As the mortgage lending industry heads toward Q4 2022, most lenders are facing the same reality that rising interest rates and a recessionary economic environment are driving loan volumes down precipitously as consumers struggle to afford homeownership. In fact, mortgage loan application volumes recently fell to their lowest level in 22 years. The response from many lenders has been a predictable one as they look to cut cost through staff reductions and other measures.
As lenders carefully evaluate their personnel and operating expenses, one area of focus that should be included is expense control. Too often, both loan and non-loan expense approval and reconciliation is managed through a labor-intensive, error-prone, manual set of processes. Particularly during high volume periods like the industry has seen over the past few years, the focus is understandably on moving loans through the origination pipeline to closing. As a result, it is virtually impossible for lenders to review all of their vendors and invoices.
However, as loan volumes decline as they have today, lenders that take the time to do so will likely find some surprises in how money is flowing in and out of their organization. Just as consumers may miss an increase in the price of a recurring subscription service, or addition of a new fee or rate increase on a credit card, lenders too face many of the same challenges – just at a much larger scale.
In a challenging business environment, those lenders that have already invested in automation within their accounts payable and procurement departments are in a much better position to affect immediate adjustments that can positively impact their bottom lines. Automating accounts payable provides lenders with greater levels of visibility into specific vendor invoices and even individual employee expenses.
Just as lenders are facing business challenges, so too are vendors, who are looking for ways to generate additional revenues from their customers. For lenders, rules-driven accounts payable workflows provide greater control over the approval process, helping lenders more quickly uncover any increases in vendor fees, new contract terms, changes to vendors’ service level agreements, and even any change in the frequency of vendor billing.
Will any one specific change to a vendor’s invoice result in significant savings for a lender? Perhaps, but more likely is the power of incremental improvement across literally thousands of individual invoices and accounts payable transactions. Typically, an investment in technology accounts for only about 5% of a lender’s cost to originate a loan, but when used properly, that investment can drive operational savings that directly impact the other 95%.
The reality is that without effective technology in place, it is virtually impossible for accounting staff to manually review and effectively manage the sheer volume of vendor relationships and invoices in a way that meaningfully benefits the lender. It is simply too big of a job.
With automation in place, the more volume the lender closes, the greater the opportunity for savings through the evaluation of each invoice. And in a lending environment such as we see right now, these additional operational savings might just be the difference between successfully navigating the market downturn and succumbing to it.
Joe Ludlow is the Vice President for Irvine, Calif-based Advantage Systems, a provider of accounting and financial management tools for the mortgage industry. Ludlow can be reached at email@example.com, and more information on the company can be found at www.mortgageaccounting.com.