From Main Street to Wall Street
Electronic Partner Networks (EPNs) offer a partial solution. But what happens after you get the appraisal back faster?
Despite two decades of loan-production automation efforts, origination costs remain too high. Even now, only a few of the largest lenders have been able to move beyond functional automation to achieve dramatic improvements in production efficiency.
The current focus on streamlining the disjointed process of ordering mortgage services is a case in point. Electronic Partner Networks (EPNs) and bundling services are part of the solution. Yet why stop at getting appraisals faster when what counts is what you do with the data after you get the appraisal? In some cases, appraisal data might require the lender to inform the borrower that a different loan program might be appropriate. Without tight and synchronized communication, such a scenario could delay the closing. The secret to efficient production and bottom-line results is tightly integrating and synchronizing the loan production process with channel and supplier trading partners.
In many ways, lenders operate in a business environment comparable to manufacturers of finished, durable goods. Lenders transform the raw material of investor-supplied capital into residential mortgages. They work with a diverse array of suppliers for real estate-related information services, including credit reports, flood determinations, title insurance, appraisals, documents, settlement and fraud detection services. Together with borrowers, investors, brokers and realtors, these service providers constitute a supply chain as complex and sophisticated as anything found in commercial product manufacturing.
The engines that drive financial services supply chains include Wall Street firms, banks, mortgage originators and brokers that initiate most financial transactions. As competition for business intensifies, these institutions come under increasing pressure to offer more attractive consumer products at the lowest possible price with the best possible service. Like manufacturers, their financial success depends in large measure on their ability to procure, integrate and synchronize materials and services from business partners in the supply chain faster and at less cost than their competitors.
Today, business interactions with partners in the mortgage supply chain are increasingly conducted electronically. To work effectively, supply chain partners need greater visibility into each other's operations and greater connectivity with each other's information and transaction processing systems. The entire supply chain becomes one extended electronic enterprise (which we call E3), in which each participant has an increasing stake in the success of its trading partners.
Here are a few lessons our organization has learned over the past two decades automating the loan production process with our lender clients.
Supply chain automation is a two-way street. Initially, most mortgage lenders were content with technology that focused inwardly, to facilitate manual data entry and loan-form preparation. Only in recent years have technology vendors started to focus outwardly, connecting with external or other internal systems to automate time-consuming manual tasks: notifications to borrowers and partners, supply chain ordering and follow-up, validation of data completeness, trailing document follow-up and elimination of redundant data-entry into non-mortgage systems. All of these efforts depend on some form of two-way communication.
Collaboration can keep unexpected data from bringing the loan process to a halt. An unforeseen value-conclusion in the appraisal, for example, could trigger multiple tasks, including advising borrowers, sellers and real estate agents that they may need to renegotiate, or verifying that the loan-to-value ratio is still within an acceptable range. If the parties negotiate a new sales price, the lender needs to adjust title insurance and other closing-related data. Many or all of these tasks can happen in the background, as business rules automate requests and other actions.
Understand all the data, where it comes from and who uses it. Lenders have long struggled to define their own just-in-time service ordering process to minimize costs and re-work. Recognizing the nature of collaboration between supply chain participants is the first step in streamlining any process. What is required next is an understanding of which data elements cause business rules to fire and drive different process changes.
A number of data points, including origination source, loan type or underwriting findings, can drive the loan process, without need for human intervention. For many lenders, investor requirements can help define the most efficient loan-fulfillment process. To date, only a few service providers have succeeded in driving process change, including Fannie Mae and Freddie Mac, with their automated underwriting (AU) services. By using AU findings or private investor requirements and a business process management infrastructure, lenders can route loans automatically to collect only the information and verifications required for that loan.
While EPNs have helped to fill the connectivity gap left by inwardly-focused lending systems, EPNs by themselves are limited in their ability to impact the loan's process flow. Ownership of the loan process remains with the lending platform, or system of record. As XML-based standards lower the technology barrier, EPNs will have to reinvent themselves. The long-term vision, which will involve e-closings and e-recordings, is not that many years away.
Don't forget to improve the customer experience as you improve the process. Technologies that help manage a process, whether it is a lending or servicing process, traditionally focus on cost reduction and improved employee productivity. This approach neglects the most important part of the entire transaction: the customer.
Every step of the lending process, from taking the application to signing closing documents, is unsettling, due to the transaction's complexity and high dollar amount. Add to that the typical customer's unfamiliarity with the process plus uncertainty over closing costs. Much can be done to improve the customer experience.
Consumers want assurance that the lender is handling the loan professionally and efficiently. Basic - but missing for far too many lenders - is the ability to electronically track, retrieve and share information as the loan moves forward, so customers aren't forced to repeat themselves.