The
average
cost
to
originate
a
loan
at
large-sized

retail
lenders
(quarterly
loan
volumes
of
more
than
$500
million)
was
$11,000
in
Q3
2023,
compared
to
$11,700
at
medium-sized
lenders
(quarterly
volumes
of
$150
million
to
$500
million)
and
$11,900
at
small
lenders
(less
than
$150
million). 

Freddie
Mac’s
study
is
based
on

financial
information
from
203
lending
institutions.
In
partnership
with Ipsos
Public
Affairs,
the
enterprise
also
conducted
13
virtual
interviews
with
representatives
at
lending
institutions,
as
well
as
an
online
survey
with
500
loan
officers,
originators
and
underwriters
in
November
and
December
2023. 

“We
are
involved
in
a
lot
of
conversations
with
lenders,
and
the
biggest
issue
is
just
increasing
costs,”
Kevin
Kauffman,
senior
vice
president
of
Freddie
Mac’s
single-family
client
engagement
division,
said
in
an
interview
with HousingWire.

The
study
shows
that
one
reason
for
rising
costs
is
inflation,
which
mainly
affects
vendor

technology
expenses
and
fees,
including
credit
reports
and
third-party
verifications.
Meanwhile,
lower
mortgage
production
makes
economies
of
scale
—
or
per-loan
allocations
of
total
costs
—
more
difficult. 

Kauffman
added
that
the
higher
costs
are
also
because
“over
the
three-year
period,
we
have
transitioned
from
a
refinance
market
into
a
purchase
market,”
which
he
explained
as
a
more
complex,
labor-intensive
and
time-consuming
mortgage
process.

Mortgage
professionals
said
that
cost
increases
are
evident
across
the
entire
spectrum
of
origination
functions.
But
many
lenders
report
administration
and
operations,
digital
tools
and
customer
support
are
having
more
impacts
than
other
categories.

Technology
aspects

Kauffman
said
that
despite
being
relevant
to
improving
efficiency
and
reducing
risk,
new
technologies
have
also
put
pressure
on
retail
lenders’
costs.
That’s
because
lenders
are
often
implementing
new
tech
tools
alongside
their
existing
processes. 

“The
example
I’ll
give
is,
if
you
pay
for
a
report
that
verifies
employment
and
income,
and
you
still
ask
for
pay
stubs
and
W2s,
why
did
you
pay
for
that
report?
Why
are
you
still
having
somebody
manually
and
verbally
doing
these
things?”
he
said.
“So,
our
view
is
that
there’s
a
great
opportunity
for
the
industry
to
leverage
these
tools
in
the
market.
And
they
don’t
know
how
to
get
started.”

Freddie
Mac’s
study
shows
that
personnel
expenses
represent
67%
of
lenders’
total
production
costs.
Some
parts
of
the
process,
mainly
underwriting,
remain
fairly
manual.
Meanwhile,
the
analysis
noted
that
technology-related
expenses
per
loan
have
risen
from
2%
to
4%
in
the
past
three
years. 

Kauffman
said
that
some
lenders
have
considered
removing
these
solutions
from
their
portfolios,
but
the
ones
that
are
adopting
them
are
creating
savings
and
mitigating
risks.
He
noted
that
lenders
that
leverage
these
tools
have
a
40%
lower
defect
rate. 

During
interviews,
executives
told
Freddie
Mac
that
they
estimate
a
fully
digitized
mortgage
process
can
help
them
save
up
to
40%
in
costs.
Leading
tech
adopters
are
interested
in

artificial
intelligence,
blockchain
and
predictive
analytics.