Value in an Operational Assessment?

Value in an Operational Assessment?

How do you move forward as an organization to achieve your vision? What’s working well? What’s holding you back or bogging things down? As a mortgage consultant who’s worked in the industry for years, I hear these questions all the time from organizational leaders. And there is help! One tool that’s very effective in helping you answer these challenging questions is an Operational Assessment. Operational Assessments are a pulse check for your business. Every company can benefit from an operational assessment; it provides an open, honest, and objective viewpoint of your business’s current processes, procedures, technology, people, and risks. And once you have this information, you’ll be able to create a plan and chart a path for the future.

So how do you get started on an operational assessment? Where do you find the information? Again, the operational assessment is to provide a checkup of your organization. There is no better way to get to the truth than talking with your employees and clients.

Most Operational Assessments include the following components, so you’ll want to frame your questions and surveys around these business areas.

So, what’s the best approach to collecting data? Staff interviews and ride-a-longs are a great option, and it is through these conversations with employees that you’ll gather a lot of information to complete the assessment. Listen carefully. Because without question, you’ll gain tremendous insight into the formal and informal processes and cultural norms that drive the business. For example, does the current technology effectively support the business? Does it help employees complete their jobs, or is it a constant issue? Are leaders delivering a consistent message, uniting around common goals and direction? In short, are we all together in the boat rowing in the same direction?  People are the core of the business, and it’s important to understand their feedback, comments, perspectives, and observations. Through open dialogue, you’ll uncover things that are not always seen, like workarounds, completing work in a strange order, missing key items that could make reporting better, outdated policies and procedures, etc.

For external customers, consider using interviews, or to reach a broader audience, surveys are also very effective. Do customers have a positive experience when engaging with your organization? Are they satisfied with the business relationships?  You’ll want to incorporate feedback from closed and unclosed loan clients, as well as your realtor/builder partners.

An operational assessment is only as good as the honest and open feedback received, a clear view into the company’s current operations, AND leadership that is willing to listen, then adjust and apply any apt learnings.

This blog is a very brief overview of an operational assessment that could help you objectively determine the status of your organization. Once you can see things with complete transparency, it can help define intentional growth or organizational change steps.  Once you know where you are, THAT VALUE can help you get where you want to be.

So, it was early 2009, I had been laid off and decided to relocate from Dallas to Austin. After getting established, I set out to find a job, NOT in the mortgage industry. I wanted to be more technology-focused. I searched and interviewed at many places and began receiving offers.  

BUT – that mortgage tug – kept pulling at me. So, I thought this would be a suitable time for me to get back into Sales or Operations and get to see how the technology affected the users as well as how things had or had not changed. I was able to accept a position as an Underwriter and soon after oversaw a team of underwriters for a region. I got to live and breathe the end of the month cycle again, see how the technology was hampering or helping, provide tips and tricks and I really had a wonderful time. 

In mid-2011, Mortgage IT (Information Technology) jobs came calling again. It took me back to Dallas where we selected and rolled out a Loan Origination System, supported Capital Markets and Warehouse software, opened a Call Center, and more. That company was sold to another company, and layoffs were beginning, so I took an opportunity and moved to Houston to do another Loan Origination Selection for another employer, among other projects. Then back to Dallas where a company had bought another company and they needed to consolidate to one system. At that last company, I was Vice President of PMO (Project Management Office). Then leadership changes occurred, and they laid off the entire PMO staff. I secured as many jobs for my people as possible and decided to investigate Consulting. At this point in my career, I had been laid off three times, and climbing that ladder just to get chopped off had become exhausting. 

I have known CC Pace since 1998, as they helped us roll out automated underwriting. Following that, I worked with them throughout different employers over the years.  

So, we made it happen. In September of 2015, I went to work for CC Pace as a Senior Consultant. It has been so much fun being on this side, we get to help solve so many different problems for so many different clients. From POS (Point of Sale) and LOS (Loan Origination System) Selections to Implementations, Compliance Reviews, Process Reengineering, system tune-ups, staffing reshuffling, website buildouts, security reviews, system assessments, due diligence, and more. Getting to meet so many new people from all over the country and develop relationships has been the most rewarding. 

When I moved from temporary to permanent in 1992 as a Loan Processor, my mom wrote me this letter: 

“Dear Greg,  

On 5-1-71 I began my career in the mortgage industry. Here we are 21 years later, and you are beginning your career in the mortgage industry. My beginning salary was $375 per month and over the years that income has increased 10 times +. I hope you will experience the same kind of financial rewards but more than that I hope you enjoy the work and challenges as much as I have. It’s a good business and you will work with a lot of good people. Good Luck – you deserve it.  

Love Mom”  

She was and is right, my beginning wage was $7 an hour and the financial rewards have been good. But so much more than that, I love the mortgage industry. I have met some of the best people in the world and many of them I am proud to call my friends, 30 years plus, some of them.  

Much of what we do in this life is about the journey and nurturing good relationships along the way. On the Consulting side, we get to build so many relationships, see so many problems and help solve those problems. You see problems, we see solutions. What can I help you solve?

In the push to be able to conduct business during the pandemic, companies sought out new technology to improve their digital capabilities for both internal employee and external customer-facing work. There was a noted rush to select, implement and integrate new technology into the existing infrastructure to keep business moving along.  For the most part, the purchase decision was compressed and triggered by the immediate need. As such, there are some decisions in hindsight that may cause regret and others whose terms are not as attractive as expected for a long-term relationship. Also, the selected technology could be a perfect fit, but the implementation may have taken shortcuts in the rush to deliver, and additional work may be desired to further refine the integration or customization to better meet the business needs.  Even if no new technology was introduced, regular maintenance tasks were postponed during the pandemic, and training sessions canceled that were needed then but are imperative now.

As we move to the next stage of the pandemic, defining the work arrangements, returning in some way to a physical office location or just settling into a long-term remote work arrangement, it is a good time to take a breath and assess where your applications and infrastructure are today, and take a step back to prioritize key projects and next steps to move forward in whatever the new “normal” may be.

Vendor Management

Starting with vendor management and contract review, most organizations do a great job of vetting vendors during the purchase/selection process but fail to follow up on a regular basis to ensure the vendor and its practices maintain the necessary controls to keep their systems supported and your data protected. Given that your vendors had similar stressors maintaining business practices through the pandemic, it is a good time to re-assess their activities to ensure the expected levels of control and security are still in place.

This is also a great time to review your contractual agreements.  Identify any agreements that will expire in the near term and start planning for the next steps which could be a replacement or re-negotiation for renewal.  Identify any contractual terms that no longer meet your needs, e.g., on-site support with a remote workforce, and layout a new path and desired outcome before approaching your vendors. Ensure any needed or expected vendor certification/licensing is also up-to-date during your review process.

Infrastructure

Your infrastructure and its support should be assessed to ensure it is protected, sized, and supporting the organization.  Are both hardware and software patches being applied timely? Are there are any components that need to be retired or are no longer supported?  Assess whether changes are needed for growth or contraction. Are controls in place to ensure a secure environment for the data and organization? What has changed during COVID-19, and how has that impacted the operation?

There has been a move towards the cloud for a number of years, but the pandemic brought that shift to the forefront for many organizations.  Questions to ask include: Is your selected cloud provider providing the service and support you and your organization expect and need?  If outsourced, are you getting regular (and useful) reports about the health and security of the environment?  Are any identified or contractual service-level agreements (SLAs) being met?  Are there SLAs that weren’t defined but should be?  Address deficiencies with your internal/external vendors or select new ones, as appropriate.

Software Technology and Documentation

Your software technology is critical to your success. During COVID-19, a lot of projects were put aside for more immediate “keep the lights on” activities.  A review of what is listed in your backlog is needed to identify where (and if) issues with key functionality exist.  Points of integration should be reviewed to ensure the exchange of data is being completed in a secure manner, seamless to the end-user.  In general, complete an assessment to ensure you have the best combination of systems supporting your business operation. This process will ensure awareness of not only immediate needs but those that are just over the horizon. If software was selected in a rush during COVID-19, it’s a good time to look at the industry for alternatives to identify a better fitting solution or to identify enhancements to request of your vendor.

Documentation is an area that was frequently ignored during the pandemic (and other times).  There is value to the organization maintaining documentation of your systems and practices. The application architecture diagram is a simpler diagram to create, but is critical to understanding the systems in (and out of) your environment and their interactions. Many organizations have graphical representations of their network, but not of their applications, interactions, and uses.  The application architecture and other documentation facilitates communication and understanding within the organization and with your vendors.

Security

The last area that needs attention is one that should be foremost in everyone’s mind and that is security. Security encompasses people, processes, and technology. Attacks can come through any of these areas and vigilance is needed to stay protected. For people, it is important that any training sessions that were postponed during COVID-19 be re-scheduled to educate employees on such things as identifying spam emails and phishing schemes. Processes should be reviewed to ensure that information is being properly protected whether it is paper or digital throughout the process, and only appropriate data is being shared. Finally, the technology needs to be assessed. This can include a review of users and the level of access granted, ensure that anyone that has left the company has had their access revoked, that security levels are commensurate with the roles, etc.  Identify any users that haven’t logged in for extended periods and determine if their access is required. Security surrounding applications should be reviewed to ensure that the current protocols are being followed, the complexity of passwords, the number of days between password changes, etc.  Administration passwords should also be updated on a regular basis.

While all of the above would normally be considered business as usual, COVID-19 has irreparably changed what normal is. Work that has been postponed, canceled, or set aside should be revisited to identify what is still applicable to maintain a secure and functional operation for the organization and its user community.

In case you missed it, check out Part 1 of this series here!

By June of 1991, I was in college, and I had been working at Albertsons, climbing the ladder, and was manager of my own department.  I had to take mandatory time off because we were trying to catch an inventory thief.  I was talking to my Mom, who was a Regional Operations Manager (ROM) for a mortgage company, and told her that I had to take this time off, but I didn’t have any plans.  She suggested that I come earn extra money by working in their Shipping Department. So, I did.  I became a part-time Shipper and Post Closer.  I loved the office life, as it was so different from the grind of the grocery business.  It was a grind, don’t get me wrong, but my clothes stayed clean all day and I was learning so much!  

(By the way, we did catch the thief!) 

There were not any Personal Computers (PCs) on the desks. There were smart typewriters, thermal fax machines, and we used runners (companies that would take a closing package from the mortgage company office to the title office).  There were tons of manual forms, file cabinets galore, single – double – triple hole punchers, and colored folders.  Heck, you could still smoke in the office back then. 

In our department, we used a PC with FoxPro to track everything.  The first thing I did was make the database much better.  I had been dabbling in computers since I got my first TI Sinclair 1000 in the 8th grade, then graduated to a Commodore 64, then my first Hewlett Packard.   

I was hungry to learn as much as I could.  I read every manual I could get my hands on. I began reading the loan documents as I stood at the copier making two copies: one to send to corporate and one to retain in the branch.  From there, I moved to Loan Setup, and this is where I revolutionized how they put the origination packages together and streamlined that operation.  I also was the WordPerfect whisperer and created, updated, and/or streamlined many forms.  The Regional Manager didn’t know how to use a computer, so when it was budget time, I was called to work in Lotus 1-2-3 and that was how I learned budgets and P&L statements. 

Then in 1992, computers came.  These Data Processing folks descended upon our branch. Cables were laid and PCs were put on every desk.  I came in over the weekend and followed them around like a puppy dog.  Then, after providing some training for everyone, they left.  So, who was on-site tech support for all the PCs, the printers, the LAN? You guessed it, me.  Printer or PC not acting right? Call Greg! I would intuitively know what to show them or how to fix their issue. I watched as they struggled to enter data and then figured out that I was good at teaching people how to do things and showing them ways to do their jobs faster, more efficiently. 

For my actual part-time job, I went on to work in several departments, again, trying to learn as much as I could.  My Mom who was the ROM, moved to be the Wholesale Account Executive, and now that nepotism was out of the way, I was offered the full-time job as a Loan Processor.  I quit my job at Albertsons and fully devoted myself to mortgage. 

Over those first eight years in the industry, I was living the branch life and held positions such as Shipper, Post Closer, Loan Setup Clerk, Loan Officer Assistant, Quality Control Reviewer, Loan Processor, Loan Closer, Pre-Underwriter, Lock Desk Specialist, LAN Administrator, Operations Manager, Assistant Branch Manager, and Loan Officer.  I moved all around Texas, from San Antonio to Austin, and then to Dallas.   

When I was in Dallas, a unique opportunity came up for me to work in the Data Processing department.  I had a direct line to this group and always shared how the system or a form could be better.  So, they offered me a job and I moved to Scottsdale, Arizona.  I also was able to be on the ground floor of rolling out laptops to our sales force.  I got to pick the laptops, load them with the software, work on the interface to the processing system, then fly about the country training and rolling them out. I got to go to conferences and branch events. I did not love living in Arizona, so when an opportunity came up for me to move back to Texas, I took it.   

I worked on the Help Desk where my hours were three 12-hour days and a half-day on a Saturday once a month.  I loved that schedule.  But that schedule was short-lived, as within two months I was a Business Analyst working on the Point-of-Sale software and rolling out laptops for a much larger organization that had also bought another mortgage company.  Those were some crazy times and late nights.  

I spent the next ten years of my career in Information Technology (IT) roles.  I continued to strive for and climb into higher and higher positions with more and more responsibility.  I ran Point-of-Sale Systems, Loan Origination Systems, branch and loan officer websites, then three POS systems across three company brands, then consolidation of those three systems down to one. I held the roles of Business Analyst, Team Manager, Project Manager, Program Manager, Business Information Officer, and Assistant Vice President.  It was a great time to see all the technology changes within the mortgage industry and be involved in discussions with Fannie, Freddie, HUD/FHA, VA, software vendors, C-Suite level executives, all the managers in between, down to all the individual roles.  Curating solutions that came on the heels of adapting to market changes and acquiring feedback from users. 

Over almost twenty years, I came to realize that because of my production and operations background coupled with IT knowledge, I filled a great niche because I could speak the Business AND the IT languages and bridge the gaps between the groups. 

Then KA-BOOM, www.ml-implode.com became daily life.  It was a terrible and scary time for anyone in the Mortgage Industry.  By the end of 2008, I, along with 10,000 people at my company, had been laid off. 

By this time, I was living in Dallas, TX, and wanted to get back to Austin, TX.  So, I sold my house, turned down a lateral-down move to stay with the company that had just laid me off, and headed into the unknown. 

Continue following Greg’s journey in part 3 of the series here! 

Interest rates are on the rise and affordability is tightening.  New and old methods will need to be tapped to continue to put borrowers into homes, are you and your platform ready?

For many, it has been a very long time since anything beyond a straightforward fixed-rate product guideline was added to the LOS platform. In some cases, adjustable-rate (ARM) or other more complicated guidelines have never been entered into the current platforms, as the LOS was replaced with new technology more recently.

It’s time to check your systems to make sure everything is ready for when those new guidelines are needed.  Whether it’s an ARM with a SOFR index rate, a piggyback, or some other product, you need a refresher on the data that needs to be collected to define the product.  What about documents that may be needed and information the system needs to define new product guidelines.  Processes and procedures also need to be reviewed to ensure they address any additional or different steps needed during the origination.  Also, the points of integration should be assessed to ensure that the requisite data to support an expanded list of products is fully supported.  The last step is particularly important given the addition of technology to support all aspects of digital lending throughout the pandemic.

If you’re ready, CC Pace can help.  We have a proven track record of working with our clients to revitalize technology infrastructure, update systems to conform to current practices and implement organizational/process best practices.

I am a mortgage baby, and proud of it! 

That is what I was called, before I even started my journey in the mortgage business, a mortgage baby.  

I officially began getting a paycheck in mortgage banking in early 1991, although I knew about mortgages way before I entered the business.   I am excited to have been able to evolve and grow into a Director, Mortgage Practice for CC Pace Systems, Inc. I hope to share my knowledge, wisdom, and lesson learned with our many clients. 

My mom and dad were both originally in the Savings and Loan business in the early 1970s. In the late 1970s, my dad (Gerry Self) transitioned to being a Mortgage Insurance Sales Representative. My mom (Sylvia Burnett, formerly Sylvia Self) began working for a mortgage banking firm and she had a side gig, underwriting loans for the local HUD (Housing and Urban Development) office, way before Direct Endorsement. What I remember about the early days of that, was that my dad was always on the road and my mom worked a full day, then would bring home boxes of files from HUD and after getting us all nestled into our beds, she would underwrite loans. 

Then in 1984, my parents went to work together at the same company. My dad was the Branch Manager, and my mom was the Operations Manager. They opened the Killeen branch, then we moved to San Antonio, and they opened that branch. I would work many hot Texas summer days from 1984-1986 at that company. I did some light clerical work, like answering the phones, filing, typing, organizing, fetching. Lots of fetching. 

What I remember from that was that there were no fax machines and certainly no computers. There were typewriters, IBM Selectric III’s, everywhere. The FHA (Federal Housing Administration) forms were multi-page with all sorts of colors with carbon paper in between. There was liquid paper in several colors; Acco punchers and fasteners; file folders and file cabinets; staplers and staple pullers; three-hole punchers; blue pens and red pens. The blue pens were so you could tell it was an original signature.  The red pens were used by the underwriters, who, I assumed like teachers, graded your work.  

Paper and manual everything was king. Automation was not even a sparkle in anyone’s eyes. 

In November of 1986, I turned 16. Over the Thanksgiving holiday, while we were in Lubbock, TX with the grandparents, my parents bought me a 1981 Buick Skylark for $2,000. I got to drive it all the way back to San Antonio, it was awesome. After unpacking from our trip and settling back in, one day after school my mom came to me. She sat me down and very sternly let me know that it was time to find a job. So off I went to the nearest Albertsons, turned in my application, and was interviewed.  I was hired that day and I started the very next day. I came home and let my parents know and my mother was flabbergasted, thinking that it would take me more than a few hours to land a job. So, in December of 1986, I started my job as a Courtesy Clerk (Bagger) at Albertsons on the corner of San Pedro and Thousand Oaks and left the mortgage world behind me. Or so I thought… 

Follow Greg’s journey in part 2 of the series here! 

We recently conducted a (sold out!) webinar on the LIBOR Transition, driven by the NY DFS sending a letter to over 1,000 companies that they regulate Board of Directors, with a response due on March 23, 2020.

The first question we received in response to the webinar was “you guys use a lot of acronyms, can you explain what it means, please?”  And it’s true, we do use a lot of terms, so we put together a LIBOR transition cheat sheet (a Glossary) to explain not only what each acronym means, but why it is important in a LIBOR transition context.

Some facts about LIBOR:

  • LIBOR has been in use since the 1970’s and is well understood by the markets and regulators.
  • Many loans use LIBOR as an index rate, especially mortgages and student loans.
  • However, dollar volume of LIBOR based contracts, futures, options, or other types of derivatives is far greater than its use in loans.
  • Although people talk about it as if it were a single number, it actually has its own “Term Structure” (see our glossary) with 7 different rates and its own yield curve. Having a Term Structure is a great attribute for a Reference Rate to have, and most Alternative Replacement Rates do not have that, at least not yet.
  • The Financial Conduct Authority (FCA, below) that oversees the publication of LIBOR decided in 2017 to not compel any bank to contribute to the LIBOR process after December 31, 2021. This means it is very unlikely that banks will participate after this date, and LIBOR will cease to be credible if it exists at all.
  • Liquid markets require many participants. Therefore, regulators and associations are issuing Replacement Guidance to move participants to a new market.  In the US, the ARRC (below) is guiding markets towards SOFR (below).

Here are the first four LIBOR-related acronyms you’ll hear us mention when we talk about the transformation. The full list of terms can be found here.  It will be updated on a regular basis.

 

[i] https://en.wikipedia.org/wiki/SOFR
[ii] https://www.newyorkfed.org/arrc

The new URLA is coming. But the status report, for July 2019, is decidedly Red.

Warning signs regarding the immensity of the forthcoming changes have been out for well over a year, yet it seems some lenders are just starting to realize the size and implications of the coming changes related to the new loan application – the Uniform Residential Loan Application (URLA, aka 1003 or form 66). This is the first of a short series of blogs exploring the benefits and challenges that lie ahead.

The URLA is undergoing a total redesign for the first time in 30 years and that is driving major changes in four areas:

  1. The application itself – its form, data elements, organization and fundamental operation
  2. Its corresponding data file, the Uniform Loan Application Dataset (ULAD)
  3. The agencies’ automated underwriting systems (DU, Fannie Mae’s Desktop Underwriter and LP, Freddie Mac’s Loan Prospector) submission, interfaces and files
  4. The retirement (at least not keeping current) of the Fannie Mae DU3.2 file, which has long been the industry de facto standard for transferring data.

The optional date is coming soon – July 1, 2019 – and the required date is February 1, 2020 – not very far away for a truly major change.

When the subject of the new ULRA came up at the recent National Advocacy Conference, a gentleman sitting at my table said, “My vendor is taking care of it.” When he didn’t smile and the rest of us figured out that he was serious, the branch manager and the lawyer at my table both asked him “You mean your vendor sets your policy for how to fill out the language preference and whether you let the MLO do that instead of the borrower?”

I saw two other issues myself, including “Which vendor?” and “Are all your counterparties ready? Does your entire process work end-to-end?”

On the issue of leaving things to your vendor, even small lenders are likely to be dealing with two or more vendors who not only have to be ready, their systems have to be tested together to make sure that your process works.

Below is a simplified snippet taken from CC Pace’s Reference Architecture, showing internal interfaces that are affected by the new URLA:

 

That’s a lot of moving parts undergoing substantial change that need to continue to work together. Let’s look at things from the perspective of relatively common test cases. It seems reasonable to expect that a POS submission to DU and an LOS submission to DU will both work. But in an equally common, but decidedly more complex scenario, when you take the application on the POS, transfer the loan to the LOS, where you rerun DU and then request a set of documents from your doc vendor, it’s not hard to imagine that initially something will break down, simply based off of different assumptions that were made.

On the issue of counterparty readiness, the reference architecture reveals even more counterparties and vendors that have to be ready and that you will have to test your process with:

 

But wait, there’s more! As far as the industry is concerned, not only do you and your counterparties have to be ready, but the entire ecosystem has to be ready, end-to-end. And the status for that is decidedly red.

Take the previous difficult test case and now extend it to a common industry chain. A broker starts the application, it closes with a mortgage banker who then sells it to a correspondent investor, who now runs Early Check or LQA on it, purchases it from the mortgage bank and then delivers it to Fannie or Freddie. It is known that this will not all work in July 2019.

Here is what I gleaned from the MBA ResTech call from May 16th, 2019:

  • Many individual vendors appear to be ready – but what that means is that they are ready to be tested in conjunction with other counterparties in the ecosystem
  • Not all components necessary for an agency correspondent transaction are ready
  • Correspondent Purchasers are starting to issue guidance that they will not purchase loans on the new URLA until 2020

It is CC Pace’s recommendation that every organization be extremely active monitoring the status of the new URLA both within and outside of their company; it is impossible that “our vendor is taking care of it all” is the right answer. This July through February represents a significant and much needed test period, not just for the systems and your process, but also for your compliance and training.

Some Correspondent Purchasers are issuing their own guidance on the matter. Have you?

CC Pace recently completed an interesting project for a mortgage lender who had just done an acquisition. The project questioned a fundamental assumption of loan pricing and whether the existing approach was compliant or not.  One entity had “branch” pricing (as do many lenders), where the price quoted to the borrower is based on the branch rate sheet of the loan officer that the borrower works with.  The second entity, however, had pricing based on where the property was located (also a common practice).  Compliance recognized that these two different methodologies could result in disparate pricing to the consumer, potentially leading to fair lending violations.

Having been in the industry for a long time, the notation of pricing based on the loan officer’s rate sheet didn’t seem unusual to me.  We have implemented this model many times, going back to the 1980’s.  It was so ingrained that I had never really thought about it.  But this project challenged my assumptions and changed my way of thinking—for the better.

In retrospect, under the “right” (wrong?) use cases the lender could have faced fair lending penalties even before the acquisition. For example, if a borrower was looking for loan for a second home and had gotten quotes from both their local branch and from the branch in the property’s geography, those quotes could easily have been different.

Our client’s Compliance group recommended moving everyone to the geographic model – pricing based on where the property is located, not based on where the loan officer is located.  And pricing should include “junk” fees, which were determined by the Sales organization, whereas Secondary determined rates & points.  CC Pace’s role was to lead this transition, a major shift for a lender who hadn’t re-thought their pricing in many years.

Redesigning processes that were deeply ingrained in the organization and systems made for an interesting project.  How do you define the geographies?  Zip code level is too small to be compliant; MSA is better.  But using every MSA in your footprint may be too many geographies to maintain.  How do you align the “junk” fees with the geography and with the organization?  Who actually sets the branch rates?  What updates do you need to make to your rate sheet?  What new training do you need to do?

Much of the elapsed time for the project was spent in the conceptual design and getting it approved by the stakeholders and Compliance.  However, the bulk of the man-hours were spent updating and testing the pricing engine and loan origination system for both pricing and fees, and then testing the systems across all the different use cases (retail, call center, digital).  There was also a need for some organizational realignment of responsibilities. Surprisingly, however, the re-training of loan officers turned out not to be very difficult.

I came away from this experience realizing that this was an important project that many lenders may need to consider, even if they are not doing an acquisition.

How does your organization price loans?

“There I was on assignment for a month in the Sahara Desert of Northern Africa during a time of the year that was supposed to be fairly mild. Unfortunately, there was a heat wave during most of that month, which drove temperatures into the mid 120’s. With little to no shade, relentless flying and crawling insects, and sparse meals that caused me to lose 20 pounds, I continued to work toward getting that ‘perfect shot’, at the perfect time. This assignment proved to be the most physically demanding I ever endured. Nonetheless, I’d choose that job every day over an unstimulating project.”

So goes the story of a high school friend and renowned photographer, Don Holtz, whose impressive work includes the likes of Tom Hanks, Morgan Freeman, Steven Spielberg, Time Magazine and chronicling the Foo Fighters. Yet despite his amazing success, Don humbly shared with me (when asked) that there is no perfect time for taking the perfect shot. Instead, he explained, it is by the continued effort of working ‘toward’ perfection that he is able to achieve the highest level of success.

Similar to Don’s challenges in Africa, mortgage bankers continue to maneuver stringent regulations, weak GDP growth, and persistently low interest rates that limit their ability to help grow the local or national economy. As a result, most lenders are content to maintain a conservative approach to lending while instructing their IT departments to tweak or revamp old and disparate technologies in order to keep management, maintenance and overall IT project costs down rather than pursue innovation and rethink how business could be done better. Basically, most are waiting for the ‘perfect time’ to rebuild, reengineer and transform their business.

Conversely though, there are nearly 80 million millennials (18 to 34 years old) in the US who are actively shifting from renting to home buying as their family’s needs grow. In a recent study by the National Association of Realtors (NAR), millennials were the largest share of home buyers in 2015, at 31%. All evidence points to this trend actually increasing throughout 2016.

Just consider that the millennial generation, who has maximized the use of Snapchat, Facebook, Facetime and texting to such an extent they do not know of any other way to live, communicate or do business, is now the greatest force driving home buying. This should put pressure directly on the backs of mortgage bankers to re-think and rebuild century-old banking and lending practices in order to successfully support this new generation of borrowers. Millennials are first and foremost a tech-savvy generation of borrowers who are fiercely brand loyal (think Apple) and seeking to do business with firms that speak their language of fast, easy and friendly, supported by best-in-class technology platforms.

Over the last thirty-six years, CC Pace has helped implement scores of mortgage banking technology platforms supporting strategic initiatives and business transformation projects, but never have we seen a greater need than exists today for business transformation in mortgage banking. Business transformation is desperately needed that will successfully help to attract and support the new generation of home buyers. Such projects require lenders to challenge their organization’s own institutionalized thinking in order to evaluate all aspects of the firm’s strategy, its lending process, its technology and equally importantly, how they provide the service levels this generation requires. Business transformation is needed not just to entice the millennial generation, but to earn their loyalty for return business as well.

Certainly embarking on new large-scale business transformation projects is stressful and risky (which is why firms hire CC Pace). But the alternative of risking alienation of the millennial borrower generation by failing to meet their needs and expectations will prove to be devastating to lenders who choose to continue a conservative approach to facing the future of mortgage lending.

When I asked Don what he thinks it means when people indicate they are waiting for the perfect time to take the perfect shot, he said, ”The idea of perfection is more dependent on a state of mind than on external conditions that we can’t always control.” He went on to highlight how he takes responsibility for how he will respond to changing conditions, spending his energy planning, as best he can, to arrive at a shoot prepared to adapt his game plan for both the existing and changing conditions to ensure the best possible outcome. As Don put it, “There is no perfect time, but that doesn’t mean you don’t continue to work ‘toward’ perfection.” This is as true for mortgage bankers as it is for world-class photographers. If you aren’t working toward transforming to meet the demands of the market, you will never achieve greater success. So as lenders continue to expect mild temperatures, they may soon find themselves in the middle of a heat wave. There is no perfect time; there is no perfect shot. Success can only be achieved by actively working toward the goal of perfection.

Don Holtz is the owner of Don Holtz photography services. If you are interested in Don’s services he can be reached at here.

When speaking with leaders in the mortgage banking industry of late, the chorus always remains the same, “we are heads down on TRID.” Despite the CFPB’s recent announcement regarding leniency on enforcement of this new regulation, industry executives know full well that there is no delay. Only firms who make a “good faith effort” to comply with the new regulation will experience leniency on enforcement. The theme at lenders nationwide therefore remains “stay the course” for hitting the August 1st deadline.

TRID has been widely recognized as one of the single most impactful regulations to befall the mortgage banking industry in recent memory. The real significance of this regulation goes well beyond the requirement to change an already comprehensive and sophisticated consumer disclosure document. By shifting the burden for the consumer closing document three days prior to close from the title company to the lender, it also forces both the lender and title companies to rethink a hundred year old workflow and business relationship, engaging in a more collaborative partnership. To accomplish this effectively, TRID requires lender reconfiguration of business rules, workflows and processes, which has a direct impact on business strategy, technology requirements and system configurations while making certain audit trails go deeper and wider. Amidst it all, lenders are having to work overtime to protect the customer experience by reengineering the loan closing process and better setting expectations with consumer to ensure a positive customer experience and to avoid multiple reschedulings of loan closings. Ultimately putting added pressure on each lender’s cost to produce, not to mention potentially increasing housing costs for consumers.

With less than 60 days remaining to implementation, lenders continue to break the glass and retrieve their proverbial Mortgage Bankers First Aid Kit in order to swiftly bandage together the disparate impact points of TRID, not only to ensure compliance, but for self-preservation. With almost two years to prepare and most vendor organizations fully focused on developing various document solutions and workflow assistance, it’s unfortunate there has been little offered in the way of a universal “one size fits all solution” that lenders can simply plug in and safely implement to help ensure compliance, workflow efficiency and a winning customer experience. Yet after twenty-seven years in the mortgage banking industry, I remain confident mortgage bankers will once again be resourceful, agile and pliable to ensuring successful adoption of the new TRID regulations to ensure consumer satisfaction. After all, it’s in our DNA. We will do what it takes, even if it means throwing bodies at it (similar to days gone by) or adding new layers of manual processes and procedures or quality control checks. I am convinced most will be ready to meet the industry’s new requirements.  But at a cost.

So the question remains, “What’s next? Where do mortgage bankers focus after August 1st?”.

As with many disruptive changes, focus before the deadline is on complying with the regulation. Afterwards the focus must shift to actually making it work effectively and efficiently. This could mean that lenders need to take a pause, step back and get back to the basics by conducting an end-to-end full-scale process assessment. A business process assessment serves to help ensure lenders are originating loans at the lowest possible cost to produce by looking to remove redundancies, maximize technology configurations, better integrate appropriate vendor solutions and new business rules, or by simply amending a series of processes and procedures in light of new ones.

Veteran mortgage banking executive, A.W. Pickel, President and CEO at Leader One Financial, is very concerned about the impact of TRID regulation on consumers. “My concern is, what happens to customers with a moving van in the driveway and due to circumstances beyond their control they now have to wait three more days to close. Regulations meant to do good may cause further harm. Will this regulation then cause realtors and loan officers to do off balance sheet items?” In regards to how to how to mitigate the risk, Mr. Pickel goes on to say, “The only way to offset this risk is through the adoption of additional procedures. In the end, however, additional procedures can equate to increased cost to produce a loan.”

Pete Lansing, former President of Colorado Mortgage Lenders Association and President of Universal Lending for over thirty-four years, feels TRID really isn’t any different than any other regulation. “Post August 1st we will be in full force compliance evaluation and review, looking for any holes left over that were not covered before the implementation date. Every organization must keep their eye on regulatory compliance at the same time keeping customer service as its number one objective. The balance between these two objectives has always been the mortgage banker’s concern and goal. I believe these new changes are no more difficult than those previously issued by the regulatory forces.”

Taking it one step further, Gellert Dornay, President & CEO of Axia Home Loans, when speaking of his TRID implementation strategy, put it this way, “Post TRID implementation, lenders should be auditing compliance with the new rule and identifying any areas that require further training or process tweaks. However, if you’re not doing a full-scale operational assessment until after the rule has gone into effect, you’ve missed the boat.”

While the mortgage banking apocalypse is not likely to take place on August 1st, what is more likely is that lenders are going to need to take time post-TRID implementation to conduct a full-scale audit of their end-to-end origination process in order to lower cost to produce and ensure consumer satisfaction. Based on CC Pace’s experience in conducting business process assessments in the mortgage banking industry, we encourage lenders to keep three key components in mind when conducting their post TRID operational assessments. First, be honest in asking yourself if your recently amended TRID process is actually economically “scalable”―is it scalable enough to support what is anticipated to be a growth market if secondary liquidity truly returns due to a rising interest rate environment? Second, when reviewing the operational assessment, challenge yourself with this question, “Is the right long-term answer to take the temporary bandages off and look at full-scale reconstructive surgery of processes, systems and organizational structures in order to successfully implement long-term, scalable growth strategies?” Lastly, decide on a strategy and move forward. Meaningful operational assessments that end up sitting idle on the shelf collecting dust are generally reflective of an overly conservative approach and commitment to long-term failure. Such efforts are best defined as exercises in futility.

After August 1st there is no better time to stop, rebuild the origination’s foundation and prepare for the new mode of lending.

A frequent topic of discussion these days is what division should own equity lending: consumer lending or mortgage.  This question comes from our banking clients that offer a wide selection of lending products to their customers, and thus often face organizational design challenges triggered by changing business dynamics.

At one time, the high volume of piggyback loans made the move from consumer to mortgage lending for closed end seconds a common sense decision.  This allowed the loans to be originated and, more importantly, underwritten in tandem, saving time and money in the process.  Coordinated closings were simple, without the need for communication across divisions. But interest in seconds waned with the credit crisis and volume declined, and many organizations moved equities back to consumer lending.

Recently, increasing rates and renewed interest in piggyback lending for affordability has brought focus back to the equity side.  Many banks are re-thinking their production of equity products, and what makes sense about where they are originated.

There is no “right” answer for everyone, but decisions should be based on resources, technology, compliance and other factors, including what the strategic focus for the product is.

  • A closed-end second has always been a stepchild in the consumer lending world, taking more time and requiring a more complex skill-set to complete the origination process.  With the parallels between closed-end seconds and first mortgages, the skill-set exists within the mortgage lending division, but a streamlined process may be needed to allow them to co-exist without slowing the origination of seconds.  HELOCs, on the other hand, are more consumer lending friendly and require more skills and knowledge to be added within the mortgage division if responsibility for these products were to shift.
  • Most consumer and mortgage loan origination systems are delivered supporting the production of closed-end seconds.  Tasks such as setting up the appropriate products and pricing guidelines, defining new workflow and integrating of new documents will be needed, however.  Note that mortgage loan origination systems are not well suited for the HELOC product, although some vendors are moving in this direction.
  • Compliance is a critical part of the equation these days.  The pending CFPB Integrated Disclosure regulations affect both mortgages and closed-end seconds.  Lenders must support new calculations and meet new guidelines to provide the borrower with disclosures and documentation in a timely manner. Lenders have a significant amount of work ahead of them, even if their system vendor is supporting their technology to meet the August 2015 deadline.   The level of effort should not be underestimated, and in many cases aligning first and second mortgages represent a timesaver for both the testing and ongoing compliance oversight activities.  Addressing these regulations is particularly important given the new, higher penalties that CFPB will impose should the regulations not be met.
  • Equity products are often considered a bank branch product, and are promoted within the bank as part of the branch’s offerings.  The platform staff support the application and delivery of these products, increasing branch traffic as well as providing them with a revenue stream.  Mortgage lending, on the other hand, may be connected to a branch but is not as intrinsically linked.  A separate mortgage loan officer is involved and responsible for maintaining service levels to the customer.  Each organization must weight their pros and cons to any changes to the status quo, and ensure that all employees are appropriately incentivized for their efforts.
  • Ideally, the bank should involve resources knowledgeable about both mortgage and equity products to help guide them towards the right product for their situation. Unfortunately, staff can only promote the products they know.  Mortgage loan officers should have deep knowledge of the mortgage products, pricing and process.  Bank branch personnel have knowledge and experience about consumer lending products, and their role in the process. If equity is under consumer lending, then the mortgage loan officers likely have no incentive, interest or even knowledge about equity products.  Likewise, the bank branch personnel are not well versed in mortgage, and given the current regulatory environment, are often prohibited from discussing too much with a customer for fear they will say the wrong thing or collect too much information.

The mortgage industry is entering a new phase, loan officers need all the tools and information they can get to offer the best solution to their customers.  This doesn’t always require that equity and mortgage be originated within a single division, rather that training is provided across the product spectrum to provide mortgage loan officers with a complete portfolio of knowledge, with opened communication lines between divisions (when needed), access to current pricing and product descriptions, and streamlined workflows established to take and process an application, regardless of whether the customer selected a mortgage or equity product.

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