In a High-Rate Market, Mortgage Lenders Are Turning Fixed Costs Into Variable Ones

A lender paying a full-time processor $30,000 to $40,000 a year bears that cost whether the company closes five loans in a month or fifty. That math has become harder to justify industry-wide. According to Mortgage Bankers Association data, average production profit per loan sat at just 25 basis points in the second quarter of 2026, and per-loan production costs have run close to $11,000. The industry has been at that level through a multi-year stretch of compressed margins that MBA’s own vice president of industry analysis has called the longest period of margin compression she’s tracked in over two decades. Loan officer headcount has fallen sharply from the refinance-boom peak of 2021, while origination volume has only partially recovered. Fixed staffing costs that were easy to absorb during the low-rate years now sit on a much thinner revenue base.

Sam Verma, Founder and CEO of Cohivra, has spent more than 30 years in the mortgage industry and sees the pressure play out from the vendor side, working with lenders on operations. “Everyone’s volumes are down, everyone is scared, everyone is trying to figure out when the next shoe is going to drop,” she says. “How do you keep trying to just stay in business, break even, even if you’re not making money?”

From Fixed Costs to Variable

Converting fixed labor costs into variable ones is one response lenders have leaned on. Rather than staffing a function with salaried employees, some lenders now pay outsourcing vendors per completed file. “If you’re only doing 20 transactions a month, we would only get paid on 20 transactions,” Verma says. “Instead of having a $30,000, $40,000 person sitting there that you still have to pay.”

The appeal, according to Verma, is that expenses scale with volume rather than sitting flat while revenue fluctuates. For lenders operating near breakeven, that conversion can matter to whether a slow period is survivable. Offshore outsourcing adds to the savings: Verma says a domestic position costing $30,000 to $40,000 can see a 40 to 50 percent cost reduction when moved offshore.

None of this is new to the mortgage industry. Outsourcing loan processing and underwriting to offshore vendors has been a feature of mortgage operations for well over a decade, with established firms like Wipro Gallagher Solutions, ISGN, and a number of BPO providers built specifically around mortgage back-office work. Cohivra, a newer entrant launched in 2026, is one of a number of vendors currently competing in that space as margin pressure pushes more lenders to consider outsourcing arrangements they might have avoided when volumes were higher.

Where Automation Ends, and Judgment Begins

The value proposition among mortgage outsourcing vendors has shifted as automation has matured. Straightforward labor-cost arbitrage is a smaller differentiator than it used to be, since AI and automation have compressed some of the savings that once came purely from moving labor offshore. What several vendors in this space now point to instead is quality control and error detection, where automated outputs still need a trained person to catch what the system missed.

Verma frames it this way: “When I started, it was more about labor arbitrage, how to lower cost. Now it’s labor arbitrage plus – there’s not really that much labor arbitrage anymore because AI and automations have made that possible. So now it’s about how do we add value, what can we do that’s different?”

A lender bringing in outside QC support is typically doing so because building that expertise in-house takes time. Hiring and training specialized staff can take months, while an outsourcing partner can bring existing expertise to a file on day one. Once initial quality-control work stabilizes, the next step for many of these engagements is identifying which parts of the process can be automated and which still need a person reviewing the output.

AI Is Coming for Jobs, but Not All of Them

On whether AI will displace underwriters and processors, Verma is direct. “AI is definitely going to come for jobs. It is definitely going to happen,” she says. She points to tasks like disclosure delivery and document comparison that have already been automated. Those processes once required manual effort, including overnight physical mailings, and now happen electronically without human involvement.

But Verma draws a line at oversight. Someone still needs to verify that automated outputs are correct and understand what errors mean when they surface. “That’s where you add value,” she says. For lenders deciding which functions to automate and which to staff, the distinction matters: automation handles execution, but interpreting the results still requires trained judgment.

Consolidation Ahead

Verma expects the current margin environment to accelerate consolidation across the mortgage industry. “People that have figured that out will survive, and people that have not figured that out are not going to survive,” she says. “There’s going to be a lot of consolidation going on in the market because now is the time to buy companies that were successful before.”

With production margins still well below the industry’s historical average and another potential rate move ahead, the pressure on low-volume lenders looks unlikely to ease soon.

What Borrowers Misunderstand

Verma also flags a consumer-side issue that affects the origination pipeline from the other direction. Many borrowers fixate on the interest rate without accounting for the total cost of the loan. A borrower might secure a lower rate but pay $20,000 in upfront points to get there. Given that the average homeowner stays in a house five to seven years, according to Verma, a large upfront buydown may never pay for itself before the borrower sells or refinances. “Rate is important, absolutely. But fees as well are important,” Verma says.

For borrowers comparing loan offers, the implication is that the advertised rate alone doesn’t capture the true cost. Total closing costs, including any points paid to reduce the rate, determine whether one offer is actually cheaper than another over the time the borrower expects to hold the loan.

About the Expert: Sam Verma is Founder and CEO of Cohivra and has spent more than 30 years in the mortgage industry, working with lenders on operations.

This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.