Contribution Analysis

How to Determine Which Origination Group is Most Valuable

Recently, a client asked MCM to help identify which branch within their network provides the most value to the company. The owner thought it would be the one that produced the most revenue or loan volume.

We valued the loans produced over the past year by using the gain on sale generated from both retained and released sales; calculating the hedge costs associated with each loan within each branch (including extensions), and evaluating costs that were directly assigned to each branch.

Then MCM analyzed the results.

Interestingly enough, the branch that stood out was not the highest volume producer or revenue generator, it was the one with:

  • relatively good volume
  • very low cost to hedge, based on low fallout and fallout volatility
  • a high average of closed loans with excess days leftover during the lock period (few extensions)
  • a heavily weighted production toward GNMA loans, which produce more margin based on a retained sales execution

Needless to say, the owner of the company learned quite a bit about his branches and learned to value not only high producers but ones that operate efficiently.

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