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Ready to roll: portable technology is revving up its gears to make a fast break into the lending industry.

Portable technology is revving up its gears to make a fast break into the lending industry.


Most of us who have been involved in mortgage banking for the past 20 years have watched the industry struggle to automate the loan origination, processing, closing and secondary marketing functions. We have also watched as the top 10 or 20 mortgage bankers' names have changed from year to year as older firms merge or are purged from the top positions by their failure to compete effectively. The 1990s will be a period of even greater competition for mortgage banking. However, it will differ significantly from the 1980s because the companies who efficiently manage information technology in the loan origination, processing, closing and secondary market areas will leapfrog their competitors.

Most informed managers today would agree that it is impossible to conceive of a loan servicing operations center without the use of automated technology. Without doubt, the 1990s will be noted as the era in mortgage banking when technology for laptop loan origination and processing caused the industry to price its products more competitively because of the resulting gains in productivity that such technology delivered. While there are many areas where computer technology can help the efficiency of residential mortgage lending, automating loan originators is the single most effective way to increase productivity.

Generally, the loan officer is compensated on the basis of production closed. Therefore, the loan officer represents a variable cost to the company. In most traditional mortgage operations, the ratio of loan officers to support staff required is approximately one to one.

This is due in large part to the loan officers' efforts being duplicated by the setup, processing and other support staff. These people must then read the loan officer's hieroglyphics on the loan application. With automated systems today, however, there is no excuse for having a ratio of less than three loan officers to one support staff person. In fact, as the technology improves further, and it most certainly will, the ratio will likely expand even more.

Persuasive arguments

While many mortgage bankers agree that increased efficiency and productivity can be gained by loan officers' use of laptops, others show plenty of room for doubt. Here are some of the most common explanations which I have heard for not automating loan originators, and, in each case, a reasonable argument in favor of automation. Although these objections are only a representative sample of the most common objections raised by management, they represent real concerns about the use of new technology to originate loans.

What if our loan officers don't type?--One of the obvious answers to this objection is to select a software solution that greatly eliminates the typing by the loan officer. This can be achieved by the effective use of interfaces to CBI, TRW or TRANS UNION, and the ability for the various documents such as the TIL, GFE, Program Disclosure, 1003, VOEs, VODs and VOMs to be completed by the data flow coming directly from the credit bureau, or from preset data in the system. While the future may also enable the loan officer to obtain depository information directly from a central repository of bank account information, the loan officer today should have a database of financial institutions that eliminates the typing of bank names, addresses and zip codes more than once.

What if the laptop reduces personal contact with the customer?--The laptop will eliminate a lot of wasted time on the part of both the customer and the loan officer. Also, the customer will be fascinated with the application of the technology. The customer won't miss that personal contact if he can cut down on the application time. Realtors will be anxious to refer additional customers to the loan officer using an efficient laptop system, and the loan officer will gradually become more proficient as a result of more practice.

It will be too difficult to train my loan officers.--There is often a tendency to resist change. Mortgage bankers are no exception, and management may experience this when loan officers, processors and other staff are used to doing things a certain way. Skillful training can help combat this excuse.

When implementing a laptop solution with loan officers, a few policies should be acknowledged upfront. Management must be prepared to support the implementation from the senior officers on down, and they must be prepared to allocate additional resources if it is a major installation. The allocation of resources covers the proper training, the coordination of questions from the loan officers through a support or help desk, and the integration of the data collected in the field on the laptops to the main system back in the offices. Proper training will probably require from two to four days for the loan officers in a larger firm where 50 or more loan officers are being equipped with laptops, while a smaller firm may find that one to two days is all that is required. Commonwealth Mortgage Company, in Wellesley Hills, Massachusetts, has found that it takes about three or four days to properly train its field staff to use the laptops, while First Federal Savings of Wooster, Ohio, has found that two, three-hour sessions are adequate.

The equipment is too expensive.--First, the benefits of laptop loan originations should provide an immediate payback in the form of increased business. Second, the total productivity in the office will increase. Production efficiency is a result of the elimination of the loan setup function, the lowering of the overall number of support persons to process, underwrite and close the loans, and the timely marketing information which will be immediately accessible. The cost of equipping loan officers should be in the range of $200 per month on a lease basis--with larger quantities, it should be even lower. In fact, the argument can be made that the opportunity cost of not equipping the loan officer with a laptop computer may be even more damaging in today's competitive market.

How will we get the information back to the office?--The loans from the laptops should be transferable in any number of formats and by various means, such as by:

* Floppy disk transfer from the laptop

to the office; * Modem, directly from laptop to the

office; * Using the modem and ECHO 1 by

satellite; * Cable transfer using an RS 232

connection; * Transfer from laptop directly to a


What if we get the laptops and the loan officers don't like them?--The answer to this question really is a matter of management style. Some firms believe they should ask the loan officers to look at the system or systems that they intend to select and either let them try it in the field or review its functionality prior to any commitment. Other firms have seen the solution that they believe will work for them and make a commitment based upon the market advantage. It is important, however, to impress upon the loan officers all of the benefits of the new system--in terms of productivity and profitability to the company.

Will loan applications take more time?--The loan officer's actual application time will vary with the comfort level and proficiency of each individual. There is no question, however, that the ultimate use of laptop technology will take no more time than the scribbled application.

Our loan officers are salesmen, not administrators.--Mortgage bankers should recognize that the future of automation in the mortgage industry hinges on converting to portable technology. Management should attempt to find the most acceptable solution for their sales staff, and the competitive marketing advantage they will later enjoy will soon be evident.

Laptop benefits

Here are some additional answers to many objections that must be provided before mortgage lenders will commit to loan officer automation. Some of the benefits are:

* Increased productivity and


Loan officers' productivity and professionalism are greatly enhanced by the use of automation. The ability to instantly access borrowers' credit data and integrate it into the loan documents means that the amount of writing or typing to complete the application is reduced significantly. The advantages of point-of-sale use by loan originators are compelling. Because the loan officer knows about credit problems at the point-of-sale, he can identify possible qualification problems immediately, rather than see these same problems emerge a few days later. * Instant prequalification and

credit access.

The computer is able to search through hundreds of loan programs using the selection criteria that relates to the borrower's individual needs and available assets to determine those programs the borrower can afford. In a software program that is fully relational, the loan officer may perform any one of the dozens of tasks that are required of him every day. He can also complete these tasks in the order he finds most convenient or timely. For example, he may receive an information call from a Realtor or builder with the name and social security number of a prospective buyer. Within 90 seconds, he will have all of the buyer's credit profile on his laptop screen. This immediate credit information access and its integration into the residential application documents can become a primary benefit to the loan originator by efficiently serving the Realtor or builder from whom the loan officer receives most of his volume. * Electronic mortgage application

on the spot.

The consumer today is more accustomed than ever to instant service. Therefore, the automation of loan originators provides the consumer and the mortgage lender with a benefit to both: the best possible service to the customer. Loan officers report that applicants believe their application will be processed much more quickly with automation, and they are absolutely right. Mortgage broker Tom Ward, president of Chicago-based Majestic Mortgage Company, has found that his loans can be fully processed and approved in 18 days. For direct lenders, the five- to ten-minute mortgage is not a figment of the imagination but can be a reality with automated technology. * Rapid approval programs.

There are many major mortgage lenders who have launched "rapid approval programs" in order to give their loan originators an advantage against the competition. Travelers Mortgage Services, Cherry Hill, New Jersey, Commonwealth Mortgage Company, and Meridian Mortgage Corporation, Washington, D.C. are three examples of mortgage bankers offering new quick approval programs. Of course, these programs are offered with the commitment subject to receipt of a satisfactory appraisal report and, perhaps some other contingencies, but the customer is impressed at the outset with the perceived rapid delivery of service. One of the earliest rapid approval programs was launched by Citicorp and received considerable media recognition as the "15-minute mortgage." A recent article in Mortgage Banking, titled "Laptop Loan Approval," (December 1989) addressed this issue by emphasizing that loan officers are going to have to become more knowledgeable about the underwriting process. * Specialists or generalists for

internal staff.

The traditional mortgage banking firm has often segmented the setup, processing, underwriting, closing and secondary marketing functions. The future mortgage banker will have the same staff members of performing many of the previously segmented roles, which will result in considerable increases in productivity. One of the most sensible measures of productivity in mortgage banking is to divide the total loans closed by the total staff members in the mortgage company which produces loans closed per annum per staff member. At a recent Mortgage Bankers Association of America production conference, speaker Gregory Hackett indicated that the average for the industry was some 29 loans per staff member. Future mortgage companies will produce 75 to 100 loans per staff member as Marquette Mortgage Company in Minneapolis, is doing currently. Increased efficiency and productivity will result in better prices to the consumer and increased market share for the lender. * Data integration to risk

management system.

How many mortgage companies have gone under because of the failure to manage risk properly with respect to the secondary market? The benefits of having the appropriate risk management system as a part of your automation solution are enormous. In fact, the proper automation approach for loan officers coupled with the proper secondary marketing solution can be a distinct market advantage. The risk management solution must have the ability to manage the risk of loans in the pipeline. The system must allow loans to be tracked by both status and product subgroupings and must permit interest rate risk management by working with both cash forward sales futures and options transactions.

Many mortgage bankers sell their loan production on a loan-by-loan basis with 60-day best efforts commitments that do not provide the advantages of a properly designed risk management approach. By selling loans in the immediate cash market instead of into the 60-day window, and by selling larger groups of loans in pools or securities, the net pickup in secondary market execution should be some 25 to 35 basis points. In many cases, this added income can serve to increase the net income of the mortgage lender by 50 to 100 percent against current net income. Of course, it is necessary to allocate resources to the risk management solution in order to fund the cash market trades and the futures and options positions. In addition, it is essential to establish adequate warehouse lines to enable the mortgage banker to accumulate the pools of loans prior to their sale. It is much easier to consider this expansion when one realizes that the risk of interest rate movement has been eliminated.

Doug Gallagher is president of Gallagher Financial Systems, Inc., in Coral Gables, Florida.
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Author:Gallagher, Doug
Publication:Mortgage Banking
Date:Aug 1, 1990
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