Fewer People Servicing More Loans: Is Technology Improving Both Productivity and Profitability?

Political thinkers like George Orwell and Hannah Arendt used to think technology would be the permanent boot-jack on the neck of mankind. You only need remember in 1984 how TVs were watching the viewer and hidden cameras were everywhere. It turned out to be just the opposite.

Think about the basic IBM PC in 1985.  It had almost no computing power and cost $5,000.  Today’s basic PC probably has 50 times the power but now can be bought for under $1,000. Have the profit margins at Dell or HP grown wider because their products keep getting better and better? That doesn't seem to be the case.

For those of you young enough to remember what a secretary was, there was a time when every executive had his own secretary, and she even had a “Steno pool” to handle her overflow of typing.  Yes, companies have become more efficient by using word processing, but does that executive really benefit?

We know plenty of $500-600 an hour lawyers who type up their own agreements and contracts. Who’s more profitable? The lawyer who paid a secretary to do his typing, take his phone call, and keep his calendar organized, freeing him to generate more revenue? Or the lawyer that saves the cost of a secretary but  spends 2-3 hours a day doing his own contracts, going through e-mail, and keeping his calendar organized?                       

In our simple way of viewing it, that $500 an hour lawyer who spends three hours a day on stuff a secretary used to do is forgoing $1,500 a day.  That’s $7,500 a week or $375,000 a year.  Wouldn’t it be better to simply pay a secretary $70,000 a year? Is technology truly making our lives and our businesses more efficient?

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Companies with servicing portfolios (that we talk to or conduct studies for) seem to service about 600-700 loans per servicing employee.  It’s obviously much higher for the giant servicers like BofA or Wells Fargo, with much greater resources and technology. We remember seeing these numbers, in about 1980, closer to 300 or 350 loans per employee.

While the industry is more efficient, basic GSE servicing used to be 37.5 bps and is now generally seen at 25 bps or less. It seems that a portion of technology driven improvements in productivity are being offset by shrinking margins.

It seems like technology companies suffer from a syndrome where their new advancements never really lead to fatter profit margins, instead it just allows the price to the consumer to drop.