Homebuyers, Owners, & Renters
      
      Homebuyers, Owners, and Renters

          
                        Business Partners
                  Single-Family Business

Helping lenders serve homebuyers and homeowners with affordable mortgages
    
          Multifamily Business

Financing for quality, affordable rental housing in every market, every day
    
          Capital Markets

Reducing risk and enhancing housing finance liquidity
          About Us
                toggle
                Who We Are
                                              toggle
                        Awards and Recognition
                                                      Diversity and Inclusion
                                                              toggle
                                Employee Resource Groups
                                                                      Progress With Purpose
                                                      Employee Code of Conduct
                                                      Community Engagement
                                                      History
                                      What We Do
                                              toggle
                        Duty to Serve
                                                              toggle
                                Manufactured Housing
                                                                      Affordable Housing Preservation
                                                                      Rural Housing
                                                                      Research Initiatives
                                                                      Colonias Investment Areas
                                                      Homeownership
                                                              toggle
                                Access to Mortgage Credit
                                                                      Restrictive Covenants
                                                      Innovation
                                                      Mortgage Finance in America
                                                      Financial Performance
                                                      Disaster Resiliency and Relief
                                                      Pilot Transparency
                                      Leadership Team
                                      Corporate Governance
                                              toggle
                        Corporate Governance Guidelines
                                                      Fannie Mae Charter
                                                      Board of Directors
                                                      Committees
                                                      Committee Charters
                                                      Code of Conduct
                                                      Bylaws
                                                      Contacting the Board of Directors
                                                      Housing Reports
                                      Investor Relations
                                              toggle
                        Quarterly and Annual Results
                                                      Annual Reports
                                                      SEC Filings
                                                              toggle
                                All SEC Filings
                                                                      Annual Filings
                                                                      Quarterly Filings
                                                                      Current Reports
                                                                      Section 16 Filings
                                                                      Proxy Filings
                                                      Additional Disclosures
                                                              toggle
                                Monthly Summary
                                                                      Capital Disclosures
                                                      Stock Information
                                                      Current Stock Information
                                                      Contact Information
                                      ESG
                                              toggle
                        Learn about our business
                                                      Environmental
                                                      Social
                                                              toggle
                                Equitable Housing Finance Plan
                                                      Governance
                                                      Sustainable Bonds
                                                              toggle
                                Green Bonds
                                                                      Social Bonds
                                                      Reports & Disclosures
                                                              toggle
                                2021 ESG Report
                                      Research & Insights
                                              toggle
                        Forecast
                                                              toggle
                                Monthly Archive
                                                                      Weekly Archive
                                                      Surveys & Indices
                                                              toggle
                                National Housing Survey
                                                                      Mortgage Lender Sentiment Survey
                                                                      Fannie Mae Home Price Index
                                                                      Refinance Application-Level Index
                                                                      Special Topics
                                                      Publications
                                                              toggle
                                Fannie Mae Working Papers
                                                                      Housing Insights
                                                                      Partner Research
                                                                      Publications Archive
                                                      Perspectives
                                                              toggle
                                Archive - 2020
                                                                      Archive - 2021
                                                                      Archive - 2022
                                                                      Archive - 2023
                                      Newsroom
                                              toggle
                        News
                                                      Media Resources
          
                        Careers
                toggle
                Our Teams
                                              toggle
                        Corporate Teams
                                                      Data & Analytics
                                                      Digital & Technology
                                                      Mortgage & Customer Solutions
                                                      Risk Management
                                      Life at Fannie Mae
                                      Diversity & Inclusion
                                      Benefits & Professional Development
                                      Campus
          
                        Contact Us
                      
            Google Translate Disclaimer
            The Google Translate feature is a third-party service that is available for informational purposes only. Fannie Mae is unable to guarantee the accuracy of any translation resulting from the tool and is not responsible for any event or damage that occurs as a result of using the translations generated by the Google Translate feature.
            OK
  Translate
        Translation Disclaimer
          Chinese, Traditional
            English
            Filipino
            Korean
            Spanish
            Vietnamese
 FM Site Nav
  

        

Homepage
                    
      Fannie Mae logo
    Toggle navigation
      Rent
                
                All Renter Resources
                                      The Rental Process
                                      Make Your Rent Count
                                      Credit Basics
                      
            Buy
                
                All Homebuyer Resources
                                      7 Steps to Homeownership
                                      HomeView Homeownership Education Course
                      
            Own
                
                All Homeowner Resources
                                      Make the Most of Your Home
                                      Refinancing Your Mortgage
                                      When It’s Time to Sell
                      
            Get Relief
                  Manage Financial Uncertainty

All Resources to Manage Financial Uncertainty

Help for Homeowners

Help for Renters

Protect Yourself from Fraud
    
          Recover from a Disaster

All Resources for Recovering from a Disaster

Recovery Assistance for Homeowners

Recovery Assistance for Renters

Protect Yourself from Fraud
                      
            Calculators & Tools
                
                All Calculators & Tools
                                      Tools for Renters
                                      Tools for Homebuyers
                                      Tools for Homeowners
                                      HomeView® Homeownership Education Course
                                      Glossary
                                      Mobile AppToggle search
 Skip to main content
          
    
    Home
                        Research and Insights
                        Perspectives
                        Lenders Discuss Loan Costs and Efficacy of Recent Tech Investments
    Perspectives Blog
Lenders Discuss Loan Costs and Efficacy of Recent Tech Investments
October 28, 2022
Douglas G. Duncan headshot
    Douglas Duncan
    Senior Vice President and Chief Economist
The mortgage lending industry is in a state of transition as it adjusts to the rapidly risen interest rate environment, inflationary pressure, and a general slowdown of domestic and global economic growth. Due to mounting affordability constraints for consumers, demand for home purchase and refinance mortgages has declined meaningfully over the past year, a trend that our Economic & Strategic Research (ESR) Group expects to continue through 20231 . Moreover, there's been a significant decline in loan origination profitability in 2022, as average production costs per loan rose to a new high.2 In fact, industry data showed a net loss per loan originated in Q2 2022.2 To help alleviate growing stress to their balance sheets, some mortgage lending firms have announced layoffs or business line closures.

To better understand the business pressures of diminished loan volume and increased origination costs, we leveraged our Mortgage Lender Sentiment Survey® (MLSS) to ask over 200 senior mortgage executives about what's driving changes in loan origination costs, as well as the impact of recent digitization efforts on cost efficiency.

Surveyed lenders cited personnel expenses as the primary factors driving up loan origination costs over the past two years. Further, they noted that investment in digitization was less effective at reducing costs – or in converting them from fixed to variable – even though, for most, it helped improve the consumer experience and reduce cycle time and error rates.

Using the MLSS, we first asked lenders to look back at the past two years and select the top two areas that have driven *up* the average cost per loan and the top two areas that have driven *down* the average cost per loan. Lenders reported that personnel-related costs, including back-end operational staff, compliance/legal, and loan officers, were the top areas increasing average loan costs. Digitization investments, including in back-end processing and consumer-facing technology, were the top areas driving down average costs. Looking ahead, lenders anticipate costs associated with consumer-facing technology and compliance/legal to increase the most, followed by marketing and back-end process technology costs.




Click image above for larger view

While a large majority of lenders said they've invested in digitization efforts over the past two years, benefits to cost savings were not universally reported. Only 7% of lenders reported "significant" cost savings resulting from digitization efforts, and 52% indicated "some" savings. Larger lenders were more likely to report cost savings than mid-sized or smaller lenders, likely due to their larger scales of economy. Additionally, mortgage banks and credit unions were significantly more likely than depository institutions to say that they invested in digitization for "non-monetary benefits," like indicating such investments may be "table stakes."

Additionally, lenders who did invest in digitization found their digitization efforts effective at improving consumer experience, reducing cycle time/increasing productivity, and enhancing quality of work, but less effective at reducing costs or converting fixed costs to variable costs.




Click image above for larger view

We also asked lenders about outsourcing to help manage costs. The survey results suggest that outsourcing is not a common practice in the mortgage lending business, with nearly 80% of lenders reporting that they handle their loan origination process in-house. Moreover, most surveyed lenders said they plan to keep the process in-house. However, among the few lenders who outsource at least a part of the loan origination process, 80% found outsourcing effective at converting fixed costs to variable costs.

Although lenders have invested significantly in digitization over the past few years, lenders reported finding these investments less effective at managing costs. In our view, this is likely because many loan origination costs are fixed. For example, regardless of demand, lenders pay for legal/compliance and technology, the top cost areas that surveyed lenders anticipate will increase the most. Many lenders also pointed out that they invested in technology to meet shifting consumer preferences, and that a positive return on such investment wasn't necessarily the primary goal.

Given lenders' acknowledgment that technology and legal/compliance costs are unlikely to be cut, many appear to be turning to payroll reduction to help manage costs. Employment among nonbanks and mortgage brokers remains relatively high today, compared to the pre-COVID era. With the market experiencing significant declines in loan volume and applications, productivity (in terms of average loan volume or applications per employee) has also dropped significantly, indicating there's potentially excess capacity. Recent news about layoffs, mortgage business closures, and mergers suggest that lenders are scaling back their production employment in response to the cooling housing market. With an industry consensus forecast of a 35% - 50% drop in origination volume in 2022, it's likely that many lenders will continue to right-size capacity to remain competitive.

To learn more, read the research deck or access our infographic.

*The author thanks Dan Miller, Tomas Ducaud, Steve Deggendorf, Matt Classick, Ricky Goyette, and Li-Ning Huang for their valuable contributions in the creation of this commentary and the design of the research. All errors remain the responsibility of the author.*

1 Please see the Economic and Strategic Research (ESR) Group’s webpage for updated economic and housing forecasts, https://www.fanniemae.com/research-and-insights/forecast.

For example, the National Association of REALTORS® Pending Home Sales Index, which records contract signings of existing homes and typically leads closings by one to two months, declined one percent to 89.8 in July 2022, the eighth decline in the prior nine months. Year-over-year, pending transactions dropped 19.9%. https://www.nar.realtor/newsroom/pending-home-sales-slipped-1-0-in-july.

New single-family home sales fell 12.6% month-over-month to a seasonally adjusted annualized rate of 511K in July of 2022, the lowest reading since January of 2016, according to the Census Bureau. https://www.census.gov/construction/nrs/pdf/newressales.pdf

2 According to the Mortgage Bankers Association's August 2022 *Quarterly Mortgage Bankers Performance Report*, independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a net loss of $82 on each loan they originated in the second quarter of 2022, down from a reported gain of $223 per loan in the first quarter of 2022, and a reported gain of $1,099 per loan in the fourth quarter of 2021, reaching its lowest level since the fourth quarter of 2018. The only other quarters in the survey's history to record net production losses were the first quarters of 2014 and 2018, and the fourth quarter of 2018.

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to a study-high of $10,937 per loan in the second quarter of 2022. From the third quarter of 2008 to the first quarter of 2022, loan production expenses have averaged $6,902 per loan. Personnel expenses averaged $7,371 per loan in the second quarter, up from $7,113 per loan in the first quarter.https://www.mba.org/news-and-research/newsroom/news/2022/08/18/imbs-report-losses-in-the-second-quarter-of-2022

TOPICS
  
Fannie Mae Corporate
  
  
      Twitter
              Facebook
              Linkedin
              Email
Research and Insights
                                                              Forecast
                                    Surveys & Indices
                                    Publications
                                    Perspectives
                                                              Archive - 2024
                                    Archive - 2023
                                    Archive - 2022
                                    Archive - 2021

Full Page Infographic



Research Deck

Our Company
    About Us
      Contact Us
      Careers
      Investor Relations
      Newsroom
      Research & Insights
      ESG
  Business Partners
    Single-Family Business
      Multifamily Business
      Capital Markets
	      Suppliers
      Developer Portal
  Homebuyers, Owners, & Renters
    Educational Resources
      Credit Basics
      HomeView Homeownership Education Course
      HomePath - Search for Homes
      Make Your Rent CountCalculators & Tools
      All Calculators and Tools      Glossary of Key Terms
      Mortgage Calculator
      Down Payment Assistance Search Tool
      Mobile AppLet Us Help You
      Contact a Housing Counselor
      Manage Financial Uncertainty
      Recover from a Disaster
    
    
  

      
Social media
  

        
            Follow us
          Follow us
          Facebook
          Twitter
          LinkedIn
          Instagram
    Footer
  

        
            Legal
          Privacy
          Digital Accessibility
                Cookie Preferences
            © 2024 Fannie Mae