Origination Views

Getting Ahead without Falling Behind

By Rob Katz

Mr. Katz, president of the San Diego-based mortgage technology provider Del Mar DataTrac, has written an opinion piece on how mortgage originators can manage their operational capacity when volumes ebb and flow. The following are his thoughts on this topic.

Imagine this scenario: The number of loan applications coming in the door drops, so you reduce your staff. That's a painful event because these are real people that you care about and letting someone go - especially in this economy - makes you feel sick to your stomach. Then the Fed steps in and calls for a secure secondary market. This support makes rates drop below the magic 6% barrier, and a refi boom overwhelms your crew.

What happens? Since you are now understaffed, your customer service levels reach an all time low and your referral business suffers.

On top of all that, your warehouse bank is constantly looking over your shoulder, scrutinizing your financials and business plan to ensure you are going to stay profitable.

Sound familiar? If so, then you are probably asking this question: How do I run a profitable and successful lending business in a chaotic and unpredictable market?

First of all, keep your warehouse banks happy. Your warehouse banker wants to have confidence that the loans they fund will get sold off their line. To give them this confidence you must close clean loans that your investors buy without suspense restrictions; account for your profitability on a loan-by-loan basis (to the penny); and provide easy to understand reports that present your business's profitability.

Some technologies can be configured to make sure that all the necessary data has been collected as the loan progresses from the time it is submitted, through underwriting approval, doc creation, funding and closing. At the point of shipping, these technologies can automatically audit the closing package to ensure completeness and proper stacking order prior to being electronically delivered to your investor.

Not only can such a system ensure you are creating clean loans, it also can include financial reconciliation and instant reporting that can help keep both you and your warehouse bank in the loop concerning your profitability.

Once you have covered your warehouse lenders, your attention should turn to your referral channels. Clearly, you need loans coming in the door. You need to focus on your sales channel and customer/partner referrals. Don't be afraid to ask your customers for referrals.

If they were happy with the service they received, they should have no problem introducing you to their friends who are shopping for a loan. If they were UNHAPPY with your service, then they will hopefully tell you what you did wrong so you can improve. Either way, it's in your best interest to ask them.

What are the keys to providing exceedingly good customer service?

1. Set realistic expectations

2. Clearly and frequently communicate progress

3. Answer any questions quickly and accurately

4. Do what you say you are going to do

Before you can set expectations, you need to be sure that everyone on your team understands your lending process - what is required to get the ball rolling, how long each step takes and what should be communicated when. And, the only way to successfully make that happen is to document your process.

We ran through this exercise at the lending shop where I used to work. It took longer than expected to get it all figured out, and some of the "discussions" that resulted were quite surprising. For example, our doc drawers thought that underwriters were checking something in the file before handing it off, but the underwriters thought the closers checked it - so no one was checking it! What made that particular discovery so shocking was that our team had been together for over five years and sat three feet apart!

A huge benefit in deploying good technology is that it actually forces you to go through the exercise of understanding and documenting your workflow. This helps to ensure that everyone on your staff knows what everyone else is responsible for.

A lot of lenders we work with strive for a "Nordstrom level of service." What this means is that they instill a "customer comes first" level of commitment for everyone on staff. As hard as everyone tries, though, the perception from your customer may not be as good as you think.

Does this sound familiar?

A borrower calls the broker with a question about when they will be signing. The broker tells the borrower that he will look into it and call them back. Next, the broker calls their account executive - gets a voicemail. Then the broker calls his or her inside rep - gets a voicemail. Frustrated, the broker calls back and hits "zero" for the operator.

Meanwhile, the operator is on another call, so it goes into the general message box. The broker gets frustrated and randomly hits extension 103 hoping for a live body. The IT guy answers the phone. Upset but trying to stay calm, the broker explains that he is just looking for a date when they will have docs. Thinking like a Nordstrom employee, the IT guy apologizes and tells the broker to hang on while he personally tracks down someone with the answer.

The IT guy starts walking around the office interrupting everyone to see who can help. Along the way, he is stopped twice because one of the printers is jammed, leaving the broker on hold even longer. Finally, the IT guy finds an underwriter who drops what she is doing to help the customer. After asking a number of questions, the underwriter searches around the office and finds the file.

Finally, the underwriter tells the broker that what is holding up the docs is the Verification of Employment (VOE) from the borrower's spouse. The broker calls back the borrower - leaves the answer on voicemail.

Sure, your entire staff has a Nordstrom quality to it, but your customers' (borrowers and brokers) experience was terrible.

What if, instead of this typical scenario, you had the proper technology in place that could empower your sales channel as follows:

1. Borrower has a question about when they will be signing paperwork

2. Borrower calls the broker

3. Broker logs into your website

4. Broker finds borrower on pipeline

5. Broker sees that a VOE is the only outstanding Prior to Document (PTD) condition

6. Broker tells borrower to get the spouse's VOE

7. Everyone hangs up happy

AND, no one in your back office got interrupted from what they were doing.

Frankly, if your business doesn't provide this type of automated access to empower your sales channel to "self serve," there is no way you can remain competitive.

The last point you need to consider is how to support a fluctuating business without constantly ramping up and down your staff.

With the right team and solutions in place, you should be able to grow your business significantly before you need to increase your staff.

To determine the "right" size staff for your business, you need to know your Efficiency Quotient (EQ) - a number you measure every month to track your ability to do more with less.

To calculate your EQ, first count the number of loans funded in a month. Then, count the total number of Full-Time Equivalent (FTE) people who made those loans happen. For example, an underwriter, a closer, and a part-time accountant would be 2.5 FTEs. While counting FTEs, include everyone involved in your mortgage lending operation (don't forget legal, compliance, accounting and accounting staff), without including loan officers and their managers. Typically, the sales side fluctuates a lot, and you don't want these changes to muddy your EQ. Finally, divide the number of loans by the number of FTEs.

If your EQ is 12 or higher, you are doing pretty well. If you are below 12, you have too many people.