Academic journal article ABA Banking Journal

Mortgage Lending Outsourcing: No Longer a "Do It Yourself" Business

Academic journal article ABA Banking Journal

Mortgage Lending Outsourcing: No Longer a "Do It Yourself" Business

Article excerpt

If you want something done fight, then do it yourself!

"Do it yourself" may be a growing trend in America, but I cringe every time my husband begins a new home improvement project. Like my experience with household "improvements," community banks are finding that "Do it yourself" may not be the most attractive alternative to establishing or maintaining a mortgage program.

Evaluate Your Existing Mortgage Program

If your bank has an existing mortgage program, deciding whether to outsource begins with a thorough and objective evaluation of the program. Start by evaluating your program's production and financial performance.

Ability to optimize revenues and minimize expenses against production is the hallmark of an excellent mortgage program. Your greatest program will occur as interest rate fluctuations drive spikes and lulls in mortgage demand. When a bank's demand for mortgage loans suddenly decreases, a bank must eliminate excess expense quickly to maintain their net income. Many community banks are hesitant to make staffing cuts, fearing their community's backlash.

As you consider the financial results of your in-house mortgage program, do not forget to factor in the indirect expenses.

Other non-financial performance factors to evaluate:

* Does your market provide an adequate pool of mortgage professionals to fill specialized positions?

* Are your customers asking for products that you are unable to offer? Is your mortgage loan program limited geographically?

* Are you facing investments in the near future to keep up with recent technological advances?

Even if you do not have an existing mortgage lending program, you will benefit from an assessment of your projected in-house process. You can then perform a comparison of your in-house plans to an outsourcing solution.

Define and Prioritize Your Objectives

There are many reasons to consider outsourcing your mortgage origination functions. Some common reasons include:

* Avoid staffing volatility and become more cost effective

* Exchange fixed expenses for variable expenses

* Reduce secondary marketing risk and improved execution

* Expand mortgage loan programs and geographic coverage

* Avoid investments in technology

* Retain your customers rather than referring them to mortgage brokers or other financial institutions. …

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