in advance.”

Despite the challenging mortgage environment, Blend reiterated its goal in reaching its non-GAAP profitability goal by 2024 from the originally planned timeline of 2025. 

Since going public in July 2021, Blend is yet to turn a profit.

In Q3, the mortgage tech firm expects its Q3 revenue to be between $38 million and $42 million. Platform revenue is projected to post between $27 million and $30 million. Its title business revenue is forecast to come in between $11 million and $12 million. 

The company estimates a non-GAAP net operating loss between $17.5 million and $15.5 million in Q3. 

Source: housingwire.com

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Many of you wrote last week to say that I was too harsh on my friend Gillian, the woman with the “I can’t” attitude. Perhaps you’re right — I may have given up too early. I used to live like she does, and if I can turn it around, anyone can.

For a decade I was a deficit spender. I spent more than I earned. I used credit cards to fund a lifestyle that was beyond my means. Eventually I wised up — I destroyed my credit cards and cancelled my accounts, but my worries weren’t over yet. I wasn’t digging any deeper, but I was still stuck at the bottom of a hole: I was living paycheck-to-paycheck.

Twice a month I would deposit my paycheck, pay my bills, and then look to see how much was left. Whether the surplus was $20 or $200, I made plans for it: comic books, video games, clothes, whatever. I used to joke that I was an expert at spending every penny I had. Except that it was no joke. Late at night, when I couldn’t sleep, I would wonder why I could never get ahead.

I lived like this for years. You can maintain a paycheck-to-paycheck lifestyle for a long time if you’re not taking on new debt (and if disaster doesn’t strike). Here’s another way to look at it:

  • If you spend more than you earn, you are acquiring debt.
  • If you spend about what you earn, you are living paycheck-to-paycheck.
  • If you spend less than you earn, you are acquiring wealth.

I don’t know about you, but my goal is the latter. Escaping the paycheck-to-paycheck lifestyle means building positive cash flow, getting ahead of your expenses. Instead of spending exactly what you earn, you need to save something every month; even $25 or $50 can make a difference. Once you start, this amount has a tendency to snowball. For me, a $25 surplus grew into a $100 surplus, which grew into $300 per month and more!

But how do you start generating this surplus? How do you escape from the paycheck-to-paycheck pit? Here are some ideas that worked for me — one or more of them may work for Gillian. Or for you.

  • Start a savings account. For years I resisted the idea of opening a savings account. “Why should I?” I said. “I don’t have money to save. I barely have anything in my checking account!” But when I finally did open a savings account three years ago, a funny thing happened. I started finding money to stash there. It wasn’t much at first — $20 here, $75 there — but in time, it made a difference. Before long I had developed the savings habit.
  • Pay yourself first. The best way to begin your escape is to save first, before you do anything else with your paycheck. I know this can be difficult. You worry that you won’t have enough for your bills, for gas, for food. But the danger is that if you don’t set the money aside first, you’ll just spend it. Have a small amount — $25? $50? — automatically deducted from your paycheck and placed into savings. Chances are you won’t even miss the money.
  • Spend with purpose. You may want to consider a budget. Budgets aren’t scary, and they’re not difficult. Some people find them liberating. There are a variety of computer budgeting tools available, including:

    A budget can be handy, but even if you can’t bring yourself to use one, you should know where your money needs to go.

  • Draft a spending plan. I don’t keep a budget, but I do create a financial plan every few months. It’s nothing more than a quick financial snapshot showing my income and expenses. I also list upcoming major outlays. This helps me keep my financial goals in mind as I go about my daily life. It’s easier for me to decide not to buy the latest Spider-Man comic when I remember that I’m saving for a trip to Europe.
  • Attack your debt. These methods are great, but if you really want to free up cash, pay off a debt. I recommend using a debt snowball to tackle your obligations one after the other. But if your goal is to ease financial pressure ASAP, you may want to try a slightly different approach. Pay off your debt with the smallest balance, but instead of rolling the freed cash flow into the next debt, use it to establish a savings buffer.
  • Cut costs. This one’s obvious, but can be difficult. My friend Gillian views cutting costs as deprivation. If you’re willing to look behind the immediate sacrifices to the long-term gains, cutting costs is an excellent, quick way to free up cash. There are a million little things you can do to save money now.
  • Boost your income. Many people have suggestions for how to cut costs, but few remember there’s a second side to the wealth equation. Earning extra money helps just as much as practicing frugality, and sometimes hurts less. But how do you get extra cash? Find a part-time job for a few months. Sell some of the stuff you’ve acquired over the years. Ask your boss for a raise. Find a way to make money from your hobbies.
  • Avoid lifestyle inflation. A final way to escape the paycheck-to-paycheck purgatory is to opt out of lifestyle inflation. When you get a raise, don’t adjust your standard of living to match. Use part of this new money to pay off debt, and another part to accelerate your savings. When your friends show you their new iPhones, ooh and aah, but resist the urge to get one yourself. Learn to love what you already have.

When I became serious about my finances, I realized that living paycheck-to-paycheck was dangerous. I was always one disaster away from returning to the credit bandwagon. I made a resolution to stop living on the edge and to start saving. It was difficult at first. Old habits die hard. But with time and persistence — and with the habits above — I made the switch. Now, a couple years further on, I’m just beginning to profit from my hard work. I have a monthly cash surplus. I have escaped from the paycheck-to-paycheck lifestyle.

Source: getrichslowly.org

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Running a real estate team can be a great way to scale—when it’s done right. Tune in and hear how to build your team without busting your budget on today’s podcast with Craig Curelop. Craig built his real estate team in a bustling market and quickly learned when and where to scale back for sustained success. In addition to discussions on team structure and systems, Shelby and Craig cover cutting costs, real estate marketing, and more. Don’t miss it!

Listen to today’s show and learn:

  • Craig Curelop’s real estate team [1:55]
  • Craig’s start as a real estate team leader [3:03]
  • Staying solo or starting a team [5:16]
  • The next stage of team building [7:32]
  • Building out your team’s structure [8:40]
  • Providing systems for an agent’s success [11:38]
  • How to build better processes with less effort [12:58]
  • What to document when building processes [15:22]
  • Minimizing expenses and maximizing leverage [18:09]
  • How to hire and pay a transaction coordinator [19:45]
  • Making tough decisions when cutting costs [21:00]
  • The biggest lesson to learn when starting a real estate team [26:23]
  • Real estate team marketing expenses [27:20]
  • Craig’s favorite real estate CRM [28:01]
  • “The Agent Performance Tracker” [29:00]
  • How to test your new agents’ drive [32:22]
  • Protecting your business against agent disloyalty [35:48]
  • Craig’s plans for his real estate team [40:30]
  • Creating your perfect day [42:17]
  • Final words of advice on starting a real estate team [44:41]
  • Where to find and follow Craig Curelop [46:02]

Craig Curelop

Craig Curelop started out as a house hacker in Denver. After reaching financial independence in 2.5 years after three house hacks, he graduated from his W2 job at BiggerPockets to pursue being a full-time real estate agent inspiring others to do the same.

In his first year of being a real estate agent he did over 100 deals. That’s an exhausting year. He realized, that if he was going to continue onward, he’d have to create a team; hence the FI Team. In just three years, Craig has grown a team of over 20 agents that do $100M+ per year in volume.

In addition to the FI Team, Craig has a rental portfolio of 24 units along with being invested in multiple syndications, and coaches agents to grow their investor-friendly real estate agent teams!

Related Links and Resources:

It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.

-Aaron Amuchastegui

Source: realestaterockstarsnetwork.com

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Chris Voss, Codie Sanchez, and a host of real estate rockstars joined us on the podcast in February. Listen in and learn what today’s top entrepreneurs are doing to succeed in—and out of—the real estate space. Guests also shared their strategies for goal setting, real estate investing, building new businesses, and more.

Listen to today’s show and learn:

  • Jason’s advice for new agents who want to sell commercial real estate [7:17]
  • Focus on market share, not dollars [8:56]
  • Shifting business strategy for the shifting market [11:05]
  • Wally’s advice on setting goals [17:33]
  • Tips on staying top of mind [21:21]
  • Building a real estate business that can withstand all market conditions [23:57]
  • How to avoid friction when negotiating deals [25:31]
  • Advice on becoming an expert negotiator [31:14]
  • Why motivation really matters [33:10]
  • Why cutting costs is only part of the financial-freedom equation [34:29]
  • Advice for people on leaving a W-2 job for a career in real estate [37:46]
  • Unlock your potential by surrounding yourself with the right peers [40:21]
  • Showing business owners the value in a no-money-down offer [42:38]
  • How to apply systems, processes, and technology to businesses formerly owned by Boomers [43:25]
  • The first business deal you should look for [46:43]

Thank You Rockstars!

It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.

-Aaron Amuchastegui

Source: realestaterockstarsnetwork.com

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While a mortgage business’ battle against margin compression is seemingly endless, that fight is less noticeable in times of surging revenue. This year, thus far, has been anything but that. The decline in mortgage volume, along with increasing rates and uncertainty about the months ahead, have amounted to a scramble for revenue and a continual push to reduce expenses.

For most businesses, the focus on cutting costs has centered around a few main areas. Staffing and service levels have been the most obvious casualty, as layoffs and job cuts have become prevalent. Mortgage firms have also focused on becoming more efficient and reducing other types of overhead, including fixed costs, like office space, and travel budgets or similar items.

Automation is not the only answer

In a break with traditional behaviors during down cycles, many mortgage businesses have continued their drive toward automation, albeit selectively, and perhaps slowly. However, it still appears that lenders are focusing their technology investments on the point of sale.

This comes as no surprise. There is ample data to suggest that consumers want speed and convenience in the origination process. A 2020 ICE Mortgage Technology survey confirmed this, reporting that 58% of borrowers were affected in their decision making by the presence (or lack thereof) of an online application.

In addition, 55% of homeowners reported that a “simpler application” process was greatly appreciated. That same survey found that 99% of lenders believe technology can improve the application process, and 74% believe tech could simplify the entire mortgage process.

Lenders are increasingly seeing a transformed “big picture.” But it still appears that the emphasis is on the big systems — with the focus on Point-of-Sale (POS) and Loan Origination System (LOS) technology especially. And yet, there are numerous smaller things in the established mortgage production process that add up to a huge opportunity to speed the transaction and reduce costs. 

The refinance wave of 2020 and 2021 made clear that the various leaks and clogs in the operational process can grease the skids toward leaving money on the table. This happens by and large when multiple 3rd party vendors become involved or when the process is managed (or handed off) manually.

In slow or even healthy purchase markets, these points can put a lender at a competitive disadvantage and constrict margins unnecessarily.

The little things that can mean a lot

In the typical mortgage workflow, there are multiple points where more lenders could redirect their focus for greater efficiency — and that efficiency need not come from technology investment alone. In fact, if a system doesn’t fit a workflow properly or delivers redundant or unnecessary features, technology can even further burden the operation.

However, whether it be through improved QC; a reshuffling of staffing; use of a more efficient third party provider; better operating policies or training; or, yes, the use of proper technology, too many lenders and mortgage-related businesses have yet to address and receive the full benefit of improving a number of “little things” in their operations.

These points of focus include data collection and entry at any stage of the process. They could also include improving the post-closing process. Customer service and communications between partners, vendors and clients could also be brought forward light years through any number of means.

Vendor management, be it in the valuation, title insurance or closing process, offers a number of opportunities for increased efficiency and decreased cost. And don’t forget TRID-related procedures — many of which were cobbled together on the fly during the chaos following a short implementation period mandated by regulation.

By the numbers: How much the little things can cost

A case study of TRID-related processes can demonstrate how much fat remains to be cut in the name of improved margins and increased efficiencies. And, in particular, closing fees.

Many lenders and originators spend little, if any, time thinking about how they gather accurate closing fee data, such as transfer taxes or recording fees, even though these vary from state to state, county to county and even city to city. And yet, numbers quoted inaccurately on the LE could lead to curative penalties.

These can, and do, add up.

While this industry has a significant dearth of accurate and deep data — at least at the public level — the Federal Reserve’s Consumer Compliance Outlook found in 2020 that inaccurate closing cost details and cash to close calculations were one of most common lender TRID violations.

Even the Consumer Finance Protection Bureau (CFPB) has acknowledged that TRID adversely impacts the operational costs of lenders.

While the TRID data available to the public is almost non-existent, some estimates suggest that as much as 90% of the mortgage loans produced have some form of TRID violation. And let’s not forget that TRID violations — apart from curative fees for mistakes or inaccuracy — can range from fines of $5,000 to $1,000,000 per day in extreme cases.

Setting those penalties aside, we wanted to know how much lenders paid in curative fees as a cost for their operational inaccuracy or inefficiency. To find out, we polled dozens of mortgage lenders in 2022 and compiled the results.

We were surprised to learn that the average cures per file for those who manually researched and updated their fee data was $40 to $80 per file.  After installing improved processes to address their closing cost quotes, the same lenders reported improvement, with the averages dropping to $20–$40 per file.

We also determined that lenders using effective closing fee technology averaged one inaccuracy requiring a cure out of every 22,000 fee estimates or quotes.

Finally, we know that the average time to close remains above 50 days. This also represents costs ripe for improvement across the board. Much of that delay starts with the little things: the time between voicemails between a loan processor and title agent; the time it takes for an appraisal report to be produced; the time (and possibility of error or inaccuracy) it takes to find an order that’s been emailed and type it into the production system. And yes, the time and cost associated with manually determined closing fees.

Now, more than ever, the little things are adding up for lenders. But they also provide an incredible opportunity to improve the way the industry does business going forward.

Jim Paolino is the CEO & Co-Founder of LodeStar Software Solutions, HousingWire Tech 100 company.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story: Jim Paolino at [email protected]

To contact the editor of this story: Sarah Wheeler at [email protected]

Source: housingwire.com