As the refinance boom fizzles, mortgage lenders should reassess their processes, according to BearingPoint (McLean, Va.). A report from the consultancy says imaging documents and automating more processes will create a great deal of flexibility for the otherwise paper-intense business.
According to the report, "Digitization and Automation: A Flexible Framework for the Mortgage Industry," to modernize lending systems, banks should embrace cost reduction, adjust staff to demand, reduce loan application cycle times and take new products to market more quickly (see sidebar below). "Coming off the refi boom, there's great pressure to reduce cost," says Lowell Alcorn, a managing director in BearingPoint's lending and leasing practice. "[Lenders] want to quickly introduce products, too, which may be a conflicting goal since that requires the implementation of new processes. But it is possible to do all this with technology today."
While the industry has been talking about these issues for years and lenders know what they need to do, Alcorn notes, the cost of the new technologies has held them back. "But the cost of technology is coming down now and the functionality is getting better," he adds. "After the refi boom, lenders finally have a chance to take a step back to see how they can do this better."
Of course, rolling out new technology requires planning. "You have to use an almost phase-like process," asserts Alcorn. "You capture the documents first, then look at the workflow and automate it, and determine which tasks to move to the lowest-cost alternative."
Currently, digitization typically occurrs in the post-closing process to help consolidate signed papers. The ultimate goal, says Tim Davis, also a BearingPoint managing director, is to move document imaging to earlier in the process. Digitization is the first step in the process toward mortgage lending efficiency via automation, he explains. Once this is achieved, business rules engines must be developed to help move the files along in a workflow to delegate tasks among employees more effectively.
Done correctly, BearingPoint predicts digitization and automation can help lenders realize a 50 percent reduction in costs. The savings come from a greater ability to right-size staff levels and to introduce products to market in a more timely fashion, Alcorn contends.
According to BearingPoint, the current economic environment of tighter margins and declining loan volume is forcing lenders to focus on streamlining the origination process via digitization and automation. BearingPoint says the four key drivers that will enable these leaps in technology are:
1. Cost reduction. Although mortgage companies have reduced the paper load, there still is a significant amount of it to slow the process.
2. Adjusting staff to demand. Staff levels often fluctuate with the ups and downs of interest rates. An automated process could help banks predict proper staff numbers.
3. Reducing loan application cycle times. Speed of delivering loan documents will be key to remaining competitive. Digitized documents can facilitate this.
4. Introducing new products more quickly. Digitizing and automating the development process can bring efficiencies to product rollouts.