By Michael Detwiler

Most lenders are shocked by what they find when they break down all the steps in their current lending process. Yellow sticky notes covering a wall document the paper trail for lenders that embark on this self-enlightenment process. It is the first step down a path that ends in faster, cheaper, more-productive lending operations.

Twenty-first-century lenders can master their lending processes and manage their organizations proactively thanks to new enabling technologies. Those who see themselves as in it for the long haul are interested in profitability irrespective of market conditions. They are driven and supported by technology that streamlines business processes and drives workflow in cadence with all the critical systems in their entire enterprise. Achieving desired levels of profit and productivity with these new technologies requires companies to enhance their business systems, as well as engage in detailed business process analysis. Lenders understand they need to get a grip on the specifics of their systems' workflow before restructuring their business processes. In the course of doing business with lenders of all shapes and sizes, outsiders learn a great deal about workflow and automation, including what are both common and differentiating lending processes. Lenders typically have an understanding how their overall systems function. Yet without a detailed deconstruction of how they operate currently, it is not always apparent that their business processes are driven by a series of individual steps that contribute inefficiencies and redundancies. These inefficiencies severely impair profitability and customer satisfaction.

"It is an eye-opening experience," says Billy Alvaro, chief executive officer of Global Home Loans and Finance, Melville, New York. "You think you have a full understanding of your process, but getting to the core, you truly realize the inefficiencies and the many ways to improve your business."

Craig Focardi, senior analyst with TowerGroup, Needham, Massachusetts, says there is a common desire among today's lenders to stay profitable as volume drops. As rates rise and volume slows, lenders are likely to spend more time re-evaluating current business processes and deciding to significantly upgrade or completely replace core systems. But before this is done, lenders must undertake a business process re-engineering analysis. This oftentimes can be helped by an arms-length perspective.

"Lenders partnering with outside vendors to look at their various structured methods in place have an advantage because the vendor has seen multiple systems and can share best practices from a neutral point of view," Focardi says. "Experienced vendors help lenders to break down their current systems and identify the inefficiencies and manual processes that can be eliminated."

Undertaking the deconstruction
Lenders going through a detailed deconstruction of their lending processes gain deeper understanding of their systems' work-flows. They also learn how to assign and interpret the return on investment (ROI) gained through their automation decisions. Taking apart business processes in a truly granular way is necessary because the devil is in the details when seeking lending systems improvement.

The modernization of processes by mapping every action within the business requires collaboration among all functional areas of the organization. By involving everyone, there is an awareness of the inefficiencies in the lending organization, and at the same time vast opportunities for improvement become clear. The key is extracting the weaknesses in the current system and acting on the information that is revealed.

Lenders are breaking out of the legacy mindset and realizing the need for change to achieve real improvement. Case studies of those who have sought to document their current-state lending systems reveal how much inefficiency can be removed from lending operations. This article documents what some lenders have discovered when they took the blinders off and looked objectively at how they process and underwrite loans. Confronted with the evidence of processing inefficiency these lenders have not hesitated to embrace change and improvement that is available from today's technology combined with business process engineering.

Increasing scalability through automation
Thornburg Mortgage Inc., Santa Fe, New Mexico, a mortgage lender with a very active eBusiness wholesale channel, wanted to further increase its overall business scalability and realize continued optimization through automation. The channel uses an outsourcing model for much of its origination process to achieve high internal loan-to-employee output and optimized productivity. The company was looking to significantly reduce per-loan processing time, decrease or eliminate risk factors, and lower physical cost expenses.

Thornburg Mortgage worked with 3t Systems' technology consulting division to assess its business lending systems. This lending process analysis mapped 500 unique tasks within 29 workflows. Within this environment, out of approximately 170 aggregated activities, 136 were identified as opportunities for process improvement and cost reduction, and 110 of these recognized activities could be either partially or fully automated.

The departmental cost savings Thornburg Mortgage is estimated to experience from these process improvements breaks down as follows: audit and funding, 28 percent; accounting, 24 percent; capital markets,23 percent; and new loan setup,13 percent.

In addition, five opportunities to reduce operational costs were identified, as well as a dozen areas of business risk that could be offset. Cost savings stemmed primarily from the reduction or elimination of manual tasks and operational expense related to new loan setup, faxing, office supplies and courier services.

The balance of cost benefit comes from performance improvements in Thornburg Mortgage's front desk, information technology, post-closing, servicing and underwriting areas. Further, risk was significantly reduced or eliminated relating to loan files, data transfer, declined loans, intra-departmental communication and off-system calculations.

Identifying opportunity
According to Maxine Swisa, chief information officer for Thornburg Mortgage, prior to undergoing this lending process analysis, the company was unaware of the additional system improvements it could make to enhance its overall production and drop costs. Although the old system was reliable, Swisa recognized opportunities to advance and add further value to the company's current offerings. Based on the systems assessment, Thornburg Mortgage implemented a new system.

"The level of detail depicted during the assessment phase revealed the complexity of our business model, Swisa says. It was not until we had the opportunity to walk through the steps of our workflow that we were able to fully understand the intricacies that make up our lending model."

Thornburg saw every step within its business process broken down on individual yellow sticky notes that were attached to the walls of its offices. This tactic is used to dramatically bring process redundancies into stark relief.

Ultimately, the business analysis allowed Thornburg Mortgage to quantify its business process on a daily basis. This enabled it to truly understand its workflow and identify areas that could either be automated or totally eliminated.

Thornburg Mortgage projects it will experience a cost benefit of more than $3 million over the next three years and a cost benefit of almost $6 million over the next five years. The company estimates that for its correspondent lending activity alone it will experience a 23 percent cost reduction. There will also be an estimated reduction in cycle time of approximately 18 percent.

"Once implemented, we will be able to use this new technology to our fullest advantage, incorporating imaging document processes and giving our correspondents immediate electronic access to loan status," adds Swisa.

Small lenders keeping up
Leading lenders have been aggressive in tackling their current business processes but some innovative smaller lenders are moving quickly to modernize their business processes as well.

Global Home Loans and Finance, a $1 billion mortgage banker licensed to do business in 40 states, undertook a detailed business process evaluation to improve its competitive posture. Over 18 months, Global broke down its entire business loan process, performing multiple gap analysis and company-needs analysis. (Multiple gap analysis is a review of a lender's current business process and its desired business process, comparing the current process against the functionality of a lending system to determine what is handled with configuration and what would be handled with customization.)

Alvaro thought he was aware of his organization's entire process. Yet he was amazed at the results of the analysis.

"I did not realize the redundancies and number of steps it took to complete one loan transaction," says Alvaro. "However, I was even more surprised by the number of people who touched the loan and how many times employees entered and re-entered duplicate information," he says.

Global involved all levels of the company in deconstructing the loan process from executive to the associates who touched the loan every day. There were numerous redundancies and inefficiencies within the organization that needed to be addressed, especially on the operations side.

Before, with its antiquated systems, it took Global up to 55 days to process an entire loan from origination to closing. Each task took between 12 and 24 steps to complete before it moved to the next task. Business workflows were written out, but its loan origination system did not have the capability to have workflow rules built into it, so there was no sufficient method to drive the workflow.

Global's nonlending processes were not incorporated into its system, leaving out all back-office and accounting tasks. It took two people two and a half days–a total of five days–to complete back-office and payroll tasks each month.

Results 'blowing my mind'
The deconstruction of the loan process was successful in pointing out the inefficiencies and potential areas of improvement. But it also projected a vision of where Global could be with workflow automation and eliminating steps in the process, starting with implementation of the correct software. The analysis documented that Global could make its sales process 32 percent faster with the elimination of steps.

According to Alvaro, Global significantly streamlined each section of its loan process. The actual sales process went from 16 steps to nine steps; the loan and underwriting process steps were cut in half, from 24 steps to 12; and the closing and funding process tightened to eight steps from 12.

With ancillary systems integrated into the systems, the back-office steps that took five days and two employees to complete are accomplished now in minutes.

"It is amazing what can happen after deconstructing your business process. The results are blowing my mind," says Alvaro. "We have increased volume by 23 percent and added 17 new branch offices and 110 virtual loan operations without increasing our staff by one."

Reduce and enhance
One of the largest U.S. online originators, which chose to remain unnamed for this article, sought to enhance its bulk and mini-bulk automated processes. The lender offers purchase and refinance, home-equity and specialty financing products through an extensive correspondent network. At the same time, it wanted to reduce expenses related to multiple loan reviews, as well as operating expenses related to tracking down loan files.

The implementation analysis of the lender's current lending system yielded 58 opportunities for process improvement and cost reduction. In further analysis of approximately 20 future process flows, an estimated 200 activities were determined appropriate for full or partial automation to streamline processes. Tangible opportunities for ongoing operating cost reductions and process improvements were also identified.

Evaluating the 'as-is'
Using the services of 3t Systems and Fannie Mae's Best Practices As Is study standards to calculate cost benefits related to the full and partial automation of manual tasks for its correspondent loans, the lender was able to evaluate its "as-is" process flows. The analysis allowed it to foresee the future of its process with automation.

Based on the breakdown of the current lending system and a path set to enhance workflow and eliminate redundancies, the lender was able to see the potential time and cost savings broken down on a monthly basis. Per month, the cost savings through automation is estimated to be $12,000, the file review cost savings is to be $23,000 and the file-tracking cost savings is $26,000.

Recognizing the not-so-obvious
Another lender that is a leading U.S. wholesaler, which also opted for anonymity, focuses on consistent competitive pricing, flexible mortgage solutions and a dedication to local service from registration to closing. It employs a highly skilled staff of underwriters, closers and account executives. The lender recognized the inefficiencies within its 20th-century lending process and saw that it needed a change. This lender was interested in reducing its primitive manual processes, as well as eliminating its dependence on paper processes, such as faxing and courier delivery.

During its lending process analysis, the lender discovered multiple redundancies within its system and opportunities to reduce individual departmental operating steps. The breakdown was as follows: Registration was reduced from 18 steps to seven; setup was reduced from 41 steps to 10; underwriting was reduced from 51 steps to 11; scheduler was reduced from 21 steps to five; closing was reduced from 45 steps to six; and funding was reduced from 14 steps to five.

After the completion of its lending process analysis, the lender implemented 3t Systems' technology, reducing the number of steps required to complete its entire wholesale lending process from 190 steps to 44 steps. That represents a 77 percent reduction in manual and redundant activities resulting in a cost savings of $201 per loan.

Ongoing commitment
Enhancing the business process goes beyond buying and implementing innovative technology. It entails commitment from lenders, which does not end once a system goes live. Lenders that dedicate the time and expense to deconstruct their businesses' processes and implement new solutions are committed to the systems' continued growth. Lenders become responsible for continuous evaluation and workflow and automation enhancements to ensure their systems stay competitive.

Twenty-first-century lenders looking to use technology to its fullest must dig deep inside their business processes to come to a complete understanding of process components. The first stage is stepping out of denial concerning the limitations of their current systems and practices. This awareness comes from a sophisticated deconstruction of all their business processes. In doing this, lenders will find multiple opportunities to eliminate redundancies within their current process and increase efficiencies, cost saving and return on investment. It's not nirvana, but it's close enough. MB


Michael Detwiler is the president of 3t Systems, Denver, a provider of information technology integration solutions and developer of Mortgage Cadence, an enterprisewide lending process solution and decisioning engine for the mortgage industry. He can be reached at mdetwiler@mortgagecadence.com.