Open the paper, turn on the TV, or surf the web and words like subprime, foreclosure or recession dominate the news. Take this downward spiral feeling and add in a real estate market slump and the result is that lenders feel forced to do everything they can to bring more customers through their doors in order to stay in business. But, what many mortgage bankers don’t realize is that a big part of the solution they need actually lies within.
More than ever before, every dollar not wasted can have a significant impact on the bottom line. So the question that should be on your mind becomes: How can I be sure I’m not wasting any money?
Measure Efficiency
Which is more profitable – a lender that closes 40 loans each month? Or, a lender that closes 150 loans each month?
Obviously, based on the information provided, it is impossible to determine. But what if we added that each lender had 12 people running their back-office operations? Sure there are lots of factors that can impact the overall profitability of a lending shop, but your personnel cost probably accounts for the largest hit to your bottom line.
With this idea in mind, it becomes clear that finding a way to make your staff as efficient as possible can have a significant impact on your profitability.
The first step in becoming more efficient is to actually measure your performance. A simple method to measure your company’s efficiency is to divide your total number of closed loans each month by your total number of operational staff. Think of the resulting ratio as your Efficiency Quotient (EQ) – like an IQ score, the higher the number the more efficient you are.
If the ratio is high (large number of loans per operations employee) you are running an efficient operation. If the ratio is low (a small number of loans per operations employee) your process includes some inefficient steps that are eating into your bottom line.
Anecdotally, it sounds like an EQ of 12 is about average across the industry. If your EQ is smaller than that you should focus your efforts on bringing that number up and not just on bringing in more loans. And even if your number is higher than 12 today, you should set a goal to increase it each month – constantly getting better and better at handling the loans that are coming in the door.
Otherwise, any increase in closed loans will be futile. Instead of creating more profits, additional loans will simply create more work.
Training
Now that you are measuring your efficiency, how do you make it better?
One of the most impactful actions you can take is to ensure that your staff is thoroughly trained on the workflow and technology you have in place. Clearly, in order to get people to follow your “best practices” processes, you need to have them documented.
So, the next step in improving your efficiency should be to find every touch-point a loan file has in your operation. Then challenge your staff to think of a better way to do things. Dig deep into finding out “why” people do what they do the way they do it. If you hear “we’ve always done it that way” then be sure to push back to see if there is a better way today.
It is best to get input from people across your entire organization when doing this internal research project. It can also be VERY helpful to bring in an outside consultant to facilitate this project. Look for someone with industry experience and the courage to stand-up to your people that are most set in their ways.
Once you are confident that you know an efficient process, the next step is to take the time to train each member of your staff. Ideally, if you could also incorporate measurable milestones that each person is aware of, that will help you track the effectiveness of each person. For example, you could set a benchmark that a closer should be able to get a set of docs ready for signature in 12 minutes. Then, find a way to measure how long it really takes. Reward those that achieve and beat the goal, while you continue to train those that fall behind.
Staying “Up” on Technology
The second key component to gain efficiencies in your business is to stay abreast of new technological tools available in the industry.
It is no secret that technology is continuously changing and in most cases getting better. As a result, you need to pay attention to new products and services that can streamline your operations. For example, three years ago pretty much every lender relied on paper filled folders, while today the vast majority use imaging systems that allow for multiple people to simultaneously access a loan with the added benefit of no longer losing files.
There are several ways to stay exposed to what’s new in the industry, including attending trade shows, reading trade publications (including the ads), networking with your peers, and talking to account reps from your current providers.
Then, once you understand that there are technical solutions that can help your business thrive, don’t be afraid to make the investment. If you are confident that the system will pay for itself over a short period of time, buy it. And then train your people how to use it.
There is no question that closing loans is a vital part of the mortgage business. However, it is only part of the equation. In order to run a successful lending operation, it is mandatory that you take time to measure efficiency, train employees and stay abreast of technologies that streamline the work environment. Not only will this improve efficiency, it will improve profitability.
What’s your EQ?
Rob Katz is president of San Diego-based Del Mar DataTrac®, a provider of mortgage banking software and services. Founded in 1991, Del Mar offers proven software solutions specifically designed to meet the needs of small to mid-size lenders.
