LoanLogics’ Roby Robertson: Revolutionizing Mortgage Banks–A Smarter Approach to Staffing with Business Outcome Automation

Roby Robertson is Head of Mortgage Origination Automation Technology with LoanLogics, Jacksonville, Fla.

Balancing staffing levels with the ebb and flow of interest rate fluctuations poses an ongoing challenge for independent mortgage banks (IMBs). The frequent cycle of hiring and downsizing in response to market demand often results in a revolving-door scenario, placing strain on organizational resources, diverting attention from core business functions, and negatively impacting company morale.

And it’s about to happen again. With the anticipated decrease in interest rates in 2024, lenders are optimistic about a potential resurgence in both home sales and refinancing activities. However, after cutting staff over the past two years, IMBs once again find themselves on the brink of having to onboard new talent to capitalize on market opportunities. The difference this time around is that lenders have access to business outcome automation technologies which enable them to do more with less.

Navigating Perpetual Change

The relentless cycle of adjusting and readjusting staff is frustrating and time-consuming for independent banks, significantly impacting their operational efficiency, financial health, customer experience, and company culture. Additionally, the decision to shed staff, including skilled underwriters and loan processors, often results in a loss of crucial intellectual capital that proves challenging to recover, especially when the market rebounds.

But even with the recent cuts that have been made, production expenses continue to be out of control. According to the Mortgage Bankers Association, IMBs reported a pre-tax net loss of $1,015 during the third quarter of 2023, almost doubling their second quarter loss per loan. Clearly something more is needed to enable efficiency and reduce costs in down markets.

On the other hand, when interest rates decrease and loan applications surge, IMBs enter fierce competition to secure top-tier talent. This competition leads to substantial financial commitments, including generous salaries and compensation packages for experienced staff and investments in training for inexperienced personnel. This was especially apparent two years ago, when historically low interest rates, coupled with heightened demand due to the COVID-19 pandemic, created a challenging scenario. Faced with bloated pipelines and a shortage of sufficient staff, originators opted for substantial financial investments to bridge the personnel gap. This resulted in record-high profits but soaring costs as well.

IMBs need a more sustainable approach to staffing, one that enables them to respond to market changes with greater agility and less churn. Fortunately, the operational efficiencies achieved with business outcome automation technology help stabilize the staffing booms and busts by simplifying redundant, manual business processes — or eliminating them altogether.

Taking Back Control

At its core, business outcome automation involves leveraging advanced technologies like machine learning and artificial intelligence to automate repetitive business processes performed by staff and at a level of consistency not achievable by humans. This approach not only accelerates workflows, but it significantly reduces human error in a mortgage bank’s underwriting, auditing and loan review processes. The results are stronger data quality and more consistent decision-making.

Equally as important, however, is that by automating the most time-consuming mortgage processes, business outcome automation makes IMBs less vulnerable to the workload challenges created by swings in the market. Ultimately, business outcome automation helps IMBs to deploy staff more efficiently and strategically.

Now you may be thinking that it all sounds good in concept, but are other IMBs actually using this technology?

Absolutely. Business outcome automation is making significant strides in mortgage lending, particularly in income assessment. IMBs are using it to systemically extract, assess, and calculate borrower income in a variety of investor styles in both origination and post-close review. This is revolutionizing one of the most labor-intensive and error-prone aspects of the mortgage process — before and after closing.

Business outcome automation leverages sophisticated optical character recognition (OCR) technology and machine learning algorithms to extract and analyze key data from any income document, even highly variable documents such as paystubs. Automation also determines pay frequency, handles calculations, and aligns “qualifying income” to multiple investors, all at the push of a button. It performs at any time of the day – perfect for those mortgage journeys that begin online late at night. And other than utilizing the oversight of human experts, IMBs no longer need to have staff perform these tasks by hand.

IMBs don’t need to redo their entire process to enjoy these benefits either. By using application programming interfaces (API), business automation technology can seamlessly integrate into existing systems, where it can be applied during any stage of the loan processing workflow. This means there’s no need for lenders to overhaul their current IT infrastructure to realize the advantages of this technology, which include faster processing times, more consistent and accurate income assessments, and the ability to provide faster responses to borrowers.

Business outcome automation can also be applied post close. When trained on large libraries of loan documents, for example, this technology can vastly improve loan QC and auditing processes by accurately classifying documents and extracting data in a fraction of the time it takes a human. All data is compared across documents and against systems data. Then, specific audit rules can be automatically applied to the data to highlight loan conditions and defects. And all of this can be performed systemically and at an unprecedented speed, confirming compliance with investor guidelines faster and reducing repurchase risks—without adding staff.

Without business outcome automation technology, predictable and repetitive tasks, such as extracting data from paperwork, calculating income, or auditing a closed loan, will have to be performed manually. This means IMBs will remain stuck in the same costly and painful pattern of addressing market volatility by hiring and firing people, over and over again. On the other hand, business outcome automation removes this costly revolving door of training and turnover.

Preparing for the Boom

The technology is here, but the ongoing question still remains: Is now really the right time to introduce new technologies? Actually, it’s the best time to begin.

As we’ve learned, it is hard to keep up with staffing demands of the boom-and-bust mortgage market. Current market demand (or lack thereof) is a perfect time to introduce technologies that are capable of scaling with the market, regardless of when or how fast it returns. And it could return fairly soon.

As a new year gets under way, economists are once again forecasting an eventual transformation in the housing market. At the time of this writing, the average 30-year fixed mortgage rate hovers just below 7% due to two years of rate hikes. However, there is a prevailing belief among many economists that inflation is now under control, paving the way for rate reductions. According to MBA’s forecast, rates are expected to decrease to approximately 6.1% by the end of 2024 and further to 5.5% by the end of 2025. And although these rates may not be aggressive enough to drive a refi boom on par with the one we saw in the early part of this decade, it should be enough to lure many prospective homebuyers and homeowners to seek out loan originators and mortgage financing.  

But, as we’ve discussed, increases in production can be a double-edged sword. Certainly, lower rates will increase business, but they’ll also place greater demand on resources, particularly on manual processes that can lead to loan quality issues and defects. IMBs can, however, mitigate this risk.

It’s clear that companies who integrate advanced automation tools such as those described above will be better equipped to match the speed and intensity of production growth without the need for increased staff. Those that do not, on the other hand, will be more likely to spend more, waste more time, and “break” more files in the process. The only question left is: Which side would you want to be on?

(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.)