Expert AnalysisMarch/April 2024 Issue

Managing Origination Costs With Intelligent Automation

For more than two years, the mortgage industry has grappled with historically high interest rates, which has led to low volumes, shrinking margins and high costs per loan. According to Fortune, while the average cost to originate a loan was $9,300 in 2019, that cost has increased to $11,000 by Q2 2023. Independent mortgage banks and other mortgage lending subsidiaries reported a $534 per mortgage origination jump in Q2 2023 representing a major challenge for lenders. Even as many forecast interest rate cuts later this year, mortgage lenders must invest in ways to reduce origination costs and increase capacity.

According to a November 2021 study from Freddie Mac, automation tools represent one of the best opportunities for mortgage lenders to manage origination costs. Freddie Mac observed that mortgage lenders who utilize automation incur costs that are $2,200 less per loan and improve margins by one percent on average. That is on top of the already improved borrower and team member experience.

The Freddie Mac study identifies labor as the greatest driver of origination costs, thus automating lending tasks like document collection and keeping the borrower updated can help lenders drive down origination costs. Automation tools are effective at completing repetitive, time-consuming tasks, which make up much of mortgage lending processes.

For example, much of the lending process takes the form of collecting documents and using that data to make a decision on a mortgage loan. Artificial Intelligence (AI) Workflow Automation offerings not only automatically reach out to applicants with requests for documents, but also scan those documents for all necessary information and validate against the system of record. In this case, automation tools can take a series of tasks that usually take a knowledge worker days or even weeks and condenses it to mere hours, saving both time and money.

Imagine the improvement to the borrower experience when they receive an SMS message upon application completion, application assignment, completion of underwriting and with reminders of needed stipulations. Borrowers thirst for timely updates sent in a manner that is convenient to them. Using Automation, communication can be output using the customers preferred channel keeping everyone in the loop and moving forward.

Adding Generative AI to existing technologies will enhance their operation, improving effectiveness while increasing use case coverage. AI Workflow Automation is built on Robotic Process Automation (RPA), a way of applying UI orchestration to reduce or eliminate manual work. In the next generation, RPA will be paired with Generative AI to enable UI changes without breaking the automation and to enable the copilot to expand its usefulness by observing additional tasks.

These automation tools, especially Generative AI-enabled solutions, are still very novel, and their implementation is sure to evolve in the coming months and years. However, mortgage lenders will always want and need solutions that lower origination costs. While mortgage rates are expected to drop in the coming months, mortgage lenders will still be coming out of a period of abnormally high rates and will desire ways to make the most of rising volumes. Automation technologies give lenders decrease costs and increase capacity,  lenders that invest early will grow their business while others wait until such tools are necessary to run their operations.