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The internal rewards of automation: investments in automation have brought big volume boosts for some mortgage originators.

The Internal Rewards of Automation

Practically since their arrival, sellers of loan automation software have promised productivity gains for lenders using their systems. And now there appears to be growing evidence that some of their claims may prove solid. A growing number of mortgage lenders of every stripe have profited from faster turnaround time, new-found employee efficiency and the convenience that automation provides in many instances.

While the promise of productivity improvement has been realized by more and more, few - including the companies selling automation applications to lenders - appreciated the impact of productivity improvements upon performance; specifically, its capacity to build origination volume and even market share for some firms. More and more, however, lenders are attributing impressive mortgage origination volume gains to the higher productivity and service enhancements of automation.

A case in point is Amcore Mortgage, Inc. Rockford, Illinois, where automation played a prominent role in bumping a 10 percent market share to 15 percent - a 50 percent increase - during 1989 alone.

As a percentage increase, volume moved even higher, jumping from $35 million in 1988 to $60 million in 1989 - a 71 percent rise. Even in a robust real estate market, volume normally wouldn't be expected to rise more than 10 percent, according to Joseph McGougan, the Amcore vice president whose responsibilities include automation.

McGougan directly attributed Amcore's impressive recent growth to aggressive marketing efforts based on new service initiatives made possible by automation. "Fully automated, we were able to provide a new level of service that created a higher degree of satisfaction, that in turn led to quality referrals from key real estate companies," he said.

"For the first time, because of timely reports we could produce, we could tell real estate companies where a customer stood on a specific loan or on all the loans generated by that company. And they could count on us to make a loan we said we'd take. As a result, we picked up the business of a lot of new real estate firms."

Amcore processes applications centrally using 10 work stations in a local area network (LAN), with modules for processing, closing, tracking and generating custom reports. Applications from seven banks in its holding group are processed as they arrive, via voice mail and the postal system, with plans in 1990 to begin adding remote units tied electronically to the Rockford headquarters.

While Amcore's 71 percent volume gain during 1989 was cause for company celebration, volume numbers take a back seat to a gain in market share, said McGougan. "To a large degree, volume is tied to the health of the industry and the current market," he said, "so we can only control it to a certain extent. What's more important over the long haul is gaining an increasingly larger share of our total market. That's what we're really after because it will make us a stronger company and assure us higher profitability in the future.

"Hypothetically, if we should hit a higher interest rate level toward the end of this year, we'll no doubt experience lower volume. But it's more important that we [remain] able to realize an increase in market share."

Although the case for automation is easier to appreciate when volume levels are high, Amcore also recognizes the system's intangible value for people, even when business slacks off. "We believe automation will help us as we grow, by allowing us to use people more intelligently, more sensitively. Sure, when business is off it may cost less for an underutilized processor to compute the six-month volume number over one or two days, whereas with automation it may take only a few minutes. But we want to use people where they make a difference. Our attitude is: we'll use the computer to add up the numbers for us and use people to figure out what they mean."

Finally, automation at Amcore has brought benefits hardly given any attention before. For example, the company is able to determine its market share more readily than in the past using numbers generated by its automation system. "It allows us to determine which source delivered what volume to us, and at what frequency," said McGougan. He said Amcore also drew encouragement from the system's data base by observing incremental gains month to month. "We could see how we were gaining momentum. We could see how effective we were on our sales calls," he said,

Although the story of success with automation differs from company to company, the positive impact upon volume and market share remains reasonably constant. This strongly supports the claim that technology is a positive force being embraced by lenders to better enable them to survive in today's difficult marketplace.

The following are additional case studies that demonstrate how a sampling of companies have embraced automation and how it has worked for them.

Interstate Mortgage

Bill Holman doesn't hide his enthusiasm for the automated loan system he installed at Portland, Oregon-based Interstate Mortgage three years ago. There's no reason why he should; his praise for mortgage automation software made him a near celebrity last year when he smiled out from a full-page spread in popular PC Week, the computer industry publication.

Holman, who as regional manager is second in command in Interstate's management structure, realizes now that his six-year-old mortgage company was an automation pioneer when his system was installed in September 1986. And while his goal then was to achieve a productivity spurt, his investment paid off in ways he had not anticipated.

"Productivity is [often] the benefit first to catch the attention of cost-conscious companies," said Holman, reminiscing recently. "But automation's positive effect on costs and efficiency - important as they are - represent secondary benefits compared to the volume-building impact and even market-share expansion that automation brings," he says. That assertion is backed by three years of real experience and benefits.

At Interstate Mortgage, productivity enhancement came first: "We saw efficiencies right away, just as we'd hoped," said Holman. "Company in-house training usually takes three weeks, but it was so easy to get through the training that processors started producing after a week. We got immediate results from it."

And volume began to rise. "We were able to get our loans processed and closed in a shorter period of time than before. As a result our business has consistently increased," he smiles. "We have experienced an incredible 1,600 percent increase in business over the past four years, and while management and good people take a lot of the credit, being able to handle a growing workload [with the help of] automation played a significant role."

Higher market share was a bonus. "By closing more rapidly and more smoothly than our competition, we began to nibble away at their business. This happened soon after our loan originators out in the field began to realize that we were suddenly different than the rest. Equipped with automation, we closed when our competitors couldn't, and the customers of our competitors began to give us their business. It's obvious to me that automation helps companies that embrace it at the expense of companies that do not."

Interstate's success goes against the grain of regional mortgage industry history. As in other regions, the number of mortgage lenders entering the Portland, Oregon metropolitan area has diminished. At the same time, established institutions have been forced to consolidate, close their doors voluntarily, or be forced by government regulators to close their doors. Despite this difficult environment, where the importance of low costs and high productivity became even more critical, Interstate Mortgage thrived. Holman says Interstate's market share at minimum tripled in the past three years.

"Our biggest business is FHA loans today," he said, "but when we started in business we didn't register on the graph. We know today that we're the 11th largest FHA lender in the state. Frankly, we were surprised to hear that, because we're competing against some real heavyweights, such as Citicorp, Benjamin Franklin, Farwest and U.S. Bancorp."

Action Mortgage

The automation volume gains story has different endings, depending upon specific company dynamics. At Action Mortgage, a regional wholesale lender based in Bellevue, Washington, several years of declining service to originators had resulted in lower quality loans and smaller loan averages before new management arrived in November 1988 with a mandate for change.

"We couldn't process efficiently," said Bob Siverts, vice president and new regional manager. "Loans were not being approved in a timely manner, and they weren't closed in a timely manner. We were giving verbal approvals instead of written commitment letters, and there was no follow-through on conditions. It wasn't surprising that we consequently didn't get the cream of the loan crop. The strong brokers in this community won't stand for substandard service."

Siverts was sure automation could solve his productivity problem, and would have been satisfied with simply that result. He brought in a system he had seen demonstrated at numerous trade shows around the country. After a few months of reorganizing, the automated processing system was installed in January 1989.

The results were not long in coming. Although early last year was notably slow for many mortgage lenders, a major portion of the pickup in Action's volume during the course of the year was directly tied to automation by the company's management. During January and February, origination volume of $2 million per month consisted of lower quality loans, with a small loan average. By April, with new personnel, volume had climbed to $3.5 million, by June to $9 million. The loan pipeline, virtually nonexistent before, grew to $17 million.

Siverts credits automation's positive impact on service for helping Action Mortgage to attract more business. With the closings of major mortgage lenders, such as the local Goldome Acceptance Corp., California-based Ameristar Financial Corp. and Alaska bank-financed Alliance Mortgage, Siverts observed that the number of lenders declined in his market. While Action's precise market share is hard to pin down, there's no question the firm is back in the game. "In this area, when you're consistently doing $10 million per month in residential loans you're in the top 10," he said.

Mission Mortgage

The dramatically higher volume Mission Mortgage was to generate in just a few months could not have been handled by manual processing says Leigh Ann Holden, president of the single-office, Austin-based Mission Mortgage.

She admits to having had some concern about Mission's ability to process its target of 20 loans per month when Mission installed its first two systems in January 1989. She was amazed to be able to process 50 that very first month. "Normally, we'd be able to handle only 20-30 with two processors," said Holden, who then made the immediate decision to add an additional system within 30 days, followed by a fourth in June.

Holden credits automation's productivity advantages (for example, the ability to enter data only once for use in multiple documents) with providing a higher level of service that helped convince builders and real estate agents to give Mission more and more of their business.

Mission now promises processing in 30 days, compared to 45 days under a manual system, but service aspects - never given much consideration before - are turning out to be just as important as processing time in building new loan volume.

"Our ability to give customers weekly reports showing them the status of loans is a real marketing tool for us," Holden says. "It's not practical if you're on a manual processing system. For example, builders use our status reports in their weekly sales meetings, when they carefully review each property. We're able to enhance our reputation with them by showing exactly what's been submitted, approved, closed. They love it."

Evidence of that appreciation: one builder increased loan originations from $500,000 to $2 million in two months. Holden said this additional business is directly attributable to Mission's regular status reports, and the time they save the builder. "The nice thing about the reports is that they're not any more work for us; they're automatic. It's just pushing a button and printing it out."

Mortgage volume growth at Mission has been impressive, moving from an average of $2 million per month in originations in 1988 to a company record of $4.8 million in the peak summer month of August. September and October volume numbers in the somewhat slower fall period were only slightly lower, at $4.5 million each month. "We regard these numbers as phenomenal," said Holden. As evidence of its success, Mission recently joined the ranks of the top five closers in its market, whereas "last year they didn't know who we were," she said.

While all these case studies illustrate the experience of companies using systems from Interlinq Software, Kirkland, Washington, the basic principle is much broader than any single company or its products. That principle being that technology can help mortgage originators of all sizes compete better in today's demanding markets. Automation can be the great equalizer in the mortgage markets ahead.

William Cushing is a senior consultant with Regis McKenna Inc., an international marketing consulting firm serving high technology companies.
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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Title Annotation:mortgage banks
Author:Cushing, William G.
Publication:Mortgage Banking
Date:Feb 1, 1990
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