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Mortgage frustration: some tips to reduce the odds of your borrowers "losing it," because your back office is in disarray.

MORTGAGE FRUSTRATION

Some tips to reduce the odds of your borrowers "losing it," because your back office is in disarray.

Obtaining a mortgage loan can sometimes seem like a game of cat and mouse - with frustrations for both the customer and the lending institution. Normally, the process begins smoothly. A mortgage broker, a Realtor or a loan sales representative helps the customer prepare a number of forms and schedules. Although this time-consuming process requires the applicant to gather and divulge a significant amount of personal financial information, the customer is generally aware of this fact ahead of time - therefore, it isn't considered an unnecessary burden. However, during the remainder of the loan processing cycle, aggravations can begin to mount.

The loan approval process typically goes like this. Several days after a customer submits an application, the financial institution's processing department invariably needs additional information.

This back office operation typically is organized into small, functional units, each responsible for only a few steps required to complete the loan cycle. So, to find out the status of a mortgage application, the customer gets transferred from unit to unit on the telephone until the appropriate person is found who can answer the inquiry.

At this point, being unable to answer basic application status questions is the crux of mortgage lenders' customer service problem. Once, after becoming upset with a bank's lack of responsiveness to my simple application status inquiries, I eventually worked my telephone calls all the way up to the head of the mortgage division. The division head had the same problems locating my file as those working under him - those same people who also failed to return my calls. As a result, I pulled my loan application and all of my personal business from that institution.

Similar stories happen to customers every day. The more they happen, the more business lenders lose by not providing high-quality service. In the long run, it is less expensive to keep a customer than to replace one.

Fundamentals

Reaching the closing stages of a loan can sometimes seem like waiting for summer vacation - always within sight, but not within grasp. The major problems associated with getting a loan application through the acquisition, processing, underwriting and closing cycle center around these fundamental management issues: * poor application quality; * cumbersome workflow design; * ineffective phone system; * unreliable pipeline management information systems (MIS); * reactive decision-making on manpower resources and; * lack of commitment to training.

Not addressing these problems can hurt a company's bottom line. Obtaining solutions ensures satisfied customers and lower operating costs - even as much as 20 to 30 percent lower. Evaluating these issues will position a mortgage company to better serve its customers and gain market share. High-quality service puts the company in a good light and makes the mortgage process a positive experience for the customer.

Poor application quality

Back offices of mortgage companies often have difficulty delivering consistent, excellent customer service because they receive incomplete applications from the various retail branch and sales offices. "Garbage in, garbage out," as the cliche says. Based on my experience as a banking operations consultant, I have found lending organizations have an incomplete application rate of more than 40 percent on average. An "incomplete application" is defined as any loan file received with missing documentation that could have been captured during the initial customer interview. This problem, however, could be transformed into an opportunity for lenders that choose to tackle it head-on. The following facts will give lenders some ammunition to combat the problem of incomplete applications. * More than 30 percent of incomplete applications have missing income information such as W2s, salary, rental income or self-employment documentation. * Approximately 10 percent have incomplete blanks, signatures and dates, or the actual application is entirely absent from the loan file. * Another 10 percent have problems with accuracy and completeness of the sales contract (i.e., the contract is not in the file, or it lacks buyer and seller signatures). * The remaining 50 percent have problems for a variety of reasons.

Another factor contributing to poor application quality is originators' use of obsolete forms and checklists. Although this causes a significant increase in missing information, if the quality of incoming applications is not carefully monitored, this simple procedural adjustment can be easily overlooked by management.

Several measures will help correct the incomplete application problem. For example, a lender can: implement an application-quality tracking process that identifies, by source branch and sales office, the number of complete and incomplete applications received. The lender should receive a breakdown and report on the reasons for each incomplete application file received.

Lenders should also develop aggressive quality standards and communicate them to the pro-duction staff. Establishing specific targets to which individuals are held ac-countable is an effective method. An 85 to 90 percent completion rate is a tough, but realistic shorterm goal.

In addition, the standardization of all forms, check-lists and schedules will streamline the lenders' operation - eliminating the burden of unneccesary follow-up calls. It might be helpful to establish a project team to redesign these forms to ensure that the instructions are clear and enough space is provided for all necessary information.

After these steps have been taken, loan files will come into the back office completed the first time, and they will move through the processing cycle more quickly - creating a positive impact on service quality. Lenders will see a cost savings from the reduction in the number of "reworks," that is, files the processor sees more than once.

Cumbersome workflow

The most significant cause of shoddy customer service and high processing costs is from an inefficient processing workflow. Lenders should determine how many hand-offs it takes to process a mortgage application from the time the customer completes it until the loan finally closes. The answer for most banks will be at least 25. That means a single loan file is passed from one person or organizational area to another a minimum of 25 times before the loan is approved or denied. What's more, if the file has missing information or documentation, 30 or 40 hand-offs will probably occur before the loan is closed.

Mortgage applications generally begin in retail branches and mortgage sales offices. Typically, branches take applications and forward the file to the back office, which is responsible for all future handling and communications with the customer.

At the same time, origination branches gather applications from broker and Realtor customers. Their sales executives rely on customer service representatives (CSRs) in the sales offices to provide support in assembling the loan file, pulling and previewing credit information and then sending the loan package to the processors in the back office.

Once the file is received into the processing department, the journey through the maze begins. One group receives and opens mail pouches, photocopies application files, pulls credit bureau reports, orders disclosures and enters the account information onto the lender's production system. Another group updates pipeline status reports, types letters and prepares the file for credit review.

Assuming everything is in order, the front-end processing department passes the mortgage file to the credit area, where the responsibility rests for underwriting the loan. Not until this stage is missing information or documentation discovered. Here, a significant amount of rework often becomes necessary. Letters and phone calls to the branch or sales office, or to the customer, are dispatched until the file is complete. This can take a number of days. Meanwhile, the customer's loan application sits.

Eventually, the file is underwritten and the approval decision is communicated to the customer through the appropriate channels. Usually this means that the underwriter advises the back office CSR, who contacts the sales office CSR, who then advises the account executive to call the customer or else calls the customer directly. If the loan is approved, the file is finally handed-off to the closing area. If this seems a little bit "around the horn," that's because it is.

Taking charge

Because individual staff members' responsibilities are limited to only small portions of the process, no one person owns the customer's file. That remains the number one problem associated with this type of functional, assembly-line process. The customer's identity, financial needs and concerns thus become meaningless to the people who process the loan file.

As the application bounces from one unit to the next, customers often call the sales office for status inquires. If CSRs in the sales office cannot handle the question immediately, they must try to get the question answered by the back office. Many times, however, the back office doesn't know who has the file, or what stage it is in. Finding the answer to a customer's simple question can seem more and more like looking for a needle in a haystack.

Once the information is retrieved, the phone calls are reversed through the communication chain. The customer's original question, which should have been answered on the first call, instead takes an average of five phone calls because of the fragmented process flow.

Also due to the functional nature of the flow design, customer files get misplaced - or worse, lost. This usually happens when files are awaiting additional documentation, or when files are in transit between the underwriting and closing areas. To alleviate the problem, some organizations install control logs within the flow cycle. In one case I've seen, 30 individual control log entries were made for a single loan file.

The most effective way to inject control and accountability is to organize functions into multi-function workstations. The workstation is a service concept that dramatically reduces the number of hand-offs required to process a mortgage loan application, and, therefore, the number of people necessarily involved in the loan cycle. A workstation combines functions that are presently performed by many different staff members such as processing, underwriting, sales and back office CSRs and closing staff, into a single job position.

The staff members in these workstations provide service to customers directly. Individually, they are responsible for, and accountable to, their customers. Applications sourced by branch and sales office account executives are sent directly to the back office - which is now oriented as a service-driven group. Organized into a number of teams aligned along market and sourcing segments, the back office handles all of the functions described previously, plus all loan status and decision communications with the customer, broker or Realtor directly. This approach allows the sales staff to focus on selling and reduces the need for them to manage the back office as well.

Once organized into workstations, aggressive productivity and service standards can be established for application turnaround time, volume through-put rates, telephone performance, error rates and credit quality. With standards set, the lender can manage service and cost performance at a much lower level in the organization; that is, at the workstation level. Expense savings of up to 30 percent, from reduced personnel, as well as very dramatic improvements in service quality can be achieved with this change to the mortgage production operation.

Phone system design

As fundamental as it may seem, many lenders come up short in their ability to properly handle incoming telephone calls. Signs of a poorly designed and managed phone system include switchboard consoles unable to handle varying volume, hunt groups (incoming calls in search of an open phone) and sequencing patterns that are not designed properly, and the staff's lack of commitment to "pick up a ringing phone."

No matter what the size or sophistication of the operation, there are three "musts" for effective administration of the "telephone tool."

First, understand telephone equipment "needs" in terms of the service commitments made by the firm. Answer these questions: Do we need to have call pick-up? Is an automatic call distribution system appropriate and justified? Does voice mail have a role to play meeting our customer service needs? Then, install systems that will best serve the organization. Second, thoroughly train all staff on the features of the phone system. Finally, design proper hunt groups reflective of the process workflow and department organization. Along with that, implement service quality standards consistent with commitments made by the organization to its customers. For example, put in place a policy whereby all phone calls will be picked up within a certain number of rings. Measure and report on actual staff performance frequently.

Pipeline management

On the surface, tracking the status of a customer's loan should be fairly simple and straight-forward. However an MIS that uses three to five staff persons to monitor and report on loan applications is often as resource-intensive, and, therefore, as costly, as the core processing functions being tracked.

Even with adequate resources, pipeline tracking reports often have many status errors either from miskeyed information or because MIS updates were not properly input. Of course, this renders the entire MIS process unreliable, in addition to being costly to maintain.

Two recommendations may help. First, the company should determine the pipeline tracking information requirements not only of the back office management team, but of the sales office managers and account executives as well. Track the entire cycle from application receipt through closing and auditing.

Second, determine the feasibility of extracting pipeline MIS directly from the mortgage production system. Although this may require some minor programming to develop front-end, data capture screens and back-end report-writing interface capabilities, this is a better and less-costly solution than purchasing a system in most cases.

Reactive "planning"

Determining the appropriate level of permanent staff is an acute problem for operations managers. This difficulty is exacerbated when those generating revenues (sales people) and those processing applications (service/operations people) do not communicate on factors that impact volume.

Efficient organizations proactively manage their decisions concerning manpower needs. The reactive approach typically involves knee-jerk, after-the-fact, eleventh-hour decision-making. In other words, communication between the sales and operations people should not wait until service standards have failed because actual volume beat forecast volume by 250 percent following a stepped-up sales campaign.

Organizations should develop a thorough understanding of their most costly resource - people. Lenders can start by studying manpower needed to get an application through the origination workflow cycle. Analyze and measure every step. Continually validate this information, because changes may alter the original capacity planning assumptions and results. Then, from the sales organization, identify volume forecasts and business assumptions (such as approval and close rates for each month. Understand when marketing campaigns and extraordinary sales initiatives are scheduled as well as their "seed-to-flower" lag times. Finally, ensure that the communication channels between sales and operations are open.

Plan staff levels necessary for normal, seasonal cycles and initiative-driven volume. Draw up contingency plans to handle expected 15 percent volume surges, and include overtime and temporary staff as well as borrowed staff from other units. The organization that merely reacts to rather than plans for major shifts in volume, will see service performance suffer as a result and will end up producing at a unit-cost higher than necessary.

Lack of commitment to training

Like an unmaintained production system and a misused telephone system, an untrained "people system" can become stale and ineffective. This is especially important when implementing the process flow concepts presented here. Individuals with knowledge and skill in only one or two different functions will be asked to effectively perform in several complex activities like underwriting, customer communications and closing. To be successful, management must invest in training.

Training must be focused and sustained. The following recommendations can be applied to any training effort undertaken. * Develop the process flows, job descriptions and job grades for each position and job function. * Rate staff members' skill level for each function within their position. * Estimate the number of training hours required, to raise a staff member's rating. Identify training dollars available and develop a detailed implementation plan. * Forecast the organization's capacity and build the training plan to meet this goal.

Improving the workflow of the mortgage origination process saves money and creates satisfied, revenue-generating customers. Also, the quality of service that customers receive makes an organization shine next to its competition.

Improving the workflow of the production process eliminates an enormous amount of frustration associated with loan file reworks, unnecessary bureaucracy and unhappy customers. Quality training, while raising the skill level of the organization, also creates greater job satisfaction. Ultimately, what is good for the organization in terms of reducing operating costs and improving productivity is invariably good for customers and employees as well.
COPYRIGHT 1990 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:DeLeeuw, Robert C.
Publication:Mortgage Banking
Article Type:Cover Story
Date:Sep 1, 1990
Words:2725
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