An Apple a Day + a Bit of Paranoia = a Pound of Cure
Let’s do a quick refresher on some old saws and conventional wisdom— from “an apple a day keeps the doctor away” to “only the paranoid survive.” The first saying, of course, speaks to the idea of preventive health care: Eat healthfully, and you won’t get sick. The second is remembered for taking cautionary messaging to an entirely new level. Both merit revisiting by anyone in today’s mortgage business.
Here’s why: The fully loaded production expense of originating a loan reached an all-time high in the last quarter of 2015, according to a study published by the Mortgage Bankers Association (MBA). At the same time, the cost to service a loan has also escalated, and the Consumer Financial Protection Bureau’s (CFPB’s) Know Before You Owe initiative is driving up the cost of compliance under the Truth in Lending Act (TILA)– Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule (TRID).
Here is my advice to help your organization be proactive, survive and thrive at this time of rising costs, laced with a few classic pearls of wisdom.
Whether you are an originator, a servicer or both, your process contains a number of repeatable tasks with relatively binary decision points. These tasks vary according to each organization’s workflows, but there are a fair number of them that are consistent industrywide. This has led to the increasing availability of technology products designed to streamline operations and reduce workforce-related issues.
Automation of processes saves time, increases productivity, reduces error rates and lowers expenses. Our industry as a whole has been slow to embrace available technology fully, but it is time to cast skepticism aside. Evaluate your processes for time, complexity and error rate, and decide where technology can best serve your institution.
Remember, however, that automation alone does not solve all of your problems. The effective use of reporting and anaytics is essential to provide key performance indicators and benchmarks and to understand what you do and don’t handle well.
This requires an effective data/analytics management program, as well as continual monitoring and assessment. Doctors recommend an annual physical for the same reason. How frequently you measure the effectiveness of your processes is not set in stone but should be commensurate with your risk appetite as well as past performance.
Build a flexible workforce
Operational efficiency is one area in which technology alone is not the answer. There is a human element to loan origination that will never go away.
Maximizing workforce effectiveness requires more active team management. Building and training cross-functional teams is critical to navigating the peaks and valleys that accompany fluctuating lending volumes and volatile rate mar- kets, enabling seamless resource allo- cation to areas of greatest need. Fur- thermore, collaboration among teams helps to break down communication barriers, allows workers to see challenges through multiple lenses and integrates best practices from individual business units throughout the enterprise.
Another critical piece of workforce management is outsourcing. Every institution should perform an inventory of tasks and processes to determine which are core strengths and core competencies. Those that fall outside of this group should be considered for outsourcing.
There is no shortage of firms that have the scale, capacity and expertise to perform parts of your operations more efficiently. Look for these opportunities not simply as a cost-cutting measure but also as a way to deliver end-to-end excellence to the customers you serve.
Excel at customer service
Mortgage lending has become relatively commoditized in the wake of the financial crisis. Although lenders are starting to push the boundaries again in terms of higher loan-to-value (LTV) ratios, higher loan amounts and lower credit scores, mortgage banking is no longer the product-driven machine it was in the early 2000s.
So what differentiates one lender from another? Rates and costs still do, to some extent, but an efficient market- place moves toward equilibrium with respect to these factors. Outstanding customer service is where a lender or servicer can truly distance itself from its peers and is one of the key motivators for millennials—the next generation of homebuyers.
A top-notch customer experience can be the product of both technology im- provements and process improvements, but it also must be a top priority in cor- porate culture, at all levels. Today’s customers are less sticky. To borrow a phrase, customer loyalty is earned in drops but lost in buckets.
Initiatives aimed at process improvement and operational efficiency are invaluable, but you must know where to start and how to sustain them. Without knowing your organization’s risks and gaps, you have no idea which levers to pull. Then, whether it’s a matter of third-party as- sessment or an internal audit function, testing programs should be built in to your strategic plan to ensure ongoing oversight.
Regular testing should focus on areas of concern but not overlook functions you have performed well in the past. Because the past, is just that—the past. Former Intel Corporation Chief Executive Officer Andrew Grove once said, “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” Be mindful of success, but always stay a little bit paranoid.
We all know what it means to be proac- tive. We take care of our cars because they represent a significant expense, and we try to keep them running more smoothly for longer. We take care of our bodies not just to live longer, but to live better, healthier, more fulfilling lives.
Likewise—especially given the rising cost of today’s lending business—we need to refocus the remainder of 2016 on bringing more preventive mainte- nance into mortgage originations and servicing, to continue enjoying the fruits of our labor. As they say (and you prob- ably saw this one coming), an ounce of prevention is worth a pound of cure.