Work Longer and Harder or Work Smarter?

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Rob Chrisman's Perspectives
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Lenders everywhere are “straining in their harnesses” as refinance volumes and locked pipeline size continues to set records. Capacity is a problem in the primary markets. In terms of secondary market execution, generally speaking, “unknown investors” paying up for generic Ginnie, Fannie, and Freddie products are unheard of and lenders know that efficient processing during the manufacturing process can make or break a company. It is easy to argue that the most efficient and cost-effective lender will win in the long run. Put another way, if every lender is going to sell their products for approximately the same price, it is truly time to focus on minimizing cost and maximizing efficiency. What are the metrics, and how are lenders managing employees with an eye on productivity?

STRATMOR’s clients report extended loan turnaround time in recent months. Ellie Mae’s October Origination Insight report shows that processing time increased to 54 days in October, the slowest turnaround since January 2012. The average turn time from application to closing for purchase transactions is 48 days and 57 days for refinances. A recent STRATMOR workshop found that processing is currently the number one bottleneck in operations. And every operations manager person says that bringing new processors up to speed remotely is difficult. (Underwriting and closing closely follow.) Midwest lenders, who historically have operated in a relatively quiet environment and who have not had to compete for operations staff, given work from home flexibilities, are competing for staff from around the nation.

How are lenders managing capacity constraints, one of the biggest “pain points” for lenders? A recent STRATMOR poll indicated that overtime, shifting staff from other parts of the company, or adjusting the workflow process were leading tactics.

Cutting closing times is on every manager’s list. Lenders have 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 often dissimilar. Tying all of these together seamlessly is a major opportunity to reduce cycle times. The key is leveraging modern technology and access to a variety of data sources to create a holistic experience that includes workflow orchestration and automating processes between the borrower, the lender, and key third-party data services. That level of instantaneous transparency between the borrower, LO, and underwriter allows lenders to approve loans faster.

Still, a huge shortage of underwriters in an industry experiencing historic levels of business is causing massive logjams. STRATMOR found that underwriters are handling 60-70 applications per month, or over 3 per day. As loans travel through the pipeline, lenders report 3.5-4 underwriter touches per loan. STRATMOR has seen some lenders bifurcate the loan production process so underwriters have fewer tasks on their plate. By breaking down the process into multiple functions, underwriters are freed up to underwrite more files per day.

Other lenders believe that pre-underwriting and loan setup are the biggest production bottlenecks, and don’t want to impact loan quality by cutting closing times recklessly. As noted above, STRATMOR has found most lenders attempting to reduce the number of times an underwriter touches a file. Improving loan quality can be done through smart process reengineering and by automating communications, such as automated communication to both borrowers for updated paystubs and processors to identify deficiencies prior to underwriting.

Some lenders are using, or exploring 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.

STRATMOR’s recent Operations Workshop indicated that clients are controlling capacity issues by adjusting pricing margins. What faster way to slow things down than to worsen prices? Hiring temporary staff is being used by some, as is shifting staff (when possible) from one department to another, or, for depository bank-owned lenders, from the bank to the mortgage division. Some are outsourcing fulfillment.

Pain points for some lenders are more human based. Hiring and retention have become problems, as well as employee burnout. Signing bonuses are often talked about, but retention bonuses have sprung up. It is less expensive to retain an employee than to find, hire, and train a new one. Remote training, as well as managing and motiving the existing workforce who are at home, is a challenge. STRATMOR found that closers register 70-80 closings per month, and processors are handling 45-60 applications per month. They are truly strained.

Finally, what are operations managers focused on in this work from home environment? A lender can’t improve what they can’t measure, and overall cost per loan is still a key metric. Quality, productivity, and cycle times are paramount. Average loans per underwriter per day is popular. Managers keep an eye on customer satisfaction, very important as a dissatisfied customer doesn’t help referral business and could lead to a complaint being raised up to the level of a regulator.

The residential lending industry has been hard at work since March. Lenders are striving to produce quality loans with a minimum cost and a minimum amount of employee burnout. Still, capacity is a problem and efficient processing between application and funding is the focus of many a manager. STRATMOR’s most successful clients have always focused on minimizing cost and maximizing efficiency, and the work from home environment has reminded us that, despite advances in technology, remembering the human element is still critical.

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