• Greggory B. Oberg, Esq.

Preparing Your Residential Lending Business for 2020: Ten Things To Do Now

By: Jay Gallo

As many of you have started to prepare budgets for 2020, now is a prudent time to consider steps that will improve your residential mortgage business for next year. Assuming interest rates remain steady for the next 12 to 18 months, here are several suggestions from Spillane Consulting Associates that will tighten control over your operation and enhance your margins.

1. Go After Profitable Borrowers

Borrowers with high FICO scores know they can shop on rate. If your operation is not tuned to be the low-cost provider, look at where you do make money and expand your business in that direction. Consider using your portfolio lending capacity to focus on individuals who need more help and will be less price sensitive.

2. Conduct an Operational Review of Your Servicing

Do you really know how much you spend on servicing your loan portfolio? Are you meeting all of the regulatory and compliance requirements? Conduct an operational review – to include a financial assessment – to determine what you do well and what needs to improve. Prepare a business case to consider three possible outcomes if you are not satisfied with the results: (1) sell the portfolio, (2) invest to bring your operation into compliance or reduce costs or (3) consider subservicing if you want to retain customers but can’t see a way to running the operation profitably yourself.

3. Overhaul Bonus Plans

Review your legacy bonus programs to ensure they align with your current profitability targets. If you’re still paying bonuses on volume, it’s time to stop. Volume based payments are great for loan officers and other staff, but do not help your institution meet profitability targets. Bonuses should be based on a combination of factors including customer satisfaction and regulatory compliance. Now is the time to re-align your plans.

4. Cap Loan Officer Commissions

If you’ve not yet capped commissions to loan officers, it’s the time to modify those contracts. Our most profitable customers at SCA all cap commissions.

5. Build or Expand Your Loan Officer Scorecard

If you don’t have Loan Officer Scorecards, start with some simple metrics – production and pull-through rate. If you’ve been using scorecards for a while, consider expanding them to include loan mix, concessions, customer satisfaction and compliance. Tie your loan officer performance to your division’s performance goals. Everyone should be pulling in the same direction.

6. Track Clean Pull-Through Rate

If you currently track pull-through rate, congratulations. Now it’s time to report the cleanpull-through rate. By that, we mean the number of loans closed without a price concession or operational delay. In a recent survey of SCA customers, price concessions were reported as one of the top reasons why clients fail to meet their profitability goals. To run a profitable operation, you need to know where your margin is leaking, and cleanpull-through reporting will provide significant insight.

7. Limit Concessions

Once you start tracking your cleanpull-through rates, you need to nail down when and why price concessions are granted. We still have customers who do not have a clearly stated policy on the use and reporting of price concessions. If you don’t have a policy, get one. If you have a policy, consider reporting price concessions to senior executives or your board. If you’re granting them too frequently, identify which loan officers or offices use concessions most often.

8. Benchmark

If you’ve never used the “Mortgage Bankers Association Performance Report” to benchmark your business, now is the time to consider it. If an individual subscription is too expensive, consider purchasing the report with another financial institution. You can both use the information to see how you compare to other similar organizations. And if your company does not produce an Income and Expense Statement that has the same line items at the MBA report, consider revamping your internal reporting to be more in line with industry norms.

9. What-If

If we do enter a recession, do you know how your operation will fare? What will be the impact of a 10% to 30% drop in volume? Where will you need to make cuts to stay profitable? Your “what-if scenario” should lead to a statement on actions to be taken (or considered) if the assumptions of your model hold true. Decisions on staff cuts should be analyzed in the calm before the storm to ensure you fully understand the consequences and have ample time to think through the repercussions.

10. How Low Can You Go?

A side outcome of the above “what-if analysis” should be a review of profitability at various levels of business volume. Could you maintain current levels of profitability at a lower volume if your cost structure were different? Volume should not be the end-goal for any business. It should be profitability. Would your organization be “happier” if you produced the same profit at a lower volume with fewer people and less aggravation?

Our most successful clients conduct an annual review of their business – looking at successes and failures in the current year – before they begin planning and budgeting for the following 12 months. This analysis has proven fruitful in allowing these organizations to understand what they do well and where they can improve. Before you begin your 2020 planning, look at what goals you achieved in 2019 and where you could have made more progress. Layer in this list of ten items as you conduct your analysis. Which recommendations make sense to your organization today and what can you successfully accomplish next year? This approach should give you more insight into what can be done to improve your business and hit 100% of your goals in 2020.

For more information, please contact Jay Gallo, Senior Consultant, at (781) 356-2772 or email at jgallo@scapartnering.com .


Jay Gallo provides strategy and risk management consulting to our residential lending clients. He typically works with senior executives to build new business units or improve existing operations.

Spillane Consulting Associates has served the residential mortgage lending business since 1991. We specialize in mortgage banking consulting services and provide quality control reviews, risk management, process consulting and employee training to credit unions, community banks and non-depository institutions. We are a thought leader on the strategic growth of residential mortgage lending.

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