August 8, 2023
By Luana Slettedahl, Principal at BlackFin Group To lower costs should we look at process or technology? Why not both.
Too often the life of loan cycle processes that has been implemented does not agree with, or effectively, use internal resource knowledge and technology applications. Directly resulting in increased cost to originate a loan, staffing inefficiencies, and operational challenges. All of which impacts a lender’s bottom line. So, how do we solve for this dilemma in the mortgage banking industry? The solution can be found in the basics of Lean Six Sigma and the DMIAC methodology, which stands for:
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Define
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Measure
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Improve
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Analyze
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Control
Ask yourself if your firm is following a method in which processes are reviewed for optimum efficiency and quality results. Then ask yourself what technology tools are employed in your firm, how are they being used, and do they improve on outdated, and many times manual processes that were simply put in place “because.” It’s easy to get stuck in the same routine and get in the habit of justifying the “why things remain the same” thought process without leadership and internal stakeholders challenging the norm or looking for solutions. As a result, nothing will change. So, is your firm going to stay in the past, or forge ahead into a more efficient and less costly future.
The mortgage lending industry is more than challenged starting in 2022 throughout 2023 and will persist well into 2024. The recent cost estimate regarding the expense to originate a loan is now around $14,000. Added to these cost challenges is that the volume of available homes -vs- homebuyers is at a disconnect, which can be attributed to three primary factors: 1) Unrealistically high thirty-year fixed interest rates 2) A marked shortage of housing inventory, and 3) A significant volume of existing homeowners who took advantage of interest rates at roughly 4% or less. Payment shock to make the choice move is exorbitant. And, not to mention that staff layoffs have resulted in staff absorbing the functions of other staff members who are no longer in the firm. The result does increase short-term costs for that employee who must learn another role and yet, hopefully, be efficient and accurate when doing two jobs.
NOW is the perfect time to ask your team for “Thought Leadership” with one question: How can we reduce the cost to originate a loan? AND…. The answer needs to dive deeper than the typical knee-jerk reaction of let’s layoff another group of employees. The ANSWER is looking at your firm’s processes for the life-of-loan cycle from point of Loan Origination, all the way through the sale of the loan under various Secondary Marketing methods, and then the Loan Servicing Cycle.
An example that I can provide to you where Processes and Technology became the best business partners is, years ago when I worked at a firm that was entering various MBS Securitization platforms, moving away from what I will call as a more traditional servicing – retained whole loan model. We developed a working Project Team that took on every Strategic Initiative to move the organization away from the culture of “this is how we have always done this” into developing a cultural synergy about change. Through this process, the Project Team gleaned every ounce of new ideas from the very individuals who had to run the business on a day-to-day basis. This change was not designed by Leadership, it was led by Leadership and designed by the employees.
Another example I can offer where Processes and Technology worked well together is when consulting a firm who was a Ginnie Mae Issuer had gaps in processes identified that were impeding timely final certification of Ginnie Mae pools. In case you haven’t worked with Ginnie Mae the method in which they monitor an Issuer to make sure the trailing documents meet their Seller/Servicer Guide is by watching the number of months from the pool issue date to the final pool certification date.
WHY was this something to pay attention to? The efforts put forth by developing a change in internal processes, creating a higher level of accountability within the team, and establishing this cycle time as a KPI was instrumental in moving this cycle time down by nearly 45%. AND the talent of those employees was utilized 150% - those who worked the process had a voice, and the IT Department / Business Analysts shadowed the employees to then collaborate on how Technology could support the process. Short story, the DMIAC model worked to fix all sides of the gaps defined!
If you can gain less “touches” on a process, as the above example demonstrates those employees now have an opportunity to apply their talents to other business processes – there will be an immediate impact on a firm’s cost basis. Moving forward, the department in this example was able to absorb nearly a 100% increase in loan production with zero increase in staff, achieving tremendous ROI?
An additional trade-off is that your employees are then reallocated to another work product and with that have the opportunity for internal growth. This will also help to mitigate turnover as team members become even more frustrated with the increased challenges in our lending processes that are disconnected from their knowledge, skills, and capabilities to better leverage technology. How many times have you received a resignation because an employee had an opportunity elsewhere? This isn’t another WIN for the long-term stability of your team.
Times have changed and will continue to change – so is your firm “Good”, or are you ready to become “GREAT?” For more insight on the above, please reach out to the diverse, industry recognized team at BlackFin Group to discover critical insights and strategies that are right in front of you.
Luana Slettedahl is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Luana brings forty years of diversified experience in Capital Markets, Mortgage Servicing Rights, GSE and Ginnie Mae relationship management and Seller / Servicer requirements. In conjunction with her understanding how to successfully do business with the GSE’s and Ginnie Mae, has made her a significant asset to her clients. For more information contact info@blackfin-group.com