Reducing Friction

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Rob Chrisman's Perspectives

Friction: “the force that resists relative motion between two bodies in contact.” For lenders, “friction” has come to mean the amount of paperwork, the number of touches, the manual changes that take place during a loan’s journey from making initial contact with the borrower through to servicing. Reducing friction has been a goal of lenders and vendors for decades while still funding a compliant loan with a minimal amount of risk to the borrower, lender, and servicer. What have lenders been doing in the last few months to continue to serve their customers and produce a compliant product?

Recently, I had the opportunity to attend several STRATMOR Group Workshops. More than 70 lenders shared their experiences managing through the pandemic. In general, the residential mortgage industry has fared well. Most employees, and in some cases entire staffs, have transitioned to working from home. Most independent mortgage banker loan officers were already accustomed to working from home. Borrowers were met occasionally at the company’s office, or at a coffee shop, or talked to on the phone. Conversely, depository bank LOs have also now shifted to a home environment. Lead generation technology is working. Borrower information is increasingly sent using “enterprise texting.”

Looking ahead into the summer, in the near-to-mid-term, lenders at the workshops said most staff will continue to work from home to handle the immense volumes that the industry is funding. Yes, low interest rates are fueling another wave of refinances, offsetting the expected drop in purchase volume. The lenders said they know, however, that borrowers are susceptible to high unemployment, fears of making large financial decisions, and a decline in their financial assets that would otherwise be a source of down payments. They also know that the impact these factors will have on volume is uncertain.

Many operation staffs have reached capacity. Lenders attending these workshops report they have moved personnel to areas of need within the company, outsourced fulfillment, increased their reliance on technology, and increased overtime. Most lenders and investors have increased their margins to limit incoming business, as it is the easiest and fastest way to cut lock volume, and save processing bottlenecks during processing. These lenders also reported that managing a remote workforce and promoting the use of existing technology has consumed a large part of management’s time. And management has adjusted the metrics by which they monitor and evaluate fulfillment personnel, like processors, underwriters, doc drawers, and funders.

Workshop participants said they are focusing on maintaining and growing employee engagement with new employees and current staff in a 100 percent remote environment. It is not always a cakewalk, and a myriad of questions need to be answered. Do management and employees need different methods to communicate? How is senior management keeping staff apprised of changes, and how can the lender create a sense of normalcy to keep teams motivated, engaged, and focused on service? Does your company’s policy consider offshore employees working from home as a security risk? STRATMOR’s clients have adjusted their remote training procedures.

During loan processing, lenders have made a concerted effort to shift personnel toward “touches” focusing on exceptions or customer service rather than the traditional “stare and compare” touches with which some employees are tasked in order to lower friction and minimize costs. Senior management is making a concerted effort to communicate that the end goal is to make operations personnel’s lives easier, not replace them, so constant contact is important.

That said, STRATMOR is seeing the increasing use of Robotic Process Automation (RPA in case this industry doesn’t have enough acronyms). Polling at workshops show that the majority of bots are being used in processing and post-closing.

Some workshop attendees say they have added junior underwriters to clear conditions or validate findings. Many have prioritized purchase applications over refis. They have adjusted their VVOE and appraisal procedures. Appraisal waivers have helped, with some reporting that merely entering the additional four digits on the property’s zip code increases the changes of receiving a PIW.

With an eye on minimizing risk, at this point it is rare to find a lender that has not put into place, as standard operating procedure, the collection of attestation documents from the borrower prior to closing. Many lenders have also shifted to directing the borrower to the IRS site to obtain tax documents for some products. Electronic closings and remote online notarizations have also seen sharply increased usage/adoption that have allowed loans to be fulfilled without any face-to-face contact between a borrower and fulfillment workers.

What changes will we see going forward? Certainly, AI, bots, RON, enterprise texting for borrower updates, and eClosings will continue to increase. Dr. Matt Lind with STRATMOR wrote, “Now is the time for mortgage companies to aggressively invest in and implement digital mortgage operations and practices so as to radically alter the processes and costs of mortgage origination and servicing; to insulate themselves from processes that require face-to-face contact and to sharply reduce fixed costs.” Certainly reducing the per-file cost, and continuing to help clients in a compliant, low-risk way, is paramount.