Mortgage Lending in The Digital Era: Smart ways to improve origination, servicing, and transfer to the secondary market while reducing costs.

Transcription

1 White Paper Mortgage Lending in The Digital Era: Smart ways to improve origination, servicing, and transfer to the secondary market while reducing costs. Samuel D. Baker Managing Principal, Xerox Global Services, Inc. August, 2004

2 Table of Contents 2 Introduction 2 Challenges of paper-based mortgage lending 3 Benefits of enabling your work processes with electronic document management 3 Quicker application to funding cycle times 4 Enhanced loan servicing 4 Improved customer satisfaction and retention 4 Faster unload to the secondary market 5 Process capacity matched to market conditions 5 Reliable, cost-effective information access and retrieval 5 Lower cost of compliance and increased asset value 6 Infrastructure and work process requirements 6 Conserve capital for revenue growth 8 Conclusion Introduction Traditional mortgage lending processes typically utilize cumbersome, paper-intensive work processes that decelerate business exactly the opposite of what is needed in a highly competitive and volatile market. Today, though, many leading banks and mortgage lending institutions are finding that by minimizing or eliminating physical paper handling, they are able to: Increase time-to-revenue velocity and reduce costs by accelerating and improving work processes. Enhance asset quality and increase customer service levels. Mitigate risk with improved regulatory and investor compliance. This paper highlights some of the challenges associated with paper-based mortgage lending processes and the benefits that can be gained by transitioning to a paper-free mortgage loan document management environment. Challenges of paper-based mortgage lending Mortgage lenders contend with a host of different, complex, multi-page documents and forms, including applications, earnings verifications, statements, tax forms, credit reports, appraisals, and contracts each of which that needs to be accepted, prepared, and processed so they can be put to use. These documents can be divided into two general categories: Internal documents, including forms and documents generated within the organization. Internal documents can be controlled and lend themselves to XML formatting, standardization and encoding techniques such as GLYPHS TM to facilitate recapture, indexing and cataloging by embedding meta-data. 2

3 External documents, including documents collected from borrowers and other sources outside the mortgage lending company. The lender therefore has no control over the creation of these documents. External documents are much more random by definition and are more difficult to automatically process into an electronic domain. Most often, some human inspection of the document is necessary to categorize and extract meta-data accurately. For many financial institutions, handling external paper documents is time-, labor-, and cost-intensive, and pose a large drag on operational efficiency: Physical paper forces serial work processes, which means task distribution must follow the physical paper distribution. This restricts access to information, increases cycle time, and causes load imbalances across the workforce. Making multiple copies and distributing loan files between departments increases costs, causes version control issues, and can be a security problem as personal financial information is replicated, distributed, and stored with very few controls. Scaling paper-based processes is difficult and labor intensive. Increasing unit production forces labor increases, while periods of lower unit volume must be met with labor force reductions. Meeting this cyclical demand of human resources is difficult in a volatile market where rates change literally every day. Storing and retrieving paper-based information is laborious and inefficient. Information that needs to be instantly accessible can take hours or even days to retrieve, lengthening origination and securitization cycles. In addition, paper documents are easily misfiled, damaged, and are difficult to secure. Manually organizing paper documents for review by government entities (for activities such as Fair Lending audits) are costly and time-consuming. Paper loan documents take up valuable office space and/or require costly warehousing. Canceled and denied transactions are especially noticeable, as they represent all cost and no revenue and must be maintained for two years in most states. The inefficiencies of handling paper have caused severe effects on mortgage lending institutions. From an operational perspective, inefficient work processes slow mortgage origination and securitization and cause poor closing ratios. From a cost perspective, paper-caused inefficiencies negatively impact the sale value of assets as well as customer service. As service degrades, lenders fail to retain customers through payoff which translates into excessive turnover and write-offs. In addition, as service degrades, customers are more likely to re-finance with another lender. Benefits of enabling your work processes with electronic document management By replacing manual, paper-based processes with electronic document management, mortgage lenders are able to achieve tangible, measurable, repeatable results: Quicker application to funding cycle times Enhancing Loan Origination Systems (LOS) by adding electronic document management can accelerate origination and underwriting. Simply put, loan origination and underwriting processes are simplified and streamlined by making the right documents available at the right time for Loan Processors, Credit Analysts, and Closing Agents. Also, adding electronic document management to the origination work process improves the ways in which borrower information is accepted, processed, and utilized within the electronic loan folder. The results: Faster originate and unload Less drag on warehouse lines of credit Lower hedge fund risk Reduced cost of operations Higher real asset values Improved servicing asset values Superior regulatory compliance Better customer service 3

4 The benefits of electronic document management continue even after loan origination. Automating verification, matching, and approval decisions speeds application-to-loan and sales cycle times. During Re-Fi waves, immediate access to a borrower s documents accelerates and simplifies the process while reducing risks, and enhances customer loyalty by reducing the chance customers will take their loans to another lender. An electronic, rules-based, document-centric work process can eliminate non-value-added work steps, enabling collaborative and parallel workflows during loan origination, and proactively managing loan file completeness. Rules-based document management can also be used to support approval decisions by verifying all required documents are present, and providing them to the appropriate point in the business process. Enhanced loan servicing Traditionally, the handoff from origination to servicing can take up to 90 days and sometimes more. Naturally, customer service is slowed and impeded when the Servicing organization does not have all the information necessary to assist customers. For instance, data regarding payment and/or status may be elusive or non-existent until the loan folder arrives at the Servicing organization. Therefore, all the information and documents needed to service the loan are not readily available to the Servicing staff. Conversely, instantaneous access to information enables faster and more informative and accurate interactions with the customer. Reducing NODD (number of days delinquent) is enhanced by immediate access to the loan documentation because the servicing organization can more accurately manage the delinquency. If the loan forecloses, packaging and selling the loan is faster and less costly while preserving as much value as possible in the transaction. Improved customer satisfaction and retention Retaining a strong customer base is vital to reducing turnover, avoiding pre-payments and write-offs, and preserving servicing asset revenue streams. Using electronic document management solutions, customer service can be improved throughout the lending cycle. The origination process is expedited and approved when customers know where they are in the pipeline, which documents have been received, and which documents need to be completed next. At the same time, customer satisfaction can be significantly improved by managing the document collection process with tools specifically designed to track the required documents. Proactive document management alerts the lending staff as customer or vendor documents arrive, and then proactively signals which forms and documents are needed to move the transaction forward to completion. Proactively guiding the transaction and required documents through the pipeline improves the lending institution s interactions with customers, enables faster response to inquiries, reduces time delays, and minimizes customer frustration. Electronic document management further reduces the risk of customer frustration (and lender embarrassment) due to the inability to quickly locate borrower documentation. Operationally, lenders are able to leverage efficiencies to enhance customer retention and increase profitability during the re-finance process. Having the customer s documents on hand and reviewable for the new transaction saves both the customer and the company significant time. Faster unload to the secondary market The post-closing process and sale to the secondary market is characterized by financial reconciliation and extensive document quality checks. The postclosing inventory of documents is greatly enhanced and accelerated when the document management system has insured compliance with the needed inventory of documents. This acceleration can produce significant savings in warehouse interest costs and an overall reduction in the hedge fund 4

5 requirements used to offset the warehouse. A consistent pattern of high quality and complete loan documentation can enhance the value of a company s portfolio driving unload value above face value. Implementing an electronic document management system has significant advantages: With electronic mortgage files and loan books, mortgage lenders can dramatically reduce the time and costs necessary for post-loan-closing quality control and the pooling and shipping of loans for delivery to the secondary market. Electronic loan books make it easier to audit and demonstrate the quality of assets during unload to the secondary market, essentially reducing the risk for the buyer and, in turn, enabling a quicker sale at a better price. Speeding the transfer of the loan to the secondary market reduces financial holding costs for lenders. Version control, automated routing of documents, and reduced risk of misfiling/loss of documents prevents costly mistakes. Process capacity matched to market conditions Mortgage processing is extremely volatile. Paperbased operations must expand and contract linearly with cycles of the market. Contributing to the complexity is the fact that different regions in the U.S. exhibit the volatility at different times. Paper-based systems can t follow-the-sun or use a geographically dispersed staff to handle peaks because paper can only effectively be in one place at one time. Electronic document management enables a flexible architecture that can scale up and down seamlessly, move work to where excess capacity exists, and follow-the-sun to speed the process, enhance revenues, and shed costs. Reliable, cost-effective information access and retrieval repository. Using Web browser interfaces, branches, brokers, and central operations can search for and easily access documents on demand, ensuring informed decision-making while reducing delays, errors, and costly rework. An intuitive indexing system utilizing meta-data and a familiar folder structure maintains the security and integrity of the documents contained in the repository, connections between end users, and repository servers. Immediate access to borrower documentation improves internal operations, responsiveness, and the ability to make timely, accurate decisions. Storing electronic mortgage file documents in a central repository enables lending staff to easily access and work on a loan file simultaneously, greatly improving the efficiency of the loan process. Electronic distribution of digital files eliminates many fax, mail, and overnight delivery costs. Electronic information distributed on request improves loan servicing and increases customer satisfaction and loyalty. Comprehensive process controls ensure data integrity and eliminate typical workflow mistakes like lost documents, misfiling, and redundant processing. Security features protect confidential information, enabling only authorized personnel to access specific documents. Lower cost of compliance and increased asset value Mortgage lenders are highly regulated. Not only do annual state inspections impact productivity, inspections and audits by other agencies, trading partners, and litigation events all strain productivity and impact bottom line results. The time, cost, and labor involved with continually monitoring compliance can shift an institution s focus from making loans to responding to non-productive events. Compliance has two key benefits: Worldwide electronic search and retrieval capabilities provide fast, reliable, secure access to mortgage file documents and information from a central digital 5

6 First and foremost, compliance with State and Federal regulations can avoid significant fines and incarceration, and eventual loss of reputation. Next, compliance with the secondary market can enhance the quality of real and servicing assets. Increased quality leads to higher sell values, better trading partner relationships, smoother operations, and lower costs. Infrastructure and work process requirements Obtaining these digital benefits requires developing both work processes and an internal infrastructure capable of handling high volumes during peak mortgage lending activity. For paper-to-digital conversion, many institutions utilize central imaging centers, where hardcopy documents are converted to the appropriate digital format in bulk. The newly created digital files are categorized into logically nested Mortgage Loan Folders, identified by industry standard document types, indexed with loan specific meta-data, and integrated into the loan origination and/or servicing workflow using industry standard Web services. At the same time, distributed imaging services located at each individual branch or regional office enable independent brokers to capture mortgage documents early in the cycle. Furthermore, to maximize the ability to accelerate and improve loan origination, servicing, and sale into the secondary market, mortgage lenders must implement a system that: Allows for early and efficient capture of paper documents. Shares knowledge and customer interaction events that reside in multiple formats, including image, text, video, and voice. Has extensive management tools built-in that enable users to complete transactions efficiently. Enables electronic collaboration between lenders, their customers, and the secondary market including document sharing and viewing the status of in-process loans. Generates comprehensive reporting that provides work-in-process queries, historical productivity and quality statistics, and data warehouse functionality so managers can proactively manage the business. Uses Web services and Java Messages to achieve integration with current systems. Includes disaster recovery and operational redundancies to ensure business continuity in the event of a disaster. Conserve capital for revenue growth Building an infrastructure and re-engineering work processes can take focus away from a mortgage lender s core mission. In many cases, using scarce capital resources to implement an in-house document management system is not a good strategy for an organization. It is for this reason that many mortgage lenders find success by partnering with Xerox Global Services. By ensuring the seamless, affordable integration of document and image management with line-ofbusiness applications, Xerox Global Services helps mortgage lenders improve loan origination, servicing, and unload without having to spend precious capital on building an infrastructure and then developing and maintaining a document management system themselves. Xerox Global Services has a solution in place all mortgage lenders have to do is tap into it. Xerox Global Services then applies proven Six Sigma methodologies, metrics-based Service Level Agreements, and best practices learned from many customers in the banking industry to deliver the Mortgage Loan Document Management system on a cost effective subscription basis. Expertly trained Xerox Global Services consultants with significant industry experience work closely with mortgage lenders to identify, quantify, and 6

7 realize hidden opportunities to save money, find new sources of value, and simplify how work gets done. They combine extensive knowledge of documents, file formats, conversion, business information databases, and over 17 years of digital imaging process experience to accelerate mortgage origination, improve loan servicing, and put lenders on the path to paperless mortgage loan sale into the secondary market. Automation and process controls are incorporated to eliminate manual processes and increase operational efficiency. Access to leading-edge technologies without large investments on non-core business operations enables rapid, affordable adoption of process improvements. A flexible, versatile infrastructure enables organizations to react to volatile market conditions by quickly increasing or shedding capacity. Over 1,400 document types, pre-configured, in a Mortgage Loan Document Management System arranged in the typical Mortgage Loan folder provides for consistent and replicable operations and document collection. Escalation procedures provide process quality management and attainment of agreed-upon service levels. Xerox Global Services helps companies streamline and digitize their document-intensive business processes everyday processes like customer communications, billing, training, or records management. Our people work closely with clients to identify, quantify, and realize hidden opportunities to save money, find new sources of value, and simplify how work gets done. For more information on how Xerox Global Services can help implement solutions that accelerate and improve mortgage loan origination, servicing, and delivery to the secondary market, visit Sam Baker, Managing Principal Areas of expertise: Electronic Document Management Systems IT Industry: 18 years Xerox Global Services, Inc.: 5 years Managing Principal Client Account Lifecycle Management Practice Currently Sam leads a team of Principals focused on delivering Document Management systems to the Banking and Financial sectors. This team is responsible for matching document technologies with customer business requirements. Sam s team is responsible for the business relationship between Xerox Global Services and its clients on a worldwide basis. Throughout his career, Sam has held management roles in Fortune 50 and Small Business enterprises. Sam had been implementing document management systems since He has been a field engineer responsible for installing and maintaining EDMS infrastructures and for Product / Program development of a workflow and document management system for a major European systems integrator. Sam has been the MS Director of a Health Care company and directed the technology integration for an acquisition and merger between two healthcare services providers XEROX CORPORATION. All rights reserved. Xerox and The Document Company are trademarks of Xerox Corporation. 08/04 7