The second half of 2022 was characterized by sky-high interest rates and rising inflation. As a result, many homebuyers and sellers have been waiting on the sidelines for these market conditions to improve.
Rates will likely go down this year, but 2023 presents some new challenges for mortgage lenders. Most notably, credit reporting costs are increasing. According to the National Consumer Reporting Association (NCRA), the vast majority of mortgage lenders will face significant credit reporting price increases this year, ranging from 10% to 400%.[i]
While these price increases are unavoidable, there are many steps that mortgage lenders can take to reduce their loan origination costs. Below, we’ll outline a few steps we are taking with current customers and share more details about the recent credit reporting price increases.
Why Are Credit Reporting Costs Rising in 2023?
According to a letter from the NCRA sent on November 22, 2022, Fair Isaac Corp. (FICO) has increased its credit reporting prices for 2023. While some lenders may only face modest price increases of 10%, the majority of mortgage lenders can expect a substantial credit reporting price increase of 400% or more.[ii]
This price increase is only the second one that FICO has implemented in its 25 years of operation (aside from standard inflation-related adjustments). Neither FICO nor the national credit bureaus have explained the reasons behind these changes.
Regardless of FICO’s reasons, one takeaway is clear—increased credit reporting costs will affect mortgage lenders’ business models. Lenders can choose to absorb these inflated costs, pass them on to borrowers, or find a sweet spot somewhere in between.
How to Reduce Your Loan Origination Costs in 2023
Now that we’ve covered FICO’s credit reporting cost increases, let’s take a look at a few ways you can save money in other areas this year:
#1 Reevaluate Your Prequalification Process
The first way to cut costs is to analyze and optimize each aspect of your loan origination process, starting with prequalification. Due to the credit reporting price hike, prequalification is a particularly important process to take a look at. That’s because prequalification can be completed using soft pull credit reports. These types of reports are much cheaper than tri-merge credit reports.
Most lenders absorb the cost of credit reports, even for loans that eventually get denied or canceled. In turn, encouraging more applicants to apply for prequalification with you can help you find out if they meet your basic credit criteria without shelling out money on expensive tri-merges unnecessarily.
You can optimize your prequalification process with the help of Cascade Prequal. This automated solution allows you to offer prequalification on your website. Some of Cascade Prequal’s notable features include:
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- Build-in compliance – Cascade Prequal creates all of the required disclosures for you automatically so you can stay in compliance with ease.
- Credit threshold customization – With Cascade Prequal, you get to customize your credit thresholds to suit your lending requirements. You can choose to use soft pull credit reports from one, two, or all three of the credit bureaus.
- Advanced automation – Cascade Prequal streamlines the amount of manual work that goes into your prequalification process. Once you’ve set your customized credit thresholds, Cascade Prequal can take care of the rest.
- Quick response times – Since Cascade Prequal compares your applicants’ submissions with your pre-set credit criteria, it can generate instant According to McKinsey & Company,[iii] providing fast prequalification responses is crucial if you want to secure more business.
- Seamless integration – Lastly, Cascade Prequal offers easy integration, enabling all of your prequalification data to populate in your preferred LOS.
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Cascade Prequal can also give you a competitive advantage if you pair it with our credit score improvement tools. These tools allow you to generate customized suggestions for your applicants who need to raise their credit scores. By sharing these insights with your on-the-cusp applicants, you can become their favorite lender and an invaluable resource in their pursuit of homeownership. In turn, you’ll naturally increase your chances of earning their business when they’re eventually ready to buy.
#2 Ask Your Credit Report Provider About Bundled Pricing
Another way you may be able to cut costs is by asking your credit reporting provider about special pricing programs.
Some credit report providers, like Certified Credit, offer products and services beyond credit reports. For example, we also provide:
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- Automated loan manufacturing solutions
- Lead generation tools
- Affordable credit reports
- Flood zone determinations
- Fraud and risk support
- Settlement services
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These providers may be willing to bundle their products or services together at a lower price. For instance, here at Certified Credit, we often offer bundled discounts on products that work together using a milestone system. After a milestone has been achieved with one product (such as pulling a qualifying credit report), the subsequent milestone (such as ordering flood or fraud protection) can be initiated at a discounted rate. In addition to milestone triggers, we also offer front-end bundles, back-end bundles, and more.
If you’re unsure if your provider offers these types of discounts, just ask. You may be surprised at the cost-savings that are available to you. As an added bonus, bundled services can make it easier to pass down loan origination costs to your borrowers.
#3 Streamline Your Verification of Income and Employment (VOE) Process
Lastly, you can cut costs by employing Cascade VOE. Cascade VOE automates the VOE process and makes it more cost-effective.
With Cascade VOE, all you have to do is set up a cascade of vendors. You can select from various third-party instant, consumer-permissioned, or manual verification vendors and place them in your preferred order. Cascade VOE will then cycle through your vendors in that order until it incurs a hit.
Automating VOE can cut costs in the following ways:
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- It gives you convenient access to lower-cost vendors – Some VOE vendors are more expensive than others. Fortunately, you can customize your cascade to include the types of vendors that best suit your budget. Cascade VOE can be integrated with a variety of low-cost vendors, including consumer-permissioned providers. With consumer-permissioned providers, your applicants share their bank account credentials with a third-party provider and this company verifies their information on your behalf. Consumer-permissioned vendors are often more affordable than third-party instant verification vendors, like WorkNumber or ExperianVerify. By streamlining your vendors, you can establish a more predictable VOE cost per loan and build the expense into borrower closing costs.As an additional benefit, Cascade VOE, also allows you to outsource any VOE requests that don’t receive a hit to Certified Credit. We’ll fulfill the manual VOE process for you, so you can stay focused on your day-to-day work.
- It can standardize your vendor ordering process – Since Cascade VOE cycles through the same cascade of vendors each time, it introduces a level of standardization that can make your VOE costs more predictable. These standardized costs make it easy to stay in alignment with TRID requirements.
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- It can save time – Manual VOE is complicated and time-consuming. You have to ask your applicants to provide additional documentation, reach out to their employers to verify it, and hope that all of this work yields a verification.
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Thanks to Cascade VOE, you can give up these manual tasks for good. Once you’ve initiated an order for a specific applicant, all you have to do is sit back, relax, and wait for Cascade VOE to notify you when it receives a hit. The best part? Most of our manual VOEs are started within 12-24 hours of receipt!
Meanwhile, you can put your valuable time to better use, whether you want to schedule meetings with new applicants or optimize your marketing strategy. You may even be able to operate with a more streamlined staff, freeing up your payroll expenses and enhancing your profits.
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- It allows you to streamline your ordering process – Cascade VOE enables you to take advantage of milestone ordering. Milestones are events that take your applicants from one status to another, whether that’s “prequalified”, “approved”, or “VOE verified”. With milestone ordering, you can set up automatic VOE orders once loans have achieved specific milestones, streamlining your ordering process that much more.
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As you can see, automated VOE offers many advantages. It can make your job easier and cut costs simultaneously.
Streamline Your Loan Origination Costs in 2023 With Certified Credit
As you can see, there are many ways you can cut costs in 2023. Reducing your expenses wherever possible can help you protect your profit margins from the rising costs of credit reports.
If you need any help identifying cost-saving opportunities within your workflows, Certified Credit can help. As a leading mortgage lending solutions provider and workflow optimization expert, we have decades of experience helping mortgage lenders save money. In addition to our Cascade solutions and bundle pricing options, we also offer affordable credit reports and other money-saving services.
Want to learn how partnering with Certified Credit can streamline your mortgage lending expenses in 2023? Schedule a credit consultation with our team today.
Sources:
[i] NCRA. November 22, 2022.
[ii] FHFA. FHFA Announces Validation of FICO 10T and VantageScore 4.0 for Use by Fannie Mae and Freddie Mac.
[iii] McKinsey & Company. Competing on customer experience in US mortgage.
