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Riding out the refi wave.

Fannie Mae was awash in refi business earlier this year, which proved a test of the corporation's mettle. But systems, managers and staff all showed they could keep their heads well above water when the deluge hit.

From the fourth quarter of 1991 through the first half of 1992, the mortgage finance system handled business volumes that were unimaginable at the start of the decade. Boosted by the lowest mortgage interest rates in more than a decade, the number of mortgages originated and securitized tripled. On countless occasions, daily business records were set, only to be shattered anew by the force of a relentless wave of refinancing activity.

As the refinancing boom began, it was unclear whether the mortgage finance system could handle such a sustained flood of business. Now that the first half of the year is over, it's time to look back and think, "What did it all mean?" It's clear the system, though strained, proved up to the task. But are there lessons to learn from the unprecedented business volume that swamped the mortgage finance industry that could help when the next boom rolls around?

Detailing how this flood of mortgage business was managed is a complicated story. But it is helpful to look at how Fannie Mae, the largest investor in home mortgages, reacted to the increase, focusing on the efforts of managers and employees in three areas--loan committing; brokering or securitizing transactions; and reconciling, funding and clearing transactions. Each of these business areas developed a plan for handling the volume surge, based on function and personal needs. But because many aspects of the refinancing boom affected these areas in similar ways, there were some common elements that could help others manage during a similar surge in business volume in the future.

These can be summed up as:

* Use early cues to prepare plans and staffing;

* Make strategic use of temporary employees;

* Liberally use incentives and morale boosters;

* Encourage cooperation between systems and business units;

* Keep an intense focus on customer service.

Early indicators

There is no crystal ball to positively identify when a refinancing boom will begin, as veterans of the 1986-1987 boom can attest. Yet, there were some cues in late 1991 indicating the mortgage finance business was on the cusp of an extraordinary period. The Federal Reserve Board's easing of interest rates late in 1991 signaled to the mortgage industry that a surge in refinancing activity was imminent.

An early indication that the surge might be more than a temporary blip came from Fannie Mae's regional offices. In the fourth quarter of 1991, account teams in the regional offices began hearing customers who were completing cash transactions complain of longer periods spent on hold during calls to Fannie Mae's standard window in Washington, D.C.

The addition of a more sophisticated telephone system in November 1991 allowed the commitment desk to confirm the bottleneck. "The system gave us a true measure of how customers were suffering," said Gary Dail, Fannie Mae's director of committing. The average time "on hold" for standard window transactions had risen to nearly two minutes by November 1991.

The longer waiting times were not taken lightly. "We know even 30 seconds on hold seems like an eternity when the market is selling off," said Todd Hempstead, director of negotiated transactions for Fannie Mae.

It quickly became clear this boom in business was more than a temporary surge. Donna Cabrera, manager of loan purchasing in Fannie Mae's western regional office, said she soon realized the volume crunch only was going to get worse, not better. "Our average volume tripled in January," she said. In February 1992, the office purchased about 21,000 loans, more than 4.5 times the 4,500 bought in February 1991. In March 1992, the office purchased 25,000 loans, Cabrera said.

During the first quarter of 1992, Fannie Mae's trades in its MBS brokering activities, which are handled through the customer service trading desk (CSTD), nearly tripled compared to the same quarter of 1991. The trading desk and securities' back office handled business from more than 250 of Fannie Mae's approved seller/servicers in the first quarter of 1992--about half of Fannie Mae's total MBS customer base.

Fortunately, plans for dealing with this volume surge already had been developed. In late December, as interest rates continued to fall, Fannie Mae's operations group conducted a capacity study to identify staffing requirements, at a variety of projected volume levels, for each major business function. The group also developed systems to project settlement volumes and developed daily reports, in conjunction with marketing, to anticipate average capacities. The results identified the need for additional staff to handle the increased volume, said Jane Nyce, Fannie Mae vice president of acquisitions operations. As a result, about 20 temporary employees were added to process MBS and cash acquisitions. Operations also developed a list of current Fannie Mae employees with prior experience in these areas who could be tapped to handle particularly heavy volumes. Nyce said the up-front planning and analysis allowed operations to process the increased activity in a timely and accurate manner, while still meeting customers' high service expectations.

Temporary employees

All Fannie Mae business units knew they would have to rely heavily on temporary employees to handle the surge in business. The standard window, for example, brought in 10 temporary employees in January 1992, and had them trained, set up and working within a week. As a result, by February, the average waiting time on standard window calls had been reduced to 27 seconds. That time included the 6 to 26 seconds required for customers to listen to a recorded message and choose options by pressing the keys of their touch-tone phones.

Process changes also helped reduce bottlenecks. To speed purchasing of customers' loans, Fannie Mae's western regional office changed its tracking system procedure, which reduced loan processing time by from one and one-half to two days.

However, processing, reconciling and wiring MBS loan pools remained a huge task in light of the record numbers of loans. Despite the large volume of transactions being processed into the secondary market, the Federal Reserve wire usually kept to its normal mid-afternoon closing schedule, so these transactions still had to be processed and entered within their normal time frame.

Wire transactions for new-issue MBS and trading activity peaked at more than 23,600 in May 1992, after averaging about 16,000 a month for the previous six months. The clearance area handled 4,819 wire transactions on May 18, its peak business day. To handle the volume, employees in the securities' back office often worked long hours and Saturdays to set up trades and reconcile pool information. The clearance area also brought in temporary workers, as did the MBS and cash acquisitions and securities' back office units. "A record month used to be $11 billion or $12 billion," said Domenic Grillo, director of MBS production. "Then monthly volumes rose to $16 billion during the surge. But we have pulled out of it as an even more efficient organization."

Morale boosters

Throughout this period, employees in business areas affected by the surge put in very long hours. Days off and vacations were postponed. In early March, employees on the standard window and customer service trading desk began working through their lunch hours, and managers frequently provided lunches. This helped eliminate a bulge in the telephone waiting queues that normally occurred at lunchtime. Other departments also provided lunches and dinners.

"Workers at the standard window are captive to the phones all day; they can't get up. The level of pressure is constant," said Rob Weiss, vice president for product acquisition. That was illustrated on February 27, when the staff handled a record 915 transactions, with a group of employees that at its peak numbered 23, including 10 temporary employees. "I expected total burnout, but they did a tremendous job of meeting the challenge. It was important to reward their efforts and to make the environment pleasant."

Weiss offered a variety of incentive programs to reward employees for the number of calls they handled and for the quality and accuracy with which they recorded transactions. Managers and top corporate executives lauded the efforts of workers in staff meetings. They continually offered encouragement and emphasized the importance of the employees' work to the corporation.


Employees in the production areas weren't the only ones working around the clock inside Fannie Mae. During the first quarter of 1992, real estate mortgage investment conduit (REMIC) business increased 123 percent, compared to the first quarter of 1991. Cash business soared 340 percent, and MBS volume was 216 percent higher than the same period in 1991. These business volumes tested corporate computer systems and processing capabilities.

The only comparable period in the financial services industry probably would be Wall Street during the market "crash" of 1987, according to Bill Kelvie, senior vice president and chief information officer.

During this period, the computer systems of the New York Stock Exchange were severely disrupted, and came perilously close to "melt-down" after facing business volume levels two to three times normal for only three or four days. "We were at that level for four months, and our system performed well," Kelvie said. "We took some hits because of capacity shortfalls, but we were able to recover rapidly when problems arose. Everyone pulled together to minimize the impact on the customer."

As the early 1992 refinancing volumes continued to increase, both Fannie Mae and its customers depended more heavily on MORNET--the corporation's communications network. Using MORNET software assured lenders that Fannie Mae could immediately receive and process their data with maximum speed and efficiency and the data could be delivered 24 hours a day. More than 200,000 transactions were submitted via MORNET each month, data which otherwise might have required costly tape deliveries or error-prone data entry.

Throughout this period, managers in Fannie Mae's marketing, operations and systems areas constantly sought to increase efficiency, in ways as simple as extending telephone cords so traders could more easily exchange materials, to experimenting with wireless FM telephone headsets (which were abandoned because their range was too limited).

"The most important benefit of this period was we developed a better working relationship in the process. There was good communication between marketing, operations and systems," Kelvie said. The systems group also created a task force to monitor daily peaks.

"We performed a lot of technical and business analysis in a short time," said Julie St. John, vice president of transactions processing. Technology professionals charted the workflow from each key business step, looking for spots where time could be gained, either by upgrading equipment or by changing work shifts. And, of course, systems quickly identified and eased obvious bottlenecks. During the first quarter, employees in the systems area averaged about 20 hours of overtime each week.

The corporation also significantly expanded its computing capacity in the midst of the refinancing surge, as all departments sought to get the most out of Fannie Mae's technology capabilities.

Fannie Mae has applied the lessons learned during this volume crunch to the development of a new technology base that's easier to scale up or down as conditions warrant. And the company will eliminate procedures that cause extra work for employees or customers. The corporation also intends to work closely with its customer user groups to gather additional suggestions to streamline processing.

Customer service

Perhaps the most challenging problem that arose during this period was maintaining excellent customer service while handling unprecedented volumes of business.

Gary Dail observed that despite the heavy business volumes, the quality of service on the commitment window never wavered. "The tone that comes across to the customer is critical. As we inform our customers, we voice-record every conversation as a quality control measure, and we were pleased to see that not just the numbers, but the quality was there too."

The attitude toward customer service during this period probably is best described by the experience of one back office worker, a former Wall Street employee, who, during the height of the refinancing surge dreamed there were blue folders (used to hold documentation for REMIC pools) floating in his bedroom. His task, even in his dreams, was to chase and catch them.

But the refinancing boom was no dream. And higher volumes of business continue to move through the mortgage finance system as rates again move lower. But by applying the lessons learned during the nine-month height of the boom, mortgage finance industry professionals may be even better prepared to contend with the challenges of the next sustained surge in business volume.

Donna Callejon is senior vice president--marketing and mortgage-backed securities at Fannie Mae in Washington, D.C. Lynda Horvath is senior vice president--mortgage operations at Fannie Mae.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:mortgage refinancing
Author:Callejon, Donna; Horvath, Lynda
Publication:Mortgage Banking
Article Type:Cover Story
Date:Aug 1, 1992
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