The innovation point: four mortgage lenders have positioned themselves to compete in today's competitive origination market. All have invested in modern origination systems that help them compete with the megalenders for a growing and profitable share of the market.

From Webster's 1913 Dictionary:
In no*va"tion, n. [L. innovatio; cf. F. innovation.]
    1. The act of innovating; introduction of something new, in customs,
    rites, etc.
    2. A change effected by innovating; a change in customs; something
    new, and contrary to established customs, manners or rites.

INNOVATION. It's one of the most talked-about topics in the mortgage industry. In a hotly competitive and continually changing business environment, today's lenders are being forced to reinvent themselves and the way they do business. * Theodore Levitt, former editor of the Harvard Business Review, said, "Just as energy is the basis of life itself and ideas the source of innovation, so is innovation the vital spark of human change, improvement and progress." Levitt understood the practical side of innovation: It's not an idea, but an action. It's not thinking about something new; it's the change that results from doing something new. * Mortgage lenders are increasingly turning to technology innovations to help achieve their business objectives. In the April 2004 issue of Origination News, Anthony Garritano writes, "Lenders are going to ante up this year and invest heavily in automation--particularly on the origination side of the business." * Garritano's article is based on the results of the first technology study conducted by the Mortgage Bankers Association (MBA). Initial results from the study were released at MBA's National Technology in Mortgage Banking Conference, held in Phoenix in March 2004. * So what benefits are today's lenders hoping to gain from investing in loan origination system (LOS) technology? According to Garritano's article, their goal is to gain real-world business advantages. The study states that "The primary use for expanding technology ... [is] to get a greater return on investment and to make the loan process more efficient."

Scientist and engineer W. Arthur Porter gave a name to the point at which ideas step into the real world; he called it "the innovation point." He said, "The innovation point is the pivotal moment when talented and motivated people seek the opportunity to act on their ideas and dreams."

Let's look at four motivated lenders that are growing their businesses in innovative and practical ways with the help of technology. They are lenders that have crossed the innovation point.

SouthTrust Mortgage: Creating the industry's most automated lending operation to gain a competitive advantage

SouthTrust Mortgage, Birmingham, Alabama, has a vision: to create the mortgage industry's most automated lending business. The company is working on realizing its vision by implementing innovative but practical lending technologies.

SouthTrust Mortgage is a regional mortgage banking firm. A subsidiary of SouthTrust Bank, it is part of the $52 billion SouthTrust Corporation. SouthTrust Mortgage is the primary provider of residential mortgage loans within the SouthTrust organization, and operates 58 retail market offices throughout the South. In its "Top 200 Lenders" rankings in May, Mortgage Banking listed SouthTrust in the top 100 for full-year 2003, based on data from First American Real Estate Solutions, Anaheim, California.

SouthTrust Corporation operates 717 financial centers and 893 automated teller machines (ATMs) throughout Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia. SouthTrust is a Forbes Platinum 400 and Fortune 500 company that trades on the Nasdaq and is listed on the S & P 500 index and the Keefe, Bruyette & Woods BKX Index.

A big step toward achieving its automation goal was accomplished last year when SouthTrust implemented the UniFi[R] PRO Mortgage eX LOS from Fiserv Lending Solutions, Lake Mary, Florida.

Working closely with its large, multichannel lending clients (such as SouthTrust Mortgage), Fiserv Lending Solutions developed the UniFi PRO Mortgage system in response to the industry's increasing demands for a new generation of LOS. Specifically, lenders were looking for one that not only enables highly automated, straight-through loan processing, but effectively integrates the systems and services that are needed for true end-to-end electronic lending.

An automated decisioning and task engine is at the core of these new systems. Such an engine transforms the LOS into a sophisticated business-process manager. The decisioning/task engine uses client-defined business rules to continually monitor and evaluate loan information and loan processing events. It can trigger the execution of a virtually unlimited range of actions--from moving a loan to the next stage in processing to ordering third-party services (such as appraisals).

SouthTrust Mortgage uses its software's decisioning/task engine to handle such functions as automatically generating and distributing lock expiration warnings, and to issue other "tickler" messages to loan officers, processors and managers.

SouthTrust says it also benefits from other productivity-enhancing software capabilities, such as:

* A point-of-sale "loan analyzer" toolkit that features browser-based financial analysis calculators and side-by-side product comparisons, and enables the automated transfer of borrower, property and selected product data into the loan application.

* Duplicate Social Security checks, which help SouthTrust prevent duplicate loan applications and more effectively manage multiple loans by a single borrower.

* A "stage audit function," which helps eliminate document, servicing and investor problems by ensuring that key lender-defined data fields are complete before a loan officer or loan processor can move a loan into another stage of processing.

"With [our new system], we have handled the recent volatility in home-financing volume with greater ease," says Terry Steelman, senior vice president of retail production at SouthTrust Mortgage. "The software's powerful capabilities, combined with the Fiserv commitment to customer support, give us a true competitive advantage in the marketplace. We are one step closer to realizing our vision of implementing one of the most advanced automated systems in the industry."

Navy Federal Credit Union: Lending around the world with eMortgages

In the Steven Spielberg film "Indiana Jones and the Last Crusade," intrepid adventurer and archaeologist Indiana Jones was on a quest to locate the legendary drinking cup known as the Holy Grail. Today, Navy Federal Credit Union, Vienna, Virginia, is in the process of using innovative technology to achieve the holy grail of modern mortgage lending: the ability to generate fully electronic eMortgages.

An eMortgage is a loan that is electronically created, processed and closed (via eClosing), and is then sold and delivered by paperless means. For example, during an eClosing, eDocuments can be executed with an eSignature. eMortgages have many benefits, including reduced printing/courier costs, simplified version control (documents can be reviewed online before a loan is closed) and faster delivery of the loan to investors.

Navy Federal Credit Union is the world's largest credit union and the nation's largest credit union mortgage lender. The credit union has $20 billion in assets, and serves all Department of the Navy military and civilian personnel, contractors and their families through 105 branch offices and 282 proprietary ATMs worldwide.

The organization's mortgage lending business closed $6.7 billion in first mortgages and $823.7 million in home-equity loans during 2003. With its eClosing solution, Navy Federal can now provide faster and better service to its more than 2.3 million members, many of whom are stationed around the world. And with eMortgages, the credit union benefits from a streamlined lending process and a reduction in the amount of paper needed to process and close a loan.

"Navy Federal can better serve its members by simplifying the closing and settlement process, as well as by increasing the quality of our mortgage loans," says Karen Pearson, assistant vice president of automated mortgage systems for Navy Federal Credit Union. "We ultimately expect to reduce the overall cost to process a loan--from application to delivery to an investor--by more than $230 per loan, and we plan to use the savings to further improve our productivity and pricing."

Navy Federal used the UniFi PRO Mortgage LOS to automate the exchange of eSignature-enabled loan files and closing documents by creating a tightly integrated eMortgage workflow. Navy Federal's lending staff uses the software to seamlessly place, update or cancel electronic orders; review loan status; and deliver closing documents. Repetitive data entry has been virtually eliminated, and the integrity of loan data and documents is securely maintained throughout the loan process.

"Integrated data sharing is helping us reinvent our business processes," says Pearson. "The immediate electronic exchange of data and documents enables us to respond quickly to changes at the closing table, and it keeps the LOS in sync with how the loan actually closed. We don't have to worry about pen-and-ink changes that are not reflected in the system. In addition, we're positioned to deliver loans more quickly and profitably to the secondary market."

The LOS transfers loan data as extensible markup language (XML) files, which enable fast, industry-standards information exchange. Loan data is used not only to manage the packaging and delivery of eClosing documents, but also to execute specific loan-related tasks such as electronically notifying settlement agents when closing documents are delivered.

"Navy Federal Credit Union serves the proud members of the Navy and Marine Corps in more than 98 locations worldwide. We operate under the credo, 'We Serve Where You Serve,' and by implementing eMortgages we can electronically sign and close mortgage loans in every state and even on board a ship," says Pearson.

"For more than 70 years, Navy Federal has been committed to providing convenient account access and transaction capabilities for military personnel and their families, no matter where they are. That is our No. 1 priority, and eMortgages are helping us to fulfill our mission to deliver innovative and responsive banking services."

Greer State Bank: Integrating its entire lending operation to improve efficiency and increase loan volume

Founded in 1989, Greer State Bank, Greer, South Carolina, is a growing $225 million commercial bank that serves Greenville and Spartanburg counties in South Carolina through three physical locations, as well as over the Internet and by phone.

The "Upstate" area of South Carolina is a designated foreign trade zone area, and boasts the highest level of foreign capital investment per capita in the nation. The city of Greer--South Carolina's fastest-growing city--is located in the center of the Upstate area, which is home to more than 240 international firms from 23 nations, including such companies as BMW, Fluor, Hitachi and Michelin.

According to Judy Edwards, Greer State Bank's vice president and manager of loan administration, the bank was forced to look for new loan origination systems when its LOS providers announced that they were discontinuing their software systems.

"In 1999 we were still using a set of MS-DOS-based loan origination systems [for mortgage, consumer and commercial lending] that were no longer going to be supported," Edwards recalls. "Our former LOS vendors wanted us to replace their old systems with new Windows[R]-based products they were developing, but my previous experience with Fiserv at a former employer left me with a strong impression of the quality of their easyLENDER[R] software."

Regardless of Edwards' prior experience, Greer State Bank performed a careful review of several LOS products. Edwards acknowledges the importance of a thorough software evaluation with this advice to LOS shoppers: "Talk with a lot of users of the software you're evaluating; don't just listen to the sales rep. The more people you talk to, the better an idea you'll get of how the software is used in the real world and how it could help your organization.

"We evaluated several LOS solutions," recalls Edwards, "but the bank was already a Fiserv customer--an in-house user of the Fiserv/ITI Premier system--and ultimately we felt more comfortable installing loan origination software that is compatible with Premier. In addition, we found [the system we chose] to be very user-friendly--very easy to navigate. We were impressed with the way the software steps you through the loan application."

The bank made the decision to license both easyLENDER Mortgage and easyLENDER Consumer/Commercial, and implemented the software in 2000. The mortgage system went live in May 2000, followed by the consumer/commercial system in October 2000.

"After using our former systems for years, switching to something new was a big step," Edwards says. "But we were very well-supported.... They were always there to help us, and the process went smoothly."

Today Greer State Bank is using its new software to help increase its lending productivity. "We did more than $30 million in mortgage business in 2003, with the same staffing levels as 2002," notes Edwards. "That's about a 30 percent increase in our loan volume, but with no increase in staff overhead.

"With our growing local economy, we do quite a few commercial loans," Edwards says, "and our LOS has commercial lending flexibility that we really like. For example, its flexibility with payment structures is very helpful. We also like the way the system handles collateral.

"We are also planning to promote and increase our home-equity loan business this year," says Edwards. "We process our home-equity loans on the ... consumer/commercial system, and we are confident that we can handle any increase in volume."

As for functionality, Edwards says, "We haven't yet run into a loan that [our new system] can't handle."

Greer State Bank has also entered the world of electronic document distribution. According to Edwards, in its quest to reduce operating costs, the bank began examining its electronic-document options, and decided to license a solution from Portland, Oregon-based SwiftView Inc. that is integrated with its new LOS system.

"We licensed easySENDER from Fiserv for electronic document distribution, and we are now implementing the secure, Web-based version of the system [SwiftView's SwiftSend] for distributing loan documents to closing attorneys, borrowers and other loan-related parties."

Edwards notes that the new solution has benefits beyond just a reduction in shipping and courier costs. "We like the ability to change loan documents as needed--even at the closing table," she says. "With this system, we can immediately revise a loan document and transmit it in seconds to the attorney or title company--no more waiting for several days and having to reschedule the closing."

ESL Federal Credit Union: Leveraging the convenience of the Internet to help close loans faster

ESL Federal Credit Union, Rochester, New York, has gained measurable, real-world benefits from integrating its LOS with its mortgage lending Web site. The organization's end-to-end mortgage automation provides the $2.6 billion credit union with an online lending channel that processes loans 16 percent faster than its traditional retail mortgage business.

ESL Federal Credit Union, established by George Eastman (the inventor of Kodak film and cameras), was originally chartered in 1920 as Eastman Savings and Loan Association. Since its founding, providing mortgages has been a key aspect of its business model.

ESL is one of the nation's largest and most successful full-service credit unions, and is among the top 15 of America's largest credit-union mortgage lenders, according to Washington, D.C.-based Callahan & Associates Inc.'s 2003 Credit Union Financial Yearbooks. ESL has more than $2.6 billion in assets, and serves its 265,000 members through 20 branches and an extensive ATM network.

According to Donald R. Aldred, ESL's senior vice president and chief lending officer, members can complete mortgage applications online in about 20 minutes through ESL's secure lending Web site, which was developed by Mortgagebot LLC, Cedarburg, Wisconsin. The Mortgagebot system, called PowerSite[TM], helps accelerate the application process by dynamically changing its online menus based on the information entered by the borrower. Online tools such as help screens and frequently asked question (FAQ) lists help educate ESL members about the basics of mortgage loans, and even coaches them through the mortgage process.

The efficiency of the application process benefits both ESL's members and its lending staff. "Pressure on our retail delivery channel during a time of unprecedented low rates and high volume made the online loan application system a valuable asset to both our members and our organization," says Faheem Masood, ESL's senior vice president and market place manager. "Our members can go online to apply for a loan and lock an interest rate, which has a positive impact on member satisfaction, as well as on our overall capacity to originate loans."

In the first three months of online loan production--with no direct marketing of the online origination channel to its members--ESL processed an average of two new Web-based loans per day. During that time, the credit union experienced a pull-through rate (the percentage of Web-based applications approved and funded) of 75 percent. This represents a 15 percent improvement over the mortgage industry average pull-through rate of 60 percent for online lending, according to Fannie Mae's Mortgage Focus 2002 study.

After a prospective borrower submits an online loan application, application data is automatically transferred into ESL's loan origination system for processing. This eliminates manual data entry and accelerates the loan process. The instant data transfer satisfies a primary business objective of ESL, which is to provide its loan fulfillment staff with the data it needs for efficient mortgage processing.

"The integration of Fiserv and Mortgagebot technology overcomes the key hurdle of re-entering loan data," says Aldred. "The resulting benefits of the integration include [labor] savings and an increase in our capacity to originate mortgage loans."

The online mortgage application system transfers its loan data files directly to the LOS in Fannie Mae's Desktop Underwriter[R] (DU) 3.0 format. Additional data necessary to process the loan (including product, pricing, lock information and city-specific fees) is also exchanged between systems, which further expedites the loan process.

ESL has improved member service by reducing loan turnaround time. The credit union says its analysis after the first 90 days of implementing its integrated solution reveals that processing times are about 16 percent faster for Web-based borrowers than for traditional retail mortgage applicants.

Also contributing to the more rapid loan process is the shift from ordering automated underwriting requests during back-office processing to ordering them during the application process.

"Having an integrated system has benefited our processing staff. For instance, we have saved time and streamlined the loan process because the initial automated underwriting 'run' is integrated into the mortgage application process," says Aldred. "However, our retail-originated loans can only be entered into the automated underwriting system after the loan moves into processing."

ESL plans to extend the integration of LOS and Web site by implementing loan-status functionality. Fiserv and Mortgagebot have developed the capability for loan data that is maintained in easyLENDER to be instantly posted to a secure Web site for borrower review, whether or not the loan was initiated online. As a result, a lender can minimize telephone inquiries and improve customer service. ESL plans to begin offering the new status-update functionality in the fourth quarter of 2004.

"We look forward to implementing status updates as an additional member service," says Masood. "Status updates will provide the benefit of real-time, two-way communication with our members. As a loan processor completes tasks, our members will be able to immediately see what's happening with their application."

Conclusion

According to consultants and innovation experts Ruth Ann Hattori and Joyce Wycoff, co-founders of the Innovation Network Inc., Washington, D.C., there is nothing more risky than innovating, with the possible exception of confusing innovation with something that fails to create value.

There is no question that technological innovation is risky. Innovation necessitates change, and risk is inherent with change. But technology advancements create value in the mortgage industry when they deliver real-world benefits, such as gains in operational efficiency, increases in lending productivity and more seamless integration of systems and services.

Today's successful lenders are adopting innovative LOS technology not just because it is new, but because it delivers the kinds of real-world benefits they need to remain competitive in a volatile and uncertain marketplace. For example, lenders don't want technology solutions just because they are well-integrated; they want tightly integrated systems that are easy and efficient to use in the day-to-day business of mortgage lending.

SouthTrust Mortgage, Navy Federal Credit Union, Greer State Bank and ESL Federal Credit Union understand that innovation must deliver value to be truly beneficial. These lenders, each serving their individual markets, have proven that the thoughtful application of practical LOS technology can result in true business benefits, including more efficient lending processes, better customer service, improved return on investment (ROI) and increased productivity.

These lenders have crossed the innovation point and found the trip well worth taking.

John R. Tenuta is a division president of Fiserv Lending Solutions. Fiserv Lending Solutions includes the Lake Mary, Florida-based loan origination technology business unit of global financial technology provider Fiserv Inc., Brookfield, Wisconsin. Tenuta can be reached at [e-mail]