Nate Johnson: 3 Ideas Toward a Fast, Efficient, Profitable Mortgage Operations Process
Nate Johnson is Senior Vice President and Mortgage Business Leader with SLK Global Solutions, Dallas. He has more than 20 years of progressive operations, technology and sales leadership.
The U.S. real estate industry is in a volatile state – as much, if not more, than it was during the 2008 financial crisis. We are seeing some record numbers in the mortgage industry with rising foreclosures, really low interest rates, and shortage of inventory. This does seem to be a stable environment, though – but while things seem to fall in place at times, the next moment new factors disrupt the market environment.
Here are three areas of turbulence in the mortgage industry:
The fluctuation in the number of loan applications has directly impacted lender profitability and costs as lenders grapple with the right staffing and resources. The question is what must lenders do to sustain themselves in this period? While they are doing their best to adapt to the volatility and to cater to the evolving market needs, they must also focus on long term changes that will reap consistent profits rather than short term wins.
Laying off resources may be a quick fix. But is it the only solution? Why not look deeper into your operations and identify areas that can reduce expenses that are typically identified by looking at the wastage of time, and wasted human effort?
Changing Borrower Behavior
Organizations are accepting a new normal in large consumer investments, such as buying a property, and it is getting difficult to predict buyer behavior. Will consumers cash in on this period due to record low interest rates? Or are they unsure about the future and are simply waiting and watching?
Positive buying behavior can help improve the economy significantly. As demand surges or falls, however, how will lenders ensure the best borrower experience?
The key is to focus on critical areas within their mortgage origination and servicing operations. We are all aware that quick response time and good communication are essential to ensure a delightful borrower experience. But contrary to traditional thinking, huge technology investments are not always the answer to an enhanced borrower experience. Intelligent technology, smart process re-engineering, and optimized utilization of manpower can help lenders elevate their customers’ experience more quickly and cost-effectively. Read further to find out how.
The lending industry has always been a competitive one. But with so much competition, the need to win the race is even greater now. The only way to remain ahead is by attracting new customers and retaining existing ones. To do this better, lenders must think about what their customers need.
No blanket solution applies to every situation. Every lender must scrutinize their processes and identify areas that are inefficient or redundant. This means addressing areas that contribute to increased turn times, affect consumer communication, or add costs. This may vary for each lender based on their operations.
The way to keeping consumers happy is simple – be quick, be proactive, and keep communicating. And again, as mentioned above, technology alone is not the answer to efficient processes. A combination of technology and smart process-reengineering is the key.
Is there a way to fast, efficient and profitable operations?
Our experience with mortgage processes and lenders in the U.S. over decades has repeatedly brought up the fact that a major part of inefficiency in mortgage operations typically involves wasted time and effort (and therefore increased costs) in many of the activities that lead up to the underwriting decision. They include:
• Long cycle times between receiving applications and the start of processing
• The lag time in communication about additional document requirements from borrowers
• Multiple file touches by processors and underwriters leading up to final decision
• Inaccurate quality checks at all stages, leading to rework and eventually to higher compliance penalties.
There could be several other reasons, but these are the ones that we have identified and bring up with our customers. They are also easier to identify and fix. Here are the three ways to do so:
1. Use technology for borrower document collection in application processing
Every time a customer goes through the loan application process, they are required to submit several documents to decide eligibility for the mortgage. These documents are collected and checked by a processor and then the document file is moved to an underwriter for a Conditional Loan Approval (or CLA).
Although this seems pretty straightforward and should be a one-time collection, in reality, it requires multiple rounds between the borrower and the processor to get all the appropriate documents in place. This increases the time to move forward, as well as reduces the efficiency of processing. Moreover, the processor may end up focusing on trying to wrap-up a particular loan in hand, while in turn de-prioritizing other new ones coming in, which leads to further backlogs. This also adds to the overall cost of the entire process of moving a loan application to underwriting and to final closure.
The question is, can borrowers and processors be empowered with a process—supported by technology—that reduces the back-and-forth and potentially automates the process to a level that almost completely avoids these challenges? I think so. The obvious method is to use cutting-edge technology (ICR/OCR, RPA, AI, mobile apps, etc.), but that means a fair amount of investment dollars, as well as process change and a high learning curve for processors, loan officers and even borrowers. Alternatively, a simpler, low-cost, quickly implementable approach is the use of algorithms.
An algorithmic checklist can not only identify missing documents but can also automatically inform and follow-up with processors and loan officers to ensure they have the right documents before submission to underwriting. This can help streamline the entire process.
We have been able to implement this capability for banks and independent mortgage lenders to achieve a 60 percent reduction in the loan app to underwriting timeline. This may sound like a low-tech solution. However, its strength is that it is an easily implementable technology that converts a deep understanding of the real-world process of document collection and verification to reduce the time to get a file to an underwriter to as low as 24 hours.
An algorithm-based checklist verifies that all appropriate documents are collected, based on the loan type, and other factors, and makes sure underwriting requirements are as per requirements. This can be a savior for banks that need to keep their technology costs low but still want to implement quick solutions.
2. Ensure processors submit CLA-ready file for underwriting really quickly
We all agree that the authority to sanction a CLA lies only with an underwriter. But that does not mean this relatively more expensive skilled resource (the underwriter) should do the administrative tasks and groundwork before starting on the approval part. Think about the time and cost lenders would save if processors could submit a CLA-ready file to underwriting, every time.
As easy as this may sound, the implementation of this process requires an optimized combination of human-based services and automated technology, backed by knowledge, that includes the nuances of exactly what is needed to reduce the number of file ‘touches’ by an underwriter. Every touchpoint after receiving the initial application has to be streamlined to a high degree. The usage of technology, historical data for trend analysis, algorithms, communication modules, and more will ensure that the processor can submit a CLA ready file for underwriting.
There are domain experts in this specialized area who can make this possible, and there are lenders that have benefitted with cost reduction and faster closing. In our case, we have helped customers reach a stage of one-touch underwriting and ‘loan submission to underwriting’ times within 48 hours within three weeks of implementation.
3. Use QC and QA to deliver more than just compliance
After 2008, and with the initiation of regulatory reform, lenders have introduced several quality control and audit processes for the main purpose of compliance. That’s because one compliance or quality check that is not carried out correctly can potentially cost millions in fees and fines. Compliance is needed not just for regulators, however. The thinking of investors has changed, and they want to make sure they do not end up with portfolios with compliance issues, which leads to salability or valuation problems.
Having already made these investments to ensure compliance, it makes sense for lenders to utilize technology for something that is becoming critical – making processes efficient and reducing costs. A new breed of providers is putting into place methodologies that not only ensure better loan quality and compliance, but also use the information garnered from the QC activities at any and every stage to build data intelligence. These methodologies can directly influence sustainable process improvements not just for the process being checked, but across the whole mortgage lifecycle. This is something we have started actively implementing and delivering to our customers – and it is quickly making QC and QA not just a cost center, but a contributor to process improvements that improve an organization’s bottom line.
Today, mortgage loans must be done right, with great scrutiny through the entire production process. This typically adds cost and effort to the process. On the other hand, competitive pressure, demands from borrowers, and tighter margins require lenders to engage customers and be aggressive with timelines while maintaining loan quality and keeping costs low. All of these things are needed to be profitable, to grow and remain profitable.
That is why lenders are using the help of experienced providers who are able to integrate technology, optimized processing services, and intelligent process analytics to drive mortgage process improvements. These technologies, which require little investment to initiate, are helping lenders enhance their bottom line and get ahead of competitors in an increasingly tough mortgage environment.
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