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Technology crossroads: investing in an automated system is an overwhelming decision. Here are some tips just for starters.


Although that proverbial day when "computers will take over our jobs" is not here yet, advancing technology has changed the way mortgage lenders think about their company's operations. While reducing manpower in order to cut costs may appeal to the bottom-line sensibilities of mortgage banking managers, the dive into automation can mean more than that - by breathing new life into a company's vital signs.

Statistics such as the amount of loans serviced per servicing employee, loans produced per operations personnel and loans underwritten per month are some of the telling report cards of automation. If we can increase the capability of current staff - to produce more and service efficiently - we can use this capability to make and service more loans. Technology can also put mortgage bankers in a growth position by allowing them to do more of what they do best, at the least possible cost.

Many mortgage bankers sit on the brink of a difficult decision today - that is, whether or not to invest in the automation of their company's operations. What factors can they consider to ease the challenge of the technology decision? This article maps out six different areas for analysis: technological assessment, cost-to-acquire, implementation, upgradeability, system fit and long-term gain. Examining these areas will assist managers in their pursuit of the proper degree of automation for their organization.

The technology assessment

Decisions to acquire automated systems are based on a technology assessment - a complete examination to determine which areas of the company can most benefit from technology. Performing this type of analysis is important; it enables the company to end up with a product that supplies the functions the firm needs at the right level of capacity. The three factors that should be assessed are the company's needs, goals and available technologies.

Realizing the need to automate is a fundamental step. Lenders should ask: "What efficiencies can be obtained by adding technology to the current paper flow? What, if anything, needs to be done now? What new needs will the addition of the system create?" To clearly understand these kinds of questions, management must zero-in on the current strengths and weaknesses of the operation.

Jeffrey Butler, senior vice president and chief information officer at Countrywide Funding Corporation, Pasadena, speaks strongly of examining his company's needs at this early stage. "When we talked about our commitment to technology, we decided to start our automation efforts before the technologies were even commonplace." Countrywide saw its major investment in technology as a way to confront the ultimate operational issue - better customer service. Thus, by evaluating the needs and capabilities of different parts of their organization, Countrywide has taken a leadership position because their assessment was not based on what vendors had to offer - rather, it was shaped by the goals of top management at the firm.

When a company's management believes that its operations are not at peak efficiency, it is because they perceive that some processes could work differently. Maybe the current system lacks a tracking component. Or, two separate systems may not interface well. Perhaps volume of the corporation is overwhelming the existing personnel and equipment. In each case, management must spell out their perception of a better system in terms of goals and specific tasks. Once the needs have been assessed, vendors can be solicited to offer various systems. Each vendor may come up with a completely different idea; therefore, it is wise for the manager to keep clearly in mind what steps the company is willing to take.

First, managers at many levels of the company should be called in to discuss which areas can truly benefit from automation. Not only will interesting information be passed upwards with regards to line operations, but this should encourage many employees to be receptive to the events to come. By believing that their input has helped shape the system, the company's staff may contribute more willingly when asked to help get the system off the ground.

It is also important that part of the technological assessment involves looking at the competition's investment in technology. If it is management's primary goal to keep ahead of their competitors, then those in the acquisition process must keep that in mind. A company's use of technology often distinguishes it as a market leader.

Also, many vendors have user groups that are open to those who are considering the purchase of a system. By having a staff representative visit one or two of these meetings, you may learn about unique opportunities for your firm, as well as deficiencies that other users have had with a particular system.


In the world of information processing, three alternatives are available for the utilization of software for a particular function. The first choice is to use prepackaged software programs, written generically for many people who want to automate the same function. This "off-the-shelf" type of product bears the lowest initial cost. The second choice is to hire a programmer and systems analysis staff to build in exactly the features you want. This produces a customized rendition of an automated function. The third choice is a hybrid, and involves finding an off-the-shelf product that can be customized to some of your specifications. There are great differences in cost, security and usage timeframes for these three possibilities.

In a recent survey of mortgage bankers by the Mortgage Bankers Association of America (MBA), 100 percent of the respondents reported that at least one of their automated systems was developed completely in-house. These systems were most often in the area of internal management, and were designed to interpret and report data supplied by other systems that served production or servicing. To integrate the various systems, therefore, it may be necessary to have at least one fully customized application.

Within the realm of customized technology almost anything can be made available, given enough time and money. At the assessment stage, information managers should evaluate what the company needs and which systems could satisfy them. Jeffrey Butler pointed out that, at the time Countrywide made a commitment to optical image processing, the technology was not widely available or proven. They made it work, however, because of the forecasting and planning done in the assessment stage.

Most automated systems are available on stand-alone personal computers, networks, minicomputers and mainframes. While not delving into the technical details of particular computers, it is true that the more processing capacity a company may be trying to buy, the higher the cost.

Vendors will often help a company with its technological assessment. A tool called a design document can supply not only technical specifications but also reporting and tracking data. The design document, while not a plan for final installation, will propose an implementable alternative. Management can split the document into parts and introduce its processes to those managers who will be affected. If the information flow or format will not meet the needs or desires of the firm, then other alternatives should be found. For instance, if a company produces a design document showing a flow of data from origination to servicing that involves sending the data to an outside firm for conversion, this process is unlikely to meet the need of a company that desired greater accuracy in the information flow.

A key to the success of the vendor's design document is the specificity of the company's requirements. Assuming that the system is technically feasible and has available resources, the only real limitation on today's software providers is the manager's ability to spell out what he or she wants. Vendors should be encouraged to meet with a group of the company's veteran managers to ensure this vital two-way communication takes place.


Any analysis must begin with the price tag attached to the proposed system. Jeff Lebowitz, president of Strategic Systems Partners, a Washington, D.C. research firm, points out that, "mortgage banking as an industry is most likely to make technology decisions when they are in regard to saving costs." Technology does not come cheaply, and companies are wise to analyze how long it will take them to break-even on their investment. Therefore, dollar values should be assigned to expected efficiencies that will result from automation.

Lowered expenses can come from many sources. Better utilization of personnel, centralization of processes, improved marketing decisions (accurate information and pipeline histories can certainly benefit the secondary marketing), quicker delivery time and an increase in loans-per-servicing employee are just a few examples that can be quantified. Often the dollar value of an error, whether it be from uninsurable loans, lack of coverage in a falling market, or the necessity of hiring temporary staff in critical periods, can be ascertained by management. Thus, the amount the company is willing to spend can be reasonably related to expected gains and the avoidance of losses that will come from the technology.

Once you estimate how much you will save per month (or perhaps how much additional income from added business you can obtain), you have the necessary figures to determine the break-even period. To do this, divide the benefit-per-month into the total cost of the system, and you are left with the amount of months before the system's efficiencies have made the purchase cost-effective. In a highly competitive industry such as mortgage banking, stretching the break-even period over 18 to 24 months would be reasonable. Al Brown, senior vice president of Charlotte, North Carolina-based First Union Mortgage Corporation, says that at his company, "internally, 18 months is used as a threshold for decision-making." Brown also pointed out that this figure can vary greatly at different firms depending on their strategic plans.

Whether it is a shorter or longer timeframe, however, the analyst must keep in mind that automation will eventually spawn a competitive advantage. This advantage may be in goodwill, enhanced customer relationships and/or a better market reputation. Factoring into this cost-to-acquire analysis, then, is the fact that investing in a new system will rarely lead to enhanced profitability overnight - because the company will reap its rewards over the long term. In fact, the six-month period following the product acquisition may be fraught with great expense.

H. Marc Helm, executive vice president of Barron Financial Group, Tustin, California, and chairman of the MBA's Technology Task Force advises that, "Managers must consider return on investment when making decisions to acquire. However they must also apply both subjective and objective means of analysis when considering technology. The long-term effects on customer service, industry reputation and other efficiencies must enter into the decision-making process."


Factors involving implementation include the retraining of personnel, the customization of any of the technology to the firm's needs and the development of the culture that is necessary for the new system. These factors can take a toll on the mortgage banking operation's resources.

Sears Mortgage Corporation, Riverwoods, Illinois, a leader in the use of automation for the entire loan production process, uses an implementation team, Dennis Gingue, senior vice president in charge of information technology explains.

"To get people to be competent and proficient quickly, they needed to be trained [off the site of] the branch office environment. While the operations staff is being trained away from ringing phones and the demands of the loan officers and clients, [Sears] sends an implementation team to the branch. The team then certifies that the equipment has been installed properly and converts the existing pipeline. In this fashion, the trained staff returns, ready to work," he said.

Though the cost of this approach is likely to be high, it is designed to add speed to the training equation. Thus, many costs may be recouped by lack of down-time and positive customer satisfaction.

Retraining personnel is a primary concern of those integrating any type of new system. Though a company's staff may be computer literate, using a specific software package or a new type of hardware requires a certain amount of rethinking. New users must learn about what types of information they need to have on-hand when they wish to perform a task. They must be trained in the way in which the system accepts information. The order in which tasks are performed must also be reconsidered. Those who have not had any formal computer background may need training in keyboard skills. Whether the question is technical or procedural, it will take a company a certain amount of time to get everyone up and running.

A company's culture can change when the corporation becomes driven by management information systems (MIS). When MIS is viewed by all in a company from the line worker to top management as a new type of accountability and performance analysis, a firm has truly integrated their new technology.

As part of the implementation phase, managers must be encouraged to comment on the procedures, systems and products that have been installed. Users can be encouraged to form groups that propose innovative suggestions. If corporate culture allows for this type of development, MIS becomes an excellent tool.

System fit

A good "fit" between the type of system a company is acquiring and the functions it will be used for is critical. While loan processors may use word processing software, most word processors will not apply to other needs, such as tracking or truth-in-lending computation. If only some employees in the firm will be using the system that is being acquired, the company must also consider how their work will be integrated with other systems. Will there be an interface to link either another automated system or a manual system with the new technology?

Certain types of technology are considered "free-form." Data can be stored in a variety of ways, and output (reports or forms) can be structured to the company's preference. Other systems only allow details to be entered in a certain way, at a certain time, or only have their output printed in a particular format.

Many firms desire to maintain a paper trail on all transactions. Some products may ensure a better fit between manual tracking with an automated process. One example might be when data is input with a corresponding document number that can be filed for later reference.

Upward compatibility

A key element involved in the decision to incorporate new technology is having an overall plan that sees far into the future. Firms that bought small, stand-alone, task-specific systems in the 1980s can now vouch that it is hard to integrate these units into an overall system. Equipment and software acquired today must be useful for tomorrow's tasks and growth opportunities.

Some firms may choose to explore upward compatibility by buying a machine that has a larger capacity than is necessary for the company's current operations. While this makes sense as part of a strategy, it is equally important to have software that is flexible in its ability to receive and deliver processed information. Connectivity - sharing data between the organization's computers - and data standards - the manner in which information is passed on - are keys for future expandability.

Connectivity and data standards are currently under development in the industry. In the same vein as the development of a Uniform Residential Appraisal Report (URAR) or the soon to be released Uniform Residential Loan Application (URLA), computers can present vast amounts of similar data in an organized manner. One of the biggest pluses about the way in which a computer can perform the task is that it does it without a lot of bookkeeping or labor-intensive research.

Mortgage bankers have been able to limit the number of different systems that are necessary for growth. As you can see from Table 1, the vast majority of respondents to the survey have three-or-less unique systems operating. Over time, this may be of great benefit because developing interfaces between varied systems can be a difficult task.

Long-term gains

There are many direct long-term gains from automation. Companies that integrate different systems may end up with loan production data that can be passed directly on to their servicing system. These systems do more than cut data-entry expense, they can reduce the number of times such a mistake can be made - which is likely to enhance the bottom line for the mortgage banking operation. For instance, by using data that has been input only once by the loan officer to establish the electronic servicing file, the opportunity for a later mistake from others who handle the file is dramatically reduced.

By using a combination of systems, such as optical storage and bar coding with origination and servicing systems, mortgage bankers can drastically reduce costs. This results from reduced search and filing time, less paper storage, and higher rates of data accuracy. If a growing firm has the systems in place to expand, it may consider becoming a full service mortgage banking company, or offering complimentary lines.

In a recent survey of participants at the 1990 MBA President's Conference, it was noted that close to 60 percent had a chief technology officer. Mortgage bankers are aware of the importance of technology and its impact on their companies. Many are dedicating substantial resources to studying and making the technology decision. With a plan of action for what the future may hold, mortgage bankers will be well equipped to perform the various assessments needed to make the critical technology decision.

PHOTO : Table 1 How many different systems do full service mortgage bankers utilize?
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.

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Author:Hershkowitz, Brian
Publication:Mortgage Banking
Date:Nov 1, 1990
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