REO and foreclosure firms are realizing that business volumes will be dramatically reduced in the future due to a down market and unfavorable economic conditions. As such, they will be fighting intensely for market share and will need to find new ways to cut costs that are rising as regulatory and compliance requirements continue to multiply. There are a host of business decisions that need to be made, however difficult they may be to act upon. Because it is never a bad idea to go through your expenditures, policies, systems, and procedures to identify operational inefficiencies, firms need to take the lead and figure out where exactly measures need to be taken to curtail their costs.
Better Use Your Human Resources
The most expensive asset that a company owns is its employees. To remain competitive in tough markets, it is vital that you downsize staff as markets shrink in size. This is also a good time to improve the versatility of your personnel by training them to take on multiple tasks and introducing them to a host of other elements of your business. The investment you need to make in training and reskilling your staff will be worth it as it stands to increase productivity and groom future leaders for your business in the long run.
Invest in New Technology
It may be counter-intuitive to invest in better technology when faced with shrinking markets and lower business volumes, but it is critical to improving your operational efficiency and reducing costs to stay afloat. If your current technology is outdated, it is costing you by resulting in reduced productivity and a need for more resources to generate the same volume of products. The last thing firms in the foreclosure and REO markets want to do is invest in more infrastructure when markets are down. However, the long-term benefits outweigh the initial investment required. This is because replacing your legacy infrastructure will easily result in greater levels of productivity and operational efficiency as fewer resources are required in the long run. Additionally, evolving compliance requirements will demand that new technology solutions be incorporated into your business like TRID’s influence on loan origination systems, title production technology, and vendor management systems. If used correctly, technology can remove redundancies as well as eliminate the need to do tasks manually, saving time and money in the process.
Rely on Outsourcing
It has long been the case that firms in the foreclosure and REO industry have been willing to outsource some business functions and services, but not others. For instance, a firm that is used to outsourcing its accounting, tax, and IT functions may struggle with the thought of using vendor management providers and title search products. That said, outsourcing these functions may not result in a loss in service quality in any way. At one time, many outsourcing providers may have cut quality for the sake of lower costs and greater speed, however it is no longer the case. Outsourcing firms would no longer be in business if their services or products failed to meet higher quality standards. Due diligence should also be performed by gathering professional references from the vendor and soliciting the opinion of all connections in your network about their experience with the vendor. Engaging a reputed vendor after conducting much research could be the difference between incurring losses in a down market or remaining profitable and competitive.
Cut Operational Costs
Another way to improve your operational efficiency is by examining your entire operations for redundant costs. In fact, if your brick-and-mortar offices are a major expense but your physical presence is not required to serve your existing clients, it may be best to get rid of them entirely. Centralizing tasks can also help reduce costs as it adds some scalability to your operations and eliminates redundant tasks and personnel. May firms open new offices or branches when business volumes increase. However, they are not as willing to downsize their physical space and accompanying expenses when business volumes or clients dip. It may also be wise to relocate your offices from an urban establishment downtown to a suburban facility to cut costs if faced with higher utilities, taxes, or rent.
Better Manage Risks
With rising regulatory requirements, the threat of being audited or fined due to a failure to comply with them could not be higher. In fact, more lenders are conducting onsite audits to ensure that their data is thoroughly protected. To add to that, more state regulators have been paying greater attention to this industry in recent times. If security and compliance was never an issue for you before, now is the time to get with the program. It is much harder to gain clients in a down market so not ensuring regulatory compliance could affect your business majorly. Internal operations are not the only area that need to be audited. Vendors and partner should also be audited on a regular basis by considering several contingencies. Some contingencies may include whether they are protecting data effectively, how they monitor the quality of the products or services, and how their compliance policy works.
Downsizing is never an easy task when faced with a need to cut costs and improve operational efficiency. In fact, is it always more enjoyable to expand and scale your operations when markets are thriving and when covering your expenses is a breeze. However, with REO and foreclosed inventory shrinking rapidly, only businesses that can make these tough decisions and drastically cut operational costs will not be made irrelevant long term.