Cost Per Funded Loan – Building a Book of Business
June 26, 2017
There are many essential metrics that must be considered when a determination is made on how to spend valuable marketing dollars. The acceptable cost per funded loan varies depending on where an individual sits in the organizational chart and how much of a stakeholder one is in the long term growth of the company. Successful lead generation firms are aware of this and for this reason there products are designed to cater to different segments of the mortgage professional population.
A mortgage banker will seek to increase volume and can tolerate slimmer margins immediately sees the benefit of of increase overall lead volume. A cost per funded loan of $400 to $700 per funded loan is acceptable and very profitable, because the bank will draws revenue from the originated loan in more than one way.
There are a number of different ways to market a reverse mortgage. However, they fall into two basic categories: 1.) Waiting for a qualifying senior homeowner to walk through your door with and request the product from you or 2.) Market to the target demographic in a clear and informational manner and let them know the product is available.
Waiting In the Office for Warm Referrals: Lowest Cost Per Funded Loan
The easiest is to rely on warm referrals from past clients. In the reverse mortgage industry this would amount to simply waiting for someone who has previously reverse mortgage there home to go to a friend or family member and to extol the virtues of the FHA HECM or private equity loan that the recently received.
Ideally, they will have excellent comments to share regarding the company that provided the loan as well as the benefits of the loan itself. In this scenario the cost per funded loan is nearly zero and the profit margin associated with the loan is high.The downside to being dependent entirely on warm referrals of this type, particularly for growth oriented firms is easy to see.
First, senior homeowners tend to keep financial matters private and may not discuss financial matters openly. Second, for many seniors, their personal network of trusted people is shrinking as opposed to growing each year. Third reverse mortgages have been available for decades in one form or another and prior to the massive increases in home values associated with the real estate bubble, which substantially reduced the loan-to-value of many properties and increased the available equity, very few loans were done when this was the primary means of communication.
A quick visit to the FHA website or review of the year-by-year statistics reveals this to be undeniable.
Marketing Programs: Growth-Oriented Referrals
Growth oriented firms, particularly those with an exit strategy that includes being bought out by a larger firm or group of investors, will require more than just walk-in to build their businesses. Even large banks and financial institutions market heavily in the communities their agents service.
Anyone familiar with the reverse mortgage industry understands that eventual sale of the business entity or the portfolio is a key characteristic business plans. The portfolios developed by Home Equity Conversion Mortgage and Fannie Mae Homekeeper originators have value in securities marketplace that is greater than many traditional mortgage products, because the loan itself is government insured for the protection of the lender and the homeowner.
Marketing represents a business expense and as long as the revenue returned exceeds the cash outlay or credit obligation the outcome is positive. Marketing is one of the key components of any successful business and marketing significantly impact the ability of the sales force to perform.
Firms with 15 or more agent originating reverse mortgages on a daily basis need to make sure that their agents are consistently supplied with a steady stream of leads to follow-up on and will need to make projections regarding future performance of their sales force. A sales force without leads is doomed. A sales force with leads has an opportunity. And, a company that has a low cost per funded loan is more profitable.
Targeted States Affect Cost Per Funded Loan:
All states are not created equal when it comes to reverse mortgages. States, such as North Carolina, have a lot less competition, whereas, California, which has had the most reverse mortgage transactions has the most competition. The recent changes in the traditional mortgage market and pending financial crises the the Federal Reserve is working to avert have made many of the high volume states very difficult to work in, due substantial changes in appraised property values.
The challenges the brokers and lenders face are also faced by the lead generation companies they use and prices are set accordingly. A lead in North Carolina or Georgia will be cost, because the marketing firms will need to make a lower expenditure to produce the type of lead product the customer requires. The leads in California or Maryland on the other hand will require more marketing effort to produce. In California, the cost per funded loan could easily be $800 as opposed to North Carolina or Idaho where the cost per funded loan could be as low as $400.
If your firm has the ability to serve in multiple states at the same time, it is good idea to spread the marketing expenditure across the states in a manner that balance the total cost of your lead program against know factors, such as: Penetration by Market Size, New Market Opportunity, Average Available Equity for Eligible Homeowners, Lending Limits, and Legislative Requirements of the State.