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Don't let a program dictate your process

National Mortgage Professional
Aug 13, 2007

Quality lending equals profitsLionel Urbanfocused sales and marketing, effective loan pricing, quality control, compliance It has been said that opportunity can be found in adversity. Today's mortgage lending market is certainly testing many mortgage banking operations to find new and better ways to compete for customers, operate more efficiently and maximize (or discover) profits. Real estate markets are in retreat, credit markets are tightening, warehouse lenders are increasing capital requirements and regulators are exercising greater scrutiny than ever in reaction to the sub-prime market collapse and option adjustable-rate mortgage scandals. The rising tide of adversity for mortgage professionals is forcing many to exit the business, but it may also be creating significant opportunity for organizations able to capitalize on their ability to execute quality lending practices. What are quality lending practices? For some, quality lending practices may bring to mind notions of a squeaky-tight operation that grinds to a halt because of bureaucracy, analysis paralysis and getting lost on irrelevant details. For others, nothing could be further from the truth. Quality lending is the tried and true practice of being at your very best--executing your plans flawlessly and adapting constantly to the changing market conditions. Quality lending involves understanding all the moving parts of a very complex business, as well as having the right strategies, systems and people to execute effectively. And above all, quality lending is a commitment to delivering the very best products and services to your customers, investors, partners and employees. Currently, the desire to access quality lending is greater than ever at both ends of the food chain--customers demand fair service and investors are hungry for quality product. There are 10 key factors in achieving quality lending success. 1. Focused sales and marketing There must be a commitment to and execution of marketing strategies and sales efforts to reach your target audience and compete for customers on the product line being offered. When markets get tight, the tendency is to grab for any business that is available. But trying to be all things to all people is a losing proposition. Successful mortgage professionals who believe in quality lending practices understand that focus is critical. Knowing the market and finding a niche that your business can serve better than other competitors brings many advantages that lead to success and result in quality on many levels. -Focus helps you understand your customer better. Specific or specialized market segments bring a greater understanding of customer needs, what messaging and marketing efforts are more effective, and which sales and closing techniques are most effective. -Focus creates efficiencies for sales. Originators need only be trained on a limited number of products. Originators develop a better rhythm and understanding of how products offered and market niche needs match. They learn how to overcome objections and competitive issues faster. -Focus creates efficiency and effectiveness for marketing. It helps marketing develop more targeted and, consequently, more efficient, cost-effective marketing programs. Focus allows your business to become experts quicker in the selected market segments and reach a much higher level of sales and marketing proficiency in less time and expense--resulting in higher capture rates, lower costs per closed loan and setting accurate customer expectations for a more satisfied client. 2. Focused product and investors objectives Once sales and marketing are focused, so should be your products and investor strategies. Less is more with products and investors. Focused alignment of products means fewer products and simpler operations. -Products will be aligned with marketing and sales. Your marketing and sales people should see the synergy and fit between products offered and the customers trying to be reached and closed. -Disclosure and documentation will be accurate and simplified. Would you rather make sure compliance is handled properly on 10 products or 150? -Operations will be more efficient. Staff will gain proficiency faster and develop deeper expertise with less products and investors. Ability to execute repeatable processes gain momentum and speed as they are done more often. Problems are solved faster; boundaries of underwriting and other exceptions are better understood. Production costs will be lower, and employees will be more productive and happier because of it. -Better relationships with investors. Fewer products and more focus should also translate to investors. When you have a handful of products you are exceptional at, it means you deliver more volume of higher quality to two or three investors. You'll develop deeper, more meaningful relationships, resulting in better pricing, more exceptions and specialized offerings on multiple fronts, from faster purchases and other incentives to keep your large volumes of business. -Better secondary marketing execution. When you have focus and alignment of products and investors, you will achieve better sale execution, which simply means you will make more profit per loan. -Better customer experience. With all the benefits of focus and alignment, your customers will have a far better experience as loans are closed faster, questions answered with ease, less nickel-and-diming on conditions, etc. Focus and alignment is all about being really good at what you do, and your customers experiencing that will always results in more repeat business, more referral business, and higher margins as well. 3. Effective loan pricing and loan sale management You become a mortgage professional to get the margin and the control, but the risk and complexity involved can be overwhelming. You need the right tools, the right policies and procedures, and effective risk management. -Price for profitability. Know your profit margins every time you price. Have accountability to know that the revenue anticipated at the time of the lock is what you were actually paid. Be able to price loans to the market with margins that are achievable while competitive. -Manage profitability. Policies, procedures, management communications and reporting are in place and monitored constantly to insure that profitability is managed. This includes holding origination channels to delivering conversion minimums, providing incentives to operations to minimize cycle times and maximize conversion rates. Understanding your pipeline, how it moves and having hedging or sale coverage assumptions that are accurate. -Preserve profitability. Complete loan reconciliation includes an analysis of HUD-1 fees received, third party expenses paid, income from the sale of the loan to the investor, warehouse line costs (transaction fees and interest differential) and interim servicing. Real time, accurate reporting requires having the necessary data and understanding how to analyze it. It's all possible with the right tools, team and strategy, and it's a hallmark of quality lending mortgage professionals who are profitable month in and month out. Effective pricing and loan sale strategies are key to sustaining a profitable and growing business. If you are going to get serious about quality mortgage banking, having effective loan pricing and loan sales management strategies is fundamental to your success. 4. Quality control and compliance Quality lending demands that quality control and compliance procedures are established and maintained throughout the entire loan origination process. -Eliminate costs and liabilities of non-compliance. Failure to have quality in the production of your loans is a recipe for disaster. Time is money--missing disclosures, wrong disclosures, loan re-draws, going back to customers for more documentation that was lost or not requested prior all add up to lost time that costs your business money. Those costs can put you out of business faster than you think. Missed delivery deadlines can cost you dearly, but loan buybacks can deal a fatal blow. Sleep at night and know that you are playing by the rules--invest in quality control (QC) and compliance across your business so that these risks are minimized or eliminated. -Happier relationships. From customers to investors to warehouse lenders, employees and vendors, a reputation for QC and compliance execution gives everyone the message that you are serious about doing things right and building a business to succeed for the long haul. QC and compliance expertise and execution are defining aspects of your business that will act as a cornerstone for almost everything else you are trying to achieve as a quality lending mortgage professional. As they say, "The devil is in the details," and there are no details less liked and more overlooked than QC and compliance. Don't let this demon take your business down; instead, make it a sign of your commitment to being the very best at the business in all aspects of your organization. 5. Setting customer expectations Quality lending leaders understand that the emotions of expectation define the bilateral contract that is in place when a mortgage professional delivers on the services promised to a borrower. Expectations go both ways, and when they are set accurately and used to guide your process, everyone wins. -Customers get what they want. When expectations are set correctly, then operations can deliver more consistently on that expectation. And that makes for happy repeat customers and referrals. -Operations gets what it wants. It's not just about the customer. It's about your business too. Quality lenders set bilateral expectations--they understand that for them to deliver on the customer's expectations, the customer needs to do his part. This also leads to efficient operations, lower costs and faster cycle times. 6. Security and data protection Quality lenders understand that it's all about the data. No other financial transaction has more data and more sensitive personal financial data than a mortgage transaction. If you want your mortgage banking business to have long term success, you must have effective security and data protection standards in place from loan prequalification to post closing. 7. Integrated technology systems The complexity of mortgage banking requires that quality lending organizations have the right technology system so that full compliance, low risk, efficiency and profitability are consistently achieved. Technology systems come in many flavors, from best-of-breed and highly specialized solutions to end-to-end systems that provide all the tools needed to operate your business. Quality lenders understand the need for these systems and leverage them fully, but also work to invest in technology solutions that match their needs, strategies and budget. -Feature/functionality. Today's effective systems allow lenders to automate virtually every stage of making a loan. These components should include point of sale applications, Web sites, loan origination systems, pricing engine, secondary marketing, warehouse line management, interim servicing, imaging and reporting. -Integrated. No data re-entry. Data available for customer, vendor or partner via Web pages, Web services and two-way data interfaces. -Affordable. Many enterprise systems will cost well over seven figures to implement and put into use. They are extremely complex, require six to 18 months to customize and implement, and also require a staff of technology specialists to run. Be aware, costs can appear from hardware and software acquisition, maintenance fees, staff support costs and customization to the application or integration. -Scalable. Nobody wants a system that cannot grow with their business. The right system will be easy to deploy when a new branch opens or users are added. Additionally, it must continue to expand when your business requires new functionality without unnecessary expense or complex modifications. -Easy to implement, easy to use. Quality lenders don't bite off more than they can chew. They find a solution that will get them where they want to go with the appropriate amount of resources. The best lenders deploy preconfigured default settings and templates that immediately create best business practices while reducing implementation and support costs. -Support and services. Quality lenders will find system solutions that include support services that enhance their limited resources and insure that they are getting the most out of the technology investment. Support objectives can be created for hardware, networking and software applications. 8. Vendor partners The right vendor partners are in place to insure efficient operations, maintain cost controls and deliver high levels of service. -Integrated to business processes. The opportunity to integrate vendors can be as simple as screening applicants with a single bureau credit report that can offer additional bureaus to be added and rescored based on criteria provided on sophisticated data modeling. -Reduced costs. By bundling services with core providers, this allows the opportunity for reduced fees. Additionally, many vendors provide the ability to costs by user or branch, thereby holding employees to more accountability which results in less waste. -Enhanced service levels. Many vendors will now commit to service level agreements with financial incentives. Lenders get predictable service with greater emphasis on providing your customers with a good lender experience. 9. Data and reporting Systems are in place and reporting is used effectively to streamline production, manage process and insure quality of loan production is maintained. Data must flow from loan inquiries to post-closing processes, and all fields should be available for analysis by authorized staff. Reports must provide meaningful data and be easily accessible. 10. Culture and talent Quality lenders know better than anyone that it's all about their people. -Quality lending only works when it is infused within leadership and culture. Quality lenders intertwine quality lending practices with their mission and vision so that it becomes a core element of everything management and staff do. The team is devoted to quality and what it stands for. -Quality lenders demand talent and performance. To be at your best, you need to surround yourself with others who share those same high standards. High performance is not easily achievedquality lenders are constantly looking for more talented individuals to build their team and reach new levels of performance and achievement. -Quality lenders have a commitment to training. The mortgage industry has seen many changes in the last 25 years and now more are right around the corner. With imaging, electronic delivery and enhanced partnerships available through outsourcing, quality lenders must anticipate and deliver systems and training that maximizes efficient loan origination and delivery to the secondary market. The mortgage lending business is a multi-trillion dollar financial services industry that powers the American housing market, a critical component of our national economy. The demand for quality lending has never been greater with scrutiny of unfair or unethical lending practices spotlighted as the housing market is going through its next down cycle. But quality lending is also what powers this great industry to separate the great mortgage professionals from the business that only prosper in the good times. To build and sustain profitable operations through the feast-or-famine cycles of the mortgage business, lenders are advised to look to quality as the cornerstone of their future success. Lionel Urban is president and founder of He may be reached at (877) 536-6886, ext. 601.
Aug 13, 2007
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