Ops: Reducing Friction for the Borrower
As we head toward the end of the first quarter of 2021, lenders are still grappling with full pipelines and longer-than-normal processing times. For a borrower, the time it takes a lender to process their loan is a mysterious period where time can stand still. But for lenders, the span of time between loan application and funding, whether it is weeks or months, is what separates a good company from a bad one. And, it can separate a satisfied borrower from one who may file a complaint with the Consumer Finance Protection Bureau (CFPB). What are lenders doing to minimize processing friction by minimizing costs and maximizing efficiency?
STRATMOR’s February Operations Workshop found that processing is currently, and has been, the primary bottleneck in operations. We are a year into the pandemic, and lenders have shifted personnel to working from home, often very successfully. But “pain points” remain. Some lenders have grown their salesforce faster than operations, leading to slowed processing. In fact, staffing in general — and the hiring, offer process, training, and retention that goes along with it — can be problematic.
Despite technological improvements, STRATMOR found that some lenders have implemented manual processes to ensure compliance with the daunting number of rules and regulations involved in funding a loan. Loan officer assistants (LOAs), processors, and underwriters often deal with files where mortgage loan officers (MLO) or account executives (AE) have, in their rush to submit the file, sacrificed quality in the name of quantity, leading to more scrubbing. And constraints in capacity have led to a longer gap between application and funding.
Lenders managing capacity constraints, one of the biggest “pain points” for lenders, tend to engage in similar tactics. STRATMOR learned directly from those managing operations that overtime, hiring temporary staff, shifting staff from other parts of the company, or adjusting the workflow process were leading methods. Outsourcing fulfillment and increasing the use of technology through the use of training are also popular. Also, increasing margins on rate sheets will quickly slow down the flow of locks and allow operations staff to catch up.
Cutting closing times is on every manager’s list. Lenders have always had challenges creating a unified, real-time experience across the board for loan officers, borrowers, and back-office operations staff because the systems they use are so dissimilar. Tying all of these together is a major opportunity to reduce cycle times. Leveraging mortgage technology and access to a variety of data sources to create a favorable experience for the borrower, including workflow orchestration and automating processes between the borrower, the lender, and key third-party data services, is important. That level of instantaneous transparency between the borrower, loan officer, and underwriter allows lenders to approve loans more rapidly.
STRATMOR’s February Operations Workshop found that many operations managers had slowed or even frozen the hiring of personnel from outside the company. Transfers are done from within the company, and every attempt is made to grow talent organically. Processing assistants are being trained to allow experienced processors to do more loans: 35-40 applications per month per processor is reasonable. And some training is being outsourced to supplement the training done within the lender. Junior underwriters doing elementary tasks allow experienced underwriters to handle 60+ applications per month, or three per day as they “touch” each file two to three times. Some lenders bifurcate the loan production process so underwriters have fewer tasks on their plate, or break down the process into multiple functions. Closers are seen funding 40-45 files per month.
Other lenders don’t want to impact loan quality by cutting closing times recklessly. They don’t view the number of touches as detrimental to loan quality or borrower satisfaction. STRATMOR has found that improving loan quality can be done through smart process reengineering and by automating communications, such as automated communication to borrowers for updated paystubs and to processors to identify deficiencies prior to underwriting.
Lenders are using digital solutions powered by artificial intelligence (AI) to get work done faster and expedite tedious tasks. Users with efficient and automated tools can better organize key information and paperwork. Proponents say that automated underwriting platforms are revolutionizing how home finance professionals perform their jobs by using artificial intelligence to absorb and extract information almost instantly.
Lastly, as the vaccine rollout continues and COVID case counts are coming down, managers are evaluating the work environment. More specifically, will working from home be continued and encouraged? Will employees be given options about staying home, coming into the office, or implementing some combination? STRATMOR’s workshop showed a wide range of strategies, but at this juncture it appears that most will allow operations staff to continue working from home for the foreseeable future given the quality and productivity seen by lenders. And it is too soon to see a uniform policy on vaccine requirements for office work, or lack thereof.
Lenders have a limited number of tools at their disposal in terms of improving product, price, and service. Obtaining the best results from their staff on behalf of the borrower is a lender’s goal, and much of that has to do with operations… the “man behind the curtain” for borrowers. Surprisingly, the pandemic has proved to be beneficial for most lenders in terms of volume, profit, rolling out technology, and productivity. And when managers can reduce the “friction” and processing time for borrowers in the remainder of 2021, it is a win-win situation.