Maintaining separate compliance efforts for mortgage and home equity is costly and inefficient, so banks are increasingly considering an alternative model called household lending organizations.
These organizations drive efficiencies through a flexible operating model and technology simplification. All real estate-secured products are consolidated onto a single loan origination system for originations and a single servicing platform for loan servicing. Products are fulfilled and serviced via common operations.
Household lending organizations consolidate legal, risk and compliance teams to ensure consistency across products. The resulting entity interacts with regulators, fulfills and services loans through a common process and reacts more quickly to changing regulations.
Historically, regulators have treated first mortgage and home equity products very differently.
The TILA-RESPA Integrated Disclosures rules, however, are but the latest in a series of Consumer Financial Protection Bureau directives that view closed-end consumer mortgages and home equity installment loans as two pieces of the same pie. That change presents lenders with both a challenge and an opportunity.
A strong household lending organization has four main priorities:
Technology Platforms. Mortgage origination and servicing technology platforms must be enhanced to support the full breadth of real estate-secured products.
Revolving lines of credit, in particular, will need the most attention since, until recently, they haven’t typically been supported by mortgage origination and servicing platforms.
Lenders and their software providers will need to closely collaborate to integrate this product into the platform. Lenders with proprietary platforms will need to plan, manage and deliver the change themselves.
Depending on existing capabilities, this effort will take between 12 and 24 months.
Customer Service. Household lending organizations provide an opportunity to rethink customer service. Historically, referrals across the mortgage and consumer businesses have yielded low conversion rates, leaving customers who simultaneously seek a mortgage and home equity loan frustrated.
Consolidating the sales organization allows the sales force to sell both products, improving conversion rates and providing a more holistic customer experience from application to closing.
Location Strategy. Bringing all real estate-secured products into a single organization lets lenders take a fresh look at location strategy. For example, if home equity loans are currently serviced in a legacy location with a limited talent pool, combining it with the mortgage operation center may make sense.
Change Management. Moving to a household lending model will significantly impact sales, fulfillment, servicing and default operational teams. Home equity loan staff will need training to adjust to unfamiliar technology systems and new processes.
Senior management must maintain clear and consistent communication to team members to help smooth the transition.
With lenders and servicers finding themselves in a swirl of new regulatory mandates, increasingly demanding customers, new competitors and cost-cutting pressures, innovations like household lending organizations are one path to future success.
John Newlin is an executive in Accenture’s banking practice.
