Ensuring the lowest mortgage rates to drive volumes and ROI for lenders

Docvu AI Article Tackle Mortgage Rate Fluctuations

The mortgage industry has been turbulent in the past couple of years. Various economic and political scenarios have forced the Federal Reserve to recalibrate its monetary policies, which has indirectly affected the mortgage rates significantly. Further, lending rates are increasing rapidly, with the average 30-year fixed mortgage rate reaching 7.2% in October 2022. Naturally, banks are maintaining a cautionary outlook toward the industry dynamics while processing new mortgages or refinancing older loans.

The rise in mortgage rates is associated closely with high demand and low supply and is often correlated with rising inflation. All these translate into a reduced net profit for the banks and lenders. Net gains in 2021 Q4 declined to $1,099 on each loan originated, compared to $2,594 in the previous quarter, according to a report published by the Mortgage Bankers Association (MBA) recently. This slide in profitability is on a 6-quarter trend.

With no reversal in sight soon with the Fed’s current positions, things might be challenging for the mortgage industry. While the NQM segment in the mortgage industry is expected to improve with an increase in loan volumes and mortgage rates, it isn’t easy to know if it can bring growth across the whole industry.

So what do banks do in these testing times? How do they navigate the fall in volumes and the eventual improvement in ROI while reducing costs and increasing revenues?

Reducing cost – Banks can reduce fixed and semi-variable costs in their mortgage processes. Identifying bottlenecks in mortgage processing and incorporating technologies that reduce dependence on fixed resources are a couple of ways to meet these objectives.

  • Identify bottlenecks: While data is the new oil, getting and using the information to solve problems is more challenging than filling up and starting your car. One place you should look to identify bottlenecks is in your LOS or IDP logs, or both. This data can help you identify areas and processes needing suitable attention to streamline, impacting the whole process. The consultants at DocVu.AI build a model around your existing process and use the log data to show you the visual flow of your processes. They recommend areas of improvement that can meet your strategic and operational objectives by changing process SOPs.
  • Reduce dependence on manual resources: This is what technology promises, but getting the right results is easier said than done. While AI and ML are vital cogs to the next phase of automation, in general AI and ML fail in industries with unique idiosyncrasies. DocVu.AI’s Mortgage Intelligence is an AI & ML module built ground up to meet the particular requirements of Mortgage document processing, which leads to:
  1. A higher percentage of straight-through processing, which reduces human intervention,
  2. Better grading in the accuracy of AI that reduces human oversight

Improving revenue – Improving revenue is another way that banks can protect their mortgage margins. One way to do this is to improve efficiency and accuracy while processing the loans. Subsequently, the number of loans processed can increase, which in turn, enhances revenue generation. Another way is to differentiate and innovate mortgage loan products so that you reach out to more people with the product of their choice.

Automating the mortgage processing can increase the efficiency of your operations by automatically capturing data and optimizing the staffing requirements that otherwise result in longer turnaround times due to manual processing. Further, certain redundant processes carried out by physical staff can lead to human errors. Also, the collection, verification, validation, and other processes increase the time per mortgage.

An automated document processing solution can eliminate human interventions except in cases of emergency. Further, they are faster and more efficient than manual processes.

Today the market is challenging but take this as an opportunity to build capabilities to navigate the future and address today’s trials. Technology in operations can help fuel your revenues and top-line growth. Learn about how processes can influence the top line here.

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