Cost/Benefit Analysis
The table below illustrates, for a hypothetical lender originating an average of 3,000 loans per month over 5 years, the economic benefits to be gained simply by following Cogent’s proprietary statistical sampling methodology. These gains come from 1) the drastic reduction in number of loans to be audited, and 2) the reduction in the number of full-time employees (FTE) required to audit the lower volumes.
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Yr. 1 |
Yr. 2 |
Yr. 3 |
Yr. 4 |
Yr. 5 |
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Estimated Loan Origination Volume in Units 1 |
14,400 |
28,800 |
36,000 |
45,000 |
56,250 |
Cogent Statistical Random Sample (assuming 5% average defect rate) 2 |
311 |
311 |
312 |
312 |
312 |
( % of total loans) |
2.16% |
1.08% |
0.87% |
0.69% |
0.55% |
Additional Risk-Targeted Sample of 10% of Total Loans 3 |
1,440 |
2,880 |
3,600 |
4,500 |
5,625 |
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Total Cogent QC Sample |
1,751 |
3,191 |
3,912 |
4,812 |
5,937 |
( % of total loans) |
12.2% |
11.1% |
10.9% |
10.7% |
10.6% |
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Vs. Current 20% Sample |
2,880 |
5,760 |
7,200 |
9,000 |
11,250 |
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Reduction In Number of Reviews |
(1,129) |
(2,569) |
(3,288) |
(4,188) |
(5,313) |
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Cost Savings Due to Sample Size Reduction (@ $125 per review) 4 |
$141,125 |
$321,125 |
$411,000 |
$523,500 |
$664,125 |
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Cost Savings Due to Improved Productivity of Auditors and Processors 5 |
$75,000 |
$150,000 |
$150,000 |
$225,000 |
$225,000 |
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Total Annual Benefit from Cost Savings |
$216,125 |
$471,125 |
$561,000 |
$748,500 |
$889,125 |
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Assumptions: |
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1 - Origination Volume of 1,200 loans per month in yr. 1, increasing to 2,500 in yr. 2, then by 25% per year |
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2 - Statistical sample size calculated assuming an average "defective" rate of 5% on randomly selected loans |
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3 - Risk-targeted samples of 10% of originations (in addition to your random samples) |
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4 - Assumes $125 per review for in house reviews |
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5 - Assumes savings of 1 FTE in yr 1; 2 FTE in yrs 2 and 3; and 3 FTE in yrs 4 and 5 |
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