Loan Process Improvement

August 26, 2002

Financial Services Industry Newsletter

Strategies for Success

Immediate Payoff From Loan Process Improvement

I continue to be surprised at the strength of the mortgage refinance market. This may be a short term gift – after all, interest rates can’t fall much further (how long have we been saying that!). When the economy starts to rebound we expect refinance volume will swing to more normal ranges -- about 25-30% refi compared to current levels, which are about 60%.

Successful mortgage companies are already working on strategies for growing share when the market returns to “normal”. We believe there are four critical strategies for success in 2003 and beyond. But that is the subject for another newsletter.

In the meanwhile, the biggest problem for many lenders is shortfall in capacity. Consumer demand to refinance continues to exceed lender capability to capture applications and process loans in a timely way. As a result, we believe this is the time to pay special attention to operations improvement and capacity management.

We recognize that many institutions – even your institution – may have efficient production cost. But the mortgage process is still sufficiently complex that virtually every first mortgage, and most home equity processing centers have significant room for increased capacity from streamlining procedures, improving workflow, and utilizing capacity management “circuit breakers”. The payoff in improved origination volume and reduced loan processing cost will be immediate.

Our team has had extensive experience in productivity improvement for consumer loan and mortgage businesses. Some recent engagements:

	We helped a leading mortgage bank streamline its operational procedures and implement capacity management processes – they now handle over 30% more volume with the same staff.
	We worked with a leading US bank to improve the “book to look” rate (conversion of customer inquiries into loans) by streamlining customer handling and better coordination of sales process with loan processing. They have experienced a 20% improvement in loans without changing credit parameters or marketing strategies.
	We developed management tools to help a mortgage bank measure capacity utilization and predict needed capacity on a daily basis for each department. As a result they are able to manage their operation more efficiently by anticipating peaks and valleys in capacity days (or even weeks) in advance.
	We helped a mortgage bank improve their capture of new construction loans by developing proprietary software that integrates builder, lender and customer information. They capture up to 80% of all mortgage transactions from most projects.
	We worked with one of the largest US mortgage companies to develop strategies for integration of Internet sourcing with commissioned retail originators to generate increased volume from both channels of distribution.

Our recommendation: take action now to improve your origination and processing capacity. It will generate an immediate return on investment through increased volume and reduced operations cost, and will put your institution in a superior competitive position for 2003 and beyond.

Please give us your feedback.