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Maximizing manpower.

Maximizing Manpower

THE DUKE OF Wellington once observed some new technology of his time and said: "I see no reason why these machines will ever force themselves into general use." He was referring to the steam locomotive.

The duke was unable to recognize the value of this "new" technology. Throughout history, there are many examples of technological advances that people thought at the time were only fads. Yet many of those technologies have revolutionized our way of life. To many commuters today, trains are in general use and for some, travel by airplane has become a commuting routine.

As we begin the 1990s, who could have predicted the advances in computer technology that have occured in the last 10 years? In 1980, computer mainframe speed was five to ten MIPS (millions of instructions per second). Now, the fastest IBM mainframe processes at 120 MIPS. That speed is likely to double within two years. In 1980, there were no personal computers (PCs). Now, we have PCs that are as fast as the 1980 mainframes. In addition, we can carry PCs in a briefcase. Ten years ago, we communicated with leased phone lines at speeds of 4,800 to 9,600 baud (bits per second). Now, we communicate via satellite transmissions at speeds of 56 KB (56,000 baud). Speeds of up to 19,200 baud are even available for PCs.

We cannot predict with absolute certainty what will happen by the year 2000. However, one thing is certain. The technological advances in the next 10 years will surpass those of the last decade.

We read in the trade press that in the 1990s, servicing operations will continue to consolidate, with some firms growing to a million loans or more. We also read, almost daily now, about the economic pressures on financial institutions to improve performance and beef up capital. In this climate, utilizing technology to improve productivity is one of the keys to survival. New technologies - ranging from satellite communications networks based on very small aperture terminals (VSATs), to microchip-based voice response systems - continue to gain acceptance at a rapid pace. According to an article titled "Voice Processing: More than Lip Service," (Computers in Banking, April 1990), 70 percent of all banks in the United States with net assets of at least $5 billion have installed some form of automated customer service.

The successful, cost-effective application of technologies, such as automated voice response systems, requires highly skilled people. The 1990 INPUT Information Services Industry Report points out that outsourcing among banks in the United States increased 16 percent in the past year and is likely to continue at similar rates (outsourcing refers to hiring an outside firm to handle one or more automated functions within the financial institution). Why the continued growth in outsourcing? Certainly, the earnings squeeze on all financial institutions is causing widespread cost reduction programs. However, our experience is that the decision to outsource is often based on the need to have highly skilled people to keep up with, and implement, the new technologies.

For example, simply installing a new computer-based power dialing system is not necessarily going to reduce delinquencies. However, a new power dialing system designed and developed by experts as part of an integrated collections system will not only reduce delinquencies, but will reduce overall costs by increasing the productivity of each collector using the system (See Chart 3).

At Computer Power, Inc., (CPI) the philosophy is to help our clients improve productivity through applied automation. This means providing tried and proven technology and skilled people to help the client gain the greatest benefit from it.

The challenge for the 1990s is to continue recognizing and adapting new technologies to the mortgage business. There are six key areas where advances will be important. They are: * information management; * electronic data interchange; * human interfaces; * computer-based decisions; * new developments; * communications networks.

Information management

Computer systems were originally designed to process data, thus the term "data processing." Today, efficient, cost-effective systems must do more than process data and generate reams of paper. Effective servicing systems today are an information management tool. This tool, properly designed, will result in increased productivity.

For example, the type of data that most servicing managers require includes delinquency ratios, portfolio analysis, productivity statistics and financial information. These elements may come from one or more computer systems.

Today, much of this data comes from written reports. However, to present the information to senior management for analysis, the data is often entered into a PC so the user can reformat, merge and/or graph the information. This takes time and often delays the delivery of the analysis to the managers.

In the future, this data will be delivered to the managers on a terminal. Without having any knowledge of the underlying system, managers will retrieve the information they need by using a mouse or touch screen terminal. Color graphs will help the manager identify problem areas. The data, both at summary and detail levels, will be available immediately with virtually no delay in preparing special reports.

Electronic data interchange

Electronic data interchange (EDI) is the exchange of data via an electronic medium. EDI typically refers to the transmission of data. However, the exchange of information by tape is also an important source of productivity.

The exchange of information electronically provides several advantages. First, the information is more timely. If you are receiving the data, you have more time to act. If you are sending information, you have more time to reconcile the data before you send it. Second, the information is more reliable in electronic format. There will be fewer errors and there will be more confidence in the data. Third, EDI will lower your costs. You can process more information with fewer resources. There is no need to enter individual data.

In loan administration, there are several functions that have some degree of automation. These include, but are not limited to, FHA premiums, HUD Form 92344 (Notice of Termination), HUD Form 92080 (Notice of Mortgagee Change), private mortgage insurance (MI) premiums, MI delinquency notices, tax bill procurement and payment, hazard renewals, forced coverage, property inspections, GNMA pool reports, GNMA pool security holder changes, Fannie Mae LASER reporting and Freddie Mac Midanet reporting.

Automation does improve productivity. CPI conducts a loan administration staffing survey annually. The data for this article was generated by a survey of 139 CPI client companies as of December 1989. In escrow administration CPI examined productivity levels in three areas: monthly FHA premiums paid, tax bills paid and hazard premiums paid. In each area we determined the number of items paid per FTE (full-time equivalent). The full-time equivalent is equal to the number of people required if the work week had exactly 40 hours.

MIP premiums, which are virtually 100 percent automated, averaged 16,700 bills per FTE (See Chart 1). Taxes, which are 50 to 60 percent automated, averaged 14,500 bills per FTE. Hazard insurance, which is less than 10 percent automated, averaged, by contrast, only 6,700 bills per FTE. As more insurance companies adopt the new standard hazard billing format recently developed by the Mortgage Bankers Association of America for reporting hazard insurance, the degree of automation, hence the productivity, in the area of hazard insurance should improve also.

Human interfaces

The CPI system is built around the "workstation" concept. The workstation is a specialized human interface (i.e., the person using the terminal) consisting of hardware, software and networking. Each workstation is uniquely designed to improve the productivity of specific servicing functions such as collections, foreclosures, taxes and hazard insurance payments. It does so by providing all the tools and information necessary to perform that function in the most efficient manner possible.

Though large amounts of information are exchanged electronically, the system is still primarily accessed through the computer terminal. There are several software and hardware advances that will greatly improve productivity. * The primary screens will contain

data related to the particular function,

in order to reduce the need for

the processor to change screens

while performing a task. For example,

the hazard insurance processor

might need to see information related

to the insurance policy but not

necessarily related to private mortgage

insurance. * If additional information is required,

it can be available by pressing a single

key. The PF keys, for example,

allow the user to toggle, that is, easily

transfer, between the old and new

data. * All messages, stops, flags, etc.,

should be displayed in English, as

well as name, address and phone

number of insurance agents, taxing

authorities and the like. * Windowing is the term for the technique

that allows the user to replace

a section of the primary screen

without disturbing the basic data.

This reduces the need to change

screens. * "Point-and-shoot" techniques allow

the user to move the cursor to an

item on the screen and then press a

PF key to get more information

about that item. For example, when

looking at a log of letters, the user

can place th cursor on the letter and

then switch to the text of the letter. * Special controllers allow the user to

access more than one system at the

same time; toggling between multiple

systems. In addition, this special

hardware can split the screen

and allow the user to view two or

more systems at the same time. For

example, in one part of the screen,

the servicer could be viewing an online

report, while another part of

the screen could be used to input

data from that same report to build

into the database.

Computer-based decisions

Loan administration grows more complex every day. Every state, investor and government agency has rules that the servicer must follow. This complexity creates the opportunity for errors. There are a number of ways in which the computer can reduce complaints and errors. Most of today's computer systems allow the processor to enter data on-line. The system will verify the acceptance of the data and return error messages to the processor at the time of entry. As a result, there is more focus on exception processing rather than checking each item.

The average CPI client administers loans secured by properties in 30 states. There are different rules that apply for each state, loan type, investor, insuring agency or corporation. These rules can be entered into the servicer's system in the form of a table or matrix. The computer can then apply the rules as needed. This eliminates the need for the processor to examine each loan in order to apply the rules or policies.

The text included in notices and letters sent from the servicer to the borrower may also change based on the conditions of the loan. Systems can vary the text automatically based on parameters entered by the user. The user controls the changes to the text so that there is no need to program for these changes.

We may see a growing application of artificial intelligence, or expert systems, in the mortgage industry. These systems make decisions based on predefined rules. They can also learn from decisions made by the processor. Today, there are such applications in loan production and secondary marketing; we may soon see this technology in loan administration.

New developments

A number of new developments that can supplement the primary computer system are now available. Some examples of these developments include voice response systems that allow the borrower to obtain data on their loan or loan application by using a touchtone telephone. This concept is not new. There have been mainframe applications of this type for the last decade. Recent advances now allow voice response units (VRU) to run on a PC or equivalent hardware. The voice quality is human and the borrower can select information from a menu of items. These systems can also route a delinquent borrower to a collector automatically.

Those companies using voice response systems reported that 30 percent of all calls were handled by the servicer's system. When we compare the staffing in customer service for those companies using a VRU, versus those without a VRU, we find a distinct improvement in productivity based on loans per FTE in customer service (See Chart 2). Companies with a VRU average 6,600 loans per FTE. Those with no VRU average 6,200 loans per FTE. In talking to several companies, that used VRUs, CPI discovered that they were able to shift more people from the telephones to research and correspondence. As a result, the quality of service improved. As the industry learns how to best utilize this technology there will be continual improvement in productivity.

Power dialers automate outbound calls regarding delinquent loans. Data is first downloaded from the servicing system. The power dialer presents a screen to the counselor when the borrower answers the phone. Attempts that result in no answer or a busy signal are recorded automatically. These systems improve productivity by increasing the number of contacts made with delinquent borrowers.

Companies not using power dialing equipment reported an average of 345 delinquent loans per collection FTE staff at year-end 1989. By contrast, the companies with a power dialer averaged 436 loans per FTE (See Chart 3). These companies with power dialing equipment also had a slightly better delinquency ratio, particularly in their 30-day late accounts.

Intelligent terminals, that is terminals that can be programmed to perform certain functions, can provide low-cost power dialing. These terminals can be programmed to dial the phone number from the screen and to record unsuccessful calls. Because the telephone is included in the terminal, the counselor needs only one piece of equipment.

With the advent of laser printers, it is now possible to create special forms from a blank piece of paper. Data can be merged when the form is printed. The form can even include magnetic ink character recognition (MICR) fonts and digitized signatures. For example, checks can be printed on demand or with data from the main servicing system. Electronic forms eliminate the need for pre-printed stock and allow the user to make changes as needed.

Although most automated servicing systems produce numerous printed reports, the user does not typically read every printed page. Instead, users look for totals, exceptions or mail the reports to third parties. Some costs tied to printing and distributing the reports can be eliminated by allowing the user to view the reports on-line.

In the coming years, image processing will play a more important role in the mortgage industry. These systems not only allow for easy storage and retrieval of document images, but can also control the flow of documents within the organization. It is this feature that will provide the keys to improved productivity. These systems are very expensive - a basic system may cost $500,000 or more. Only the largest companies can afford this technology. However, new developments should lead to lower costs.

Communications networks

Today's computer operations typically require large communications networks. These link the user with the host computer, or the host computer to a third party such as a lock-box bank. Traditionally, these communications have been handled by telephone line. Satellite networks offer a number of advantages over land-based telephone communications, such as: * If a natural disaster such as an

earthquake, fire, flood or hurricane

occurs at the computer center, the

back-up site may well have limited

communications facilities. Maintaining

redundant phone lines is

usually too expensive. Because

there are no phone lines involved, a

back-up site with satellite communications

offers total redundancy. The

user sees no difference if processing

occurs at the alternate site. * If the user site is damaged, a similar

problem occurs. The company may

need to move to an alternate site to

establish communications. Dial-up

lines would be the only alternative.

Satellite networks permit the user to

move a portable earth station to the

alternate site and establish full communications

capability. * Satellite networks adjust to accommodate

the amount of data transmitted.

As the servicer grows and

increases the traffic over the phone

lines, the satellite network grows as

well, without having to add extra

phone lines. They also provide high-quality

communications, better control,

diagnostics and improved costs. * Satellite networks provide additional

services to the mortgage industry.

The mortgage servicer can access

the data of their tax service or forced

coverage company if they are all on

the same network. The mortgage

processor can use one terminal to access

the servicing system or the

third party database. This eliminates

the need for special terminals and

workstations. In other words, all the

terminals on the servicing system

can do double duty - they can access

a third party's database if the servicer

and the third party are on the

same network.

According to the Mortgage Bankers Association of America's publication Toward The Year 2000, there will be $6 trillion in loan servicing by the end of the decade. This is more than double the current level. To service this volume, we, as an industry, must improve productivity through the innovative use and adaptation of the proven new technologies. As wisely stated by the 17th century philosopher Francis Bacon: "He that will not apply new remedies must expect new evils. For time is the greatest innovator."
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Cover Report; special section on servicing management
Author:Rector, Timothy L.
Publication:Mortgage Banking
Article Type:Cover Story
Date:Feb 1, 1991
Previous Article:Servicing in a slump.
Next Article:Match game.

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