By Frank Fiore and Jeremy Potter
“Technology adoption” and “mortgage” are still oxymorons in 2024 and
do not need to be. Digitizing a manual process is not synonymous with
being a tech company. Some companies have claimed “tech company”
status but the reality is that’s marketing and puffery. Our clients tend to
define themselves with another word – lender. You know you are a
lender.
A few years back, a IMB Owner said, “ We are a compliance firm that
does mortgages” and I would alter that sentiment where many of our
clients have morphed into over the past few years, which is, “We are a
tech company that does mortgages.”
You know what you are good at (and not good at) so let’s stop trying to
be something we’re not. Risk institutions like lenders are not tech
companies, but they do have to embrace technology to remain
competitive and viable in today’s market. With that said, they still
deserve technology that works and supports their business model.
The operative phrase is “that work” for you. By now, you likely have had
less than positive experience with some form of mortgage technology
and there are many reasons for that, which we will dive into, but the one
critical lesson we have learned by now: the critical aspect for any
technology is adoption.
To get to adoption, we need to discuss process. Mortgage is a complex,
process-driven industry.
Process is also the answer to one of the nagging questions for lenders,
consumers and venture capitalists alike: Why is technology within the
mortgage industry such a challenge?
The process remains dependent on the longest or the weakest
link. (Here, weakest is defined as least automated or least
controllable.) This is true in both a macro- and micro- way. In the macrosense,
Fannie Mae & Freddie Mac create a lot of complexity with myriad
loan products that all have varying degrees of technical roadblocks and
workflows. While we all want and assume we can build an assembly line
process, there are multiple examples of variances that force a loan to go
sideways, or backwards due to technical drawbacks. In the microsense,
there is a constant flurry of technology changes that trickle down
to the user level which often result in less than ideal integration use of
the respective software or application, often called workarounds and an
ultimate lack of adoption.
The goal of this paper is to focus on the micro-sense. Your business.
How do certain functions or products contribute to saving your people
time & energy; on the contrary, how much do you feel like you are still
working for the technology instead of having it work for you?
We will offer key takeaways for establishing the right process or making
changes to an existing process to guarantee cost savings and
operational success regardless of the tools & solutions that are chosen
to enable that process.
Quick Background to Set the Stage
For the last decade, our industry has gone through a technical
renaissance where many (mostly client-facing offerings) were brought
to the market and considered revolutionary at their introduction. While
still novel concepts in mortgage today, online applications, e-signing of
documents, and OCR reading of documents are commonplace in many
other industries. They are universally used, accepted, and supported by
all participants, where our industry have varying degrees of technical
acceptance and sophistication. Think Fannie, Freddie Ginnie, FHA, VA,
USDA, State Bond Programs, Warehouse Banks, Title Companies, and
Servicers.
For the last decade (or two), our industry is constantly implementing
technology. Fannie Mae has been working on eClosing since 1998.
We’re still working on it…together. The industry only moves as fast as
investor requirements dictate. Put another way, lenders will update
technology or tools when Fannie & Freddie require it. As a result, the
industry moves as fast as the slowest member.
This might seem counterintuitive or overly cynical because Rocket
Mortgage, Better.com and United Wholesale Mortgage (UWM), among
others, have been touting technology enhancements for years. In reality
though, those changes simply pad their margin by making them more
efficient than competitors rather than truly transforming the consumer
experience.
The rest of the industry is bound by platform partners like LOS
platforms or CRM/POS partners. This could lead to the belief that
technology controls your process.
• Technology does not dictate process.
• Culture controls process.
One common misconception we run into is that a new technology
partner or new product will improve the process. Surely, so goes the
belief, this new tech will make us faster, make us people feel more
efficient and overall save us money.
The reality is your people are the process and process is, by nature,
cultural.
Process is the order of the tasks necessary to complete a loan. The
decisions that direct these tasks determine the priorities of your
operations team. Some lenders are task-centric and assign discrete
tasks to team members that perform that same tasks on every loan in
the pipeline. Some lenders are loan-centric and assign a loan to a team
member who performs all the tasks necessary to prepare the loan for
underwriting or clear to close (or both). Other lenders are data-centric
and use attributes of the loan (e.g. milestones) to automate certain tasks
or arrange tasks in a preset order. Lastly, there are lenders that make
the loan officer or the underwriter the center of their loan universe and
this role-centric approach highlights service and manual
responsiveness.
Our point is that whether you are loan-centric, data-centric, task-centric
or role-centric you have made a cultural choice about the company.
• Efficiency is cultural
The type of company culture must make the process. Too often lenders
want to be task-centric but remain loan-centric and apply the wrong
approach to the process. Step one has to be accurately “owning” your
process choices.
Here are a couple questions to help you identify your current process:
1. How many applications are in your tech stack and what is their level
of integration?
2. How are roles and personas established in your LOS? Do you have
many instances of single personas for a specific person or branch?
3. Who has the authority to promote loans at which times in the
pipeline?
4. What metrics or measures are able to track operational success or
failure?
5. When you measure turn times and announce them publicly – what is
the trigger date and what is the data field used to measure complete?
6. What level of exceptions do you have (only 2% of all loans) and are
they usually blamed for lack of adoption?
Not all these answers are clear, just like not all processes fall into a
cleanly defined category. Hopefully this is useful directionally to
determine whether the existing process fits the tools & solutions you’ve
purchased or whether the process needs to change slightly to meet
your goals.
If the process remains the same, adding software to a misaligned
process can simply speed up the results of a bad process. You just end
up speeding up friction.
Lenders must focus technology application selection as a matchmaking
exercise to your culture.
For example, if you are an “underwriting is the center of the universe”
company, and you look to implement a system that will streamline
underwriting or underwriters, then how do you think it will be received
and ultimately adopted?
Whether you are evaluating an entire process overhaul or a specific
process update, it must be lender-led and not vendor-led to succeed.
You have probably heard that the best implementations start at the
top. There’s a reason it’s become almost cliche-level common. It’s
true. Many companies want to believe their team is different. Example –
“Everyone else’s people only change when forced to, but my team will
do the right thing if I ask them.” Herein lies the rub, it’s about right and
wrong. It’s about human nature versus something new. Everyone on
your team wants to be a good team member. But if you are asking them
to change how they think, work or operate, or possibly eliminate their
position, you are asking them to rewire some pathway in their
brain. That might sound like mumbo-jumbo but it’s what separates
some of the greatest companies from average companies. Be honest
about human nature.
The other common challenge in this process is that leadership makes a
process change or vendor decision at the top, perhaps including a
grand announcement about the selection, assuming everyone else will
be happy and supportive. After the announcement, leadership’s
involvement drops off until the users complain, generally at
implementation, leading to blame rather than evaluating the initial
decision-making process. Not surprisingly, from our experience, the
best projects are when the leadership team is fully involved and
supports the project throughout.
Leadership is best positioned to identify your culture-process
type. Once identified, the next question is how close the process is to
the one you want. Sometimes, if the change is a “nudge,” technology
can help facilitate change, but…
Software is not a process.
Process is about what you believe and who you are as a company. One
of the biggest mistakes we see is using a technology tool or piece of
software as the process.
Taking this a step further, we see many instances when a piece of
software that is built to support one type of product is then tried to
wedge other products under the same umbrella and when it does not
work, the technology is the problem. You don’t buy a treadmill to get
better at biking, or buy a performance car for better gas mileage; yet we
commonly see mortgage technology blamed for not supporting
commercial or bridge loans. If you start with a square-peg-into-a-roundhole
foundation, you are creating your own (future) issues.
Take your Loan Origination System, for instance. The users, workflow,
statuses, and available data fields can be configured to match almost
any process. Using default features or settings is not much help in
defining a process nevertheless your culture. Applying an intentional
design to your LOS is not only where operations teams get the most
efficiency but it lays the groundwork for success in adopting vendors or
other services within the Encompass Marketplace. When we hear a
client say “just give me setup that works” is not a good sign for cost
savings and efficient processes.
Ideally, you will be optimizing for the ideal process. The indicators of
the loan data – at a minimum loan purpose – drive the tasks, workflow
and review. This does NOT require a whole new set of vendors as some
might try to get you think. Rather, it is about approach and then
applying the technology to the right approach.
Key Takeaways & Practical Steps
1. Culture sets the tone. Tech is not always the answer. Evaluate the
process and even remove steps before contemplating more tech if it is
in service of your intentional approach.
2. Software is not a substitute for your company’s custom process. Let
your choices lead.
3. Consider where the friction lives and introduce the right process at
the right time.
Process leads. Software follows.
If you break down the mortgage process to its simplest of stages, it is:
• Gather information
• Validate and confirm that information
• Package that information to a potential buyer
• Confirm the purchase and various transfers
These simple stages can involve more than 1,000 clicks within a loan
file, including interacting with over 50 outside sources, and sending
data and documents to various counterparties that can vary on each
loan.
The future is doing as much as possible with fewest steps and fewest
resources. There are multiple avenues to use technology to simplify
process and the current landscape. Task-based workflow is the newest
craze and has value when the right process and technology is in place.
At the same time, it can result in large invoices for loans that did not
close if thousands of services were auto-ordered. In some models, it
works as intended and provides a big lift. In others it can be costly.
One example of parallel processing in the mortgage ecosystem would
be ordering vendor items, property-related tasks (like appraisal and title)
and final underwriting all at the same time. One milestone to many
resulting tasks commencing.
Conclusion
Your company already has a culture and, likely, a strong culture. We can
state this because you are still around and empowered to continue to
grow. We know this because you are reading this paper. If your culture
was broken or your company did not have a future, you would have
much more to worry about than process improvement in advance of the
next interest rate change.
Working with someone who understands that mortgage is a complex,
process-driven manufacturing industry is critical to solving the
fundamental friction in your business. Yes, technology is an amazing
tool for people and for process. Technology should be treated like a
tool. Used by experts to enable the best outcomes for customers, teams
and investors alike.
As the mortgage industry prepares for an uncertain year, we know that
it will come with rate volatility but companies can be prepared
regardless of what happens. When rates remain high, identify the
friction and address the process to solve for it. When rates drop, the
work you have just done will allow speed and scale.
Lead with culture that informs process and then accelerate your
process with the right tools and technology solutions.
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