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Quit holding up the line

Oct 21, 2007

Quit holding up the lineDerek Longloan guidelines, programs, automating internal processes Using loan guidelines to speed originations and increase business Achieving success in today's wholesale mortgage lending market is predicated, in large part, upon operational consistency and speed on the origination side. With a shrinking borrower market fueling a hypercompetitive lending environment, loan officers must be able to react quickly to borrower and investor requests alike. Furthermore, similar forces in the marketplace are pushing investors to be much more particular and selective about the lenders they choose to work with, and much less forgiving of those that do not meet their new criteria. Perhaps now more than ever before, lenders are seeking to achieve a streamlined, operational state of nirvana--no wasted effort, wasted time or wasted money--both internally and in their strategic partnerships within the industry. This puts more pressure on originators to clearly demonstrate that they, too, are committed to operating as nimbly and profitably as possible. From an operational standpoint, one of the most obvious areas for loan officers to focus on is their loan guideline management. Lenders are becoming increasingly aggressive in deleting programs while introducing innovative new loan products into the marketplace as competition among lenders fighting for a share of the shrinking borrower market continues to rise. The sheer number of daily changes by multiple lenders to their loan products makes it more difficult for lenders to stay on top of the options available to their borrower customers. Prior to the sub-prime industry problems, it was not unusual to average more than 70 guideline changes on a monthly basis; however, more recently, investors have pushed through as many as 60 changes in one week. The originators who are able to quickly and accurately find, price, originate and close loans with up-to-date loan guideline information will win the favor of borrowers and investors alike. Rest in peace, traditional paper guideline sheets Good loan officers know that the most vital part of the lending process occurs very early on--gaining borrowers' trust and their commitment to the loan program that meets their needs. Regardless of market conditions, an originator's ability to do this quickly is of paramount importance. In a tight market like the present one, it is an essential component of success. With the increase in lenders, loan products and investor guidelines, it is simply more difficult for originators to move quickly and gain their borrowers' commitment. A large contributor to this is the proclivity of many lenders to remain faithful to the paper-based guideline sheet file. Investors have taken great strides (and invested heavily) in automating their internal processes and, understandably, have an expectation that their partners have done the same. Consider the popular television commercial promoting debit card usage: dozens of customers easily make their way through a crowded coffee shop--ordering their beverage and food, receiving it, paying for their order--in a fluid, carefully choreographed example of streamlined efficiency. Until one gentleman pulls out paper money and the whole system temporarily stutters. Automation makes the system function seamlessly. Lenders work with multiple partners and no one wants to be the man with the paper money. It no longer makes sense to utilize an archaic methodology to manage investor rate sheets for literally thousands of different loan products and guidelines when there are cost-effective technology tools available to automate this process. For many originators, it can take several days, if not weeks, to manually receive updated guidelines. The lender has to wait for the guideline announcement, print out paper sheets, replace old guidelines in a physical binder and then distribute the new guidelines to loan officers. Time once spent on manually printing, binding, storing and accessing rate sheets can be better spent generating leads and closing loans. Just having the updated guideline is only the first step, though. Once a loan officer and a borrower decide on the loan product they want to pursue, the lender needs to be able to quickly price the loan. Instead of making another phone call, many guideline systems now automate the pricing, building in custom variables as needed. Through automation, loan officers can save an extra phone call and essentially provide instant approvals. They are also guaranteed accurate loan pricing for their borrowers. The more quickly and consistently that this can be done, the less likely the borrower will shop around with other lenders, which protects market share. Effective guideline eligibility and pricing engine technology also enables lenders to take full advantage of all the loan products available to them. Guideline tools can offer loan officers the ability to quickly search among all partner investors and present the borrower with many options they are qualified for. The originator can then best illustrate to his borrowers the differences between loan products and clearly outline and explain which loan(s) are best for them. This, in turn, fuels lead generation as it produces more satisfied borrowers who are more likely to direct friends and family to the lender for their mortgage needs. Automated pricing and guideline management provides originators the added strategic advantage of risk mitigation. Regulators are scrutinizing loans--particularly sub-prime products--more than ever before, and lenders need to be absolutely certain in the quality of the guideline information that they have to work with. Otherwise, they run the risk of dealing with costly repurchase requests and fallout from consumer advocacy groups, along with potential regulatory penalties. Integrating technology into workflow For an automated product and pricing eligibility solution to truly provide value as a replacement for paper-based rate sheets, lenders should consider the following: -First and foremost, it should be able to provide up-to-date (daily) product and pricing guideline information that is easily accessible. -Information should be presented in a way that enables loan officers to easily search multiple loan products (including non-conforming loan products) from multiple lender partners and quickly identify which products are appropriate to individual borrowers. -The system should present loan information in a format that can easily be shared with--and understood by--the borrower. -If an originator often works remotely, a Web-based solution enables him to access pricing and product information from any location with Internet connectivity. The return on an investment for such a solution is generally a rapid one, driven by the cumulative decrease in time spent per loan paired with savings generated through the elimination of redundant staffing. Having the flexibility of a Web-based solution enables lenders to essentially originate and close loans from any location at any given time, which provides them with a competitive advantage in a growing e-commerce lending environment. In an industry that leaves behind those that are still using cash, not having managed guidelines and automated pricing inhibits the lender from thriving and maintaining their competitive advantage. Ultimately, lenders should consider and select a solution that can consistently deliver the best information to quickly meet his needs, the needs of the borrower and perhaps most importantly, the needs of the lender/investor. Derek Long is founder and president of Vista, Calif.-based Lender E-Source, which provides loan guidelines and automated loan pricing to mortgage professionals. He may be reached at (800) 417-4199 or e-mail [email protected].
About the author
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