The Year of Simplicity: Strategies for a Seamless Mortgage Operation–BeSmartee’s Tim Nguyen
Tim Nguyen is the CEO & Co-Founder at BeSmartee, a fintech powering the digital transformation of mortgage and commercial lenders. As CEO Tim sets the direction of the company, defines its product vision, defines its culture, leads mergers & acquisition initiatives, and stays close to the company’s most strategic clients and partners.
Tim comes from an entrepreneurial family background, having taught himself to code and launch multiple online businesses in high school, advising local companies ranging from $5-$100M in annual revenues and as an active investor in numerous startups.
In his personal life Tim enjoys family, writing, music, farming, no limit poker, baseball, MMA and basketball.
If you’re reading this I don’t have to tell you that mortgages are really complex. So, let’s just get right into it and talk about how we can simplify mortgage for your own sanity (and your borrowers as well).
First, Why Is The Mortgage Industry So Complex?
It’s safe to say that running any business of any size, regardless of available resources, is a really challenging mission in itself. You’re dealing with people, process, technology, cashflow, investors, customers, competitors, and so the list goes on and on.
But particularly in mortgage, you’re dealing with large loan amounts that affect lives in huge ways, you’re complying to regulatory requirements from state to federal levels, you’re tackling overlays from the secondary market that impacts all processes, you’re holding onto large balance sheet risk that makes it a little harder to sleep at night, you’re dealing with legacy systems that have been tweaked over decades, and you’re managing through unpredictable cycles that none of us have any control over.
What About Other Industries?
But alas, we’re not unique. Most industries are highly complex, and it’s those companies that simplify it that lead the way for the rest of us. Take for instance the following examples:
Robinhood
Robinhood’s approach to simplifying stock trading for the consumer also involved overcoming significant operational hurdles. They had to build a platform that could handle real-time trading with minimal latency, ensure regulatory compliance across different jurisdictions, and manage the financial risks of offering commission-free trades. This required innovative revenue models, such as earning interest on uninvested cash and rebates from market makers, to sustain their business while offering free trades.
TurboTax
Tax filing is notoriously complicated due to the myriad of rules, deductions, and forms. The IRS tax code has more than 74,000 pages in it, which is 187 times longer than it used to be ~100 years ago. From an operational standpoint, TurboTax tackled the complexity of the ever-changing tax code and the need for a personalized consumer experience by developing an advanced algorithm that can adapt to individual tax situations, reducing the need for customers (and the business entity) to understand complex tax laws. This approach demystified tax filing for millions, making it possible for people without a background in finance to file their taxes correctly and efficiently.
Tesla
Tesla has redefined the automotive industry by focusing on electric vehicles (EVs) and sustainable energy. From a business operator’s perspective, Tesla has addressed several complexities: designing and manufacturing EVs at scale, developing a global network of charging stations to support these vehicles, and managing supply chain challenges unique to electric batteries and components. Tesla’s approach includes heavy investment in research and development, vertical integration, and creating an ecosystem around its products, which involves significant operational innovation.
OK, let’s get back to mortgages…
The question is, how do you simplify mortgages for your borrower and yourself? Below I’ll share some perspective that I hope sparks internal conversation at your organization.
Start With The Consumer
Understand the home buyer’s journey
Begin by mapping out the entire home buying journey from the consumer’s perspective. Put your first-time home buyer hat on and identify pain points such as complex terminology, the daunting stack of paperwork, and the opaque approval to funding process. The goal is to understand what aspects of the process feel overwhelming or unnecessarily complicated from a typical consumer’s perspective.
Then go eat your own dog food. Actually apply for and close a mortgage (or very close to it) and simply experience it yourself. Did the loan officer overcomplicate your company’s value proposition? Did processing over condition you? Were the loan conditions even easy to understand in the first place? Did the reasons why you need to sign disclosures make any sense as presented to you? Gosh, did anyone even call you back?
Reimagine the ideal outcome
Start with the realization that your borrower doesn’t actually want a mortgage; they want a home. They want a safe place to raise their family. They want the status of being in an uppity neighborhood. They want better schools for their children. They want a lower payment so that their monthly budget has a little more cushion.
Once you realize the above, the ideal outcome for borrowers is a mortgage process that is transparent, straightforward, and predictable. Link the real outcome your borrowers are seeking (the home) to a simpler origination, processing, underwriting and closing process.
Simplify information and choices
Too many choices can lead to decision paralysis. Streamline the number of mortgage products offered, focusing on those that meet the broadest set of needs for the communities and demographics you serve. This doesn’t mean offering only a one-size-fits-all solution, but rather curating options to simplify the decision-making process. From a consumer’s perspective, think about the last car you bought, the new restaurant you ate at, or the new clothes you’re wearing.
Keep the menu simple. If your trained loan officers are barely able to understand all the products you’re selling, how then can your typical borrower?
Leverage technology for a seamless experience
Use technology to automate and simplify the life of a loan process. For example, digital document uploads, automated income and employment verification, and real-time updates to both borrowers and referral partners can significantly reduce the complexity and duration of the mortgage process.
But buyer beware! You need to buy into the vendor’s vision and ensure it matches yours over the long haul. Don’t digitize a complex and inefficient process. If you do, then you’re simply magnifying underlying inefficiencies in the consumer perspective.
Examine Mortgage Business Fundamentals
Simplify your product offering
I’ve personally seen too many lenders with 400+ products in their Product & Pricing Engine (PPE). Not only is the PPE slow to return results, but sifting through them all and training on them all is exhausting and error prone.
Identify, merge and discard mortgage products that serve similar customer segments and/or purposes, reducing complexity for both borrowers and internal operations. For example, if you offer multiple adjustable-rate mortgage (ARM) products with slight variations, consider offering a single ARM product with clear, customizable options. Or reconsider why you have 6 different versions of a 30-year fixed high-balance product. Is the extra margin worth the added management complexity? How often per quarter do you actually sell a particular product?
Analyze your product portfolio to determine which products are most useful and profitable. Shift resources and marketing focus toward these products to streamline your offerings and improve efficiency. If anything, your capital markets people will greatly appreciate it!
Simplify loan officer compensation plans
I get it! You want producing originators and each loan officer (or branch) is just a little different. And to this end some of you are willing to spend money on software that calculates and tracks loan officer compensation. I’d say this is insanity, and is a reflection of your base compensation plan to begin with. A good compensation plan can be modified to meet most unique negotiations, but the overall structure is standardized.
Develop a more straightforward, performance-based compensation model for loan officers that rewards customer satisfaction, and quality (e.g., better pull-through rates) rather than purely volume-based incentives. Not all originators, despite volume per month, are equally as profitable and effective.
Lastly, look at the data. Did the unique model for that top producing branch actually work out? Or did it fizzle? Identify the irregular compensation plans and bump it up against margins. The origination groups you thought were worth the complexity may not actually be worth it at all.
Simplify your technology stack
I’ve personally seen more than a large handful of large lenders operate multiple loan origination systems, multiple point-of-sales and multiple CRMs. I can appreciate that via an acquisition you may inherit multiple systems, but if it’s still there 5 years later, that was a decision.
Sometimes; however, it’s not because of an acquisition, but because of appeasing originators in order to recruit or retain them, you agreed to implement a Xth point-of-sale.
Technology is not something you can work really hard at and integrate/fix overnight. I implore you to align with the vendor’s vision and their capabilities (both good and bad) and make some compromises. Over configuring or customizing a product will lead to data gaps, integration woes and non-adoption. Add to this the indirect complexities of maintaining complexities between systems and you have hidden drivers of labor and cost.
Simplify your process from origination to closing
Start by workflowing your process on paper. You’ll quickly wonder why it’s so darn complex and understand why it took six different departments and three-months to document something you do each and every day.
Next, what gets measured gets managed. Therefore, find the key KPIs that move the needle. Of course app-to-pipe, pipe-to-find, etc. are obvious. But, what about the number of underwriting touches? The number of modified loan conditions? The number of estimated close dates that were changed? The number of steps to get a redisclosure out?
Find a shorter path from A to Z. I bet you’ll be surprised why something you thought took two departments and six steps actually requires three departments and 10 steps to complete. Multiple that one process by 100 and you’ll start working toward a culture of simplicity.
Simplify your compliance process
Compliance is a unique animal. Sometimes there’s just no right answer, but you can do yourself a favor by standardizing your interpretation of whatever compliance concerns are at hand. Here’s an example:
You may likely be (or are planning to) utilize single-bureau soft-pulls to save money on the more expensive tri-merge hard-pulls, or simply to avoid your borrowers getting called on by your competitors via “trigger leads.” First, the cost of single-bureau soft-pulls have increased making the financial savings negligible, and in some cases not even plausible. Second, there is legislation that may eliminate the trigger lead model altogether. But, let’s leave those two points off the table for a moment.
Some CRAs allow for verbal consent, while some do not and require express written consent. In some cases your new single-bureau soft-pull consent process collides with your existing tri-merge hard-pull consent process. Why’d you pick that CRA to start with? Is the $1 in savings per pull worth it?
As a result you have two processes for credit consents. Multiply that by the number of applications you intake monthly and you have unnecessary complexity. And, that’s just one process. Meanwhile, you have a hundred others to manage.
Conclusion
At BeSmartee, this is the year of simplicity. We’re starting by offering a prescriptive “one product” as a best practice based on the learnings of 90,000 applications per month. We’ve simplified our pricing model to be beneficial to all parties. We’ve overhauled our user experience to make the process itself simpler. And we’re just getting started simplifying everything we can.
Point is, 2024 is a great year for you to do the same. Thanks for spending a few minutes with me and I hope you take it back and simplify everything you can and get back some of your sanity!
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
