The headlines from the most recent (third quarter 2010) FDIC Quarterly Banking Profile look pretty rosy – “Year-Over-Year Earnings Improve for Fifth Consecutive Quarter”; “Net Income Totals $14.5 Billion, Up from $2 Billion a Year Earlier”; and, “Industry Assets Increase by $163 Billion”. But, once you begin peeling away the layers of the onion to reach the operational level of many of the insured institutions whose performance is lauded in these performance metrics, a challenge appears for providers of Loan Origination Systems (LOS) and a new approach to the design and delivery of a broader Loan Management System (LMS) emerges.
Setting aside the 665 financial institutions with assets greater than $1 Billion, the remaining 7,095 insured commercial banks and savings institutions in the US have reduced their employee count over the past twelve months by almost 5%. In the case of institutions with less than $100 Million in assets, the cut is a whopping 16.5%. The implications of this reduction in human resources are wide ranging, but for the LOS provider it means that we must find ways to make users both more efficient and more proficient in the overall origination and management of real estate mortgage loans.
Efficiency may be increased by providing access “anywhere, anytime” through web delivery, requiring nothing more than Internet access and a standard web browser at the user’s location. According to Frank Jerman, Lending Manager with Coloramo Federal Credit Union, “We serve approximately 8,000 members across the country. The ability for our lenders to access the web-based loan origination platform anytime, anywhere and collaborate in real-time is essential to our business”. As organizations become more “virtual” in nature, having this type of access to a cloud-based LOS has become almost a given when evaluating new platforms.
Providing an easy-to-use, intuitive interface that allows users to accomplish tasks with a minimum of data entry, also increases efficiency. For instance, once a value is entered on a 1003 or other data entry form, that value cascades through all other forms within the system that contain the same field. This also greatly reduces the chance of input errors and forces consistency throughout the system. Loan Officer Irene Bycko, with Cleveland Selfreliance Federal Credit Union, considered a number of LOS offerings before selecting a web-based platform to replace their old technology, “The differentiating features that the application offered – an easy-to-use and robust user interface (and competitive pricing) – ultimately made our decision an easy one”.
And finally, efficiency may be improved by providing an intuitive workflow that: allows for the tracking of milestones; assignment of tasks (either to oneself or others); setting of conditions; and, real-time, on-line collaboration both with colleagues and with borrowers in a paperless environment. This aspect may best be summed up by Lee Ann Loucks, Real Estate Loan Officer for Community First Bank, when she says, “We are a small community bank, and each of us wear many hats, so the efficiency that comes with the time and cost savings of using a LOS with intuitive workflow is invaluable”.
All of these features allow leaner, time-strapped financial institutions to manage more loans with fewer people. Today, thankfully, there are true, web-based, software-as-a-service LOS platforms such as XetusOne that provide these advantages over older, first-generation systems. This however is only a starting point for providing a solution that brings true proficiency to an organization.
As banks, credit unions and other depository lenders have been forced to become leaner and more efficient, there is increased emphasis on each team member’s ability to “wear many hats” within the organization. This means that areas that were once staffed by vertical specialists are now executed by generalists with a broad understanding, but with less experience, in the details of every step of a process such as loan origination. Because of that trend, it has become incumbent on the modern LOS platform to, in a sense, “coach and train” its users, almost replacing the traditional mentor/student relationship that existed in the past in most organizations.
By adding intelligence to the LOS to guide users through evolving regulations such as RESPA, Reg Z (and its subsequent MDIA amendment) and Title XIV of the Dodd-Frank Act, LOS providers can allow today’s new generalists to become more proficient in the loan origination process. In order to succeed in that endeavor, the LOS must contain a blend of LOS-specific interface screens and direct interfaces to third parties that specialize in compliance, whether it be intelligent error-checking of data, or state-specific compliance in the creation of disclosures, either for initial sets or the entire final set of closing documents.
In the case of RESPA, systems such as XetusOne’s new RESPA-compliant interface show both the HUD-1 line numbers and the GFE block numbers on the GFE. The GFE still looks the same, so it’s easy for “generalist” users to make the transition. In this case it is was crucial to weave the spirit of the strict regulations into the required continuity from GFE to HUD-1. That is the real user interface challenge that LOS providers face in reaching this new level of “mentorship”. However, when it is done correctly, users notice. According to Jennifer Durham, Chief Operating Officer of Member Advantage Mortgage, “the transition to the new RESPA regulations was as painless as possible, we didn’t have to figure out anything with this change. We simply had to turn on the computer and the LOS handled everything.” The interface immediately flags any value that falls outside the permitted variance with a red warning box, a feature which Durham says she found most useful because loan consultants can immediately see the issue and must address it.
Much like a person building a home depends upon a General Contractor to be their single point of contact throughout the building process, today’s LOS user depends upon the LOS to be their General Contractor for the loan origination and management process. So, just as a General Contractor needs to know all the building codes and know which parts of the building process he or she can manage directly and which need to be subcontracted to a specialist in plumbing or electrical or HVAC, the LOS provider needs to monitor both existing and pending regulations and know which they can implement directly and which they’ll need to have provided by a partner. While the person building a home knows how much living space (number of bedrooms, bathrooms, etc.) they need and the style of home (ranch, split-level, colonial, etc.) they’d like, they depend upon the builder to manage the details and to make sure that their completed home meets all local building codes and will pass all requirements to obtain a Certificate of Occupancy. In much the same way, the LOS user knows what type of loan (conventional, FHA, VA, etc.), what term (15 year, 30 year, 5/1 ARM, etc.), and what rate they’d like to provide to a borrower. However, they increasingly depend upon the LOS to manage all of the data consistency, compliance, audit trail and state-specific documentation to close a loan that meets the criteria to be sold to an investor without fear of a forced buy-back or penalty fees.
And, there is a natural extension to this analogy. After living in a home for a few years, circumstances might change and a homeowner may decide to expand his or her home or replace some windows or remove a wall. Rather than bringing in a specialist who only does remodeling or window replacement, wouldn’t it be nice to be able to deal with the same General Contractor who built the house in the first place? After all, he has all of the drawings, knows how the home was constructed and has relationships with the same subcontractors that will likely be needed on this project.
The same is true for the new breed of LOS known as a Loan Management System (LMS). A Loan Management System, in addition to originating loans, allows for the subordination, modification and overall management of loans throughout their lifecycle. So, the same “generalist” who originates loans one day may use the same LMS the next day, working with the same attachments (the “drawings” of the builder analogy) and same data providers (the “subcontractors” of the builder analogy) to underwrite a subordination request or analyze cash flow for a possible proprietary or HAMP/2MP loan modification.
Therefore, as this trend toward generalization continues, forward-thinking LOS providers are expanding their platforms to allow for the broader management of existing first and second mortgages. In fact, systems such as XetusOne are being used today by financial institutions to review subordination requests, restructure mature HELOCs and mitigate losses by modifying non-performing loans – all by the same pool of customer service representatives and underwriters, all with the same user interface and all on the same web-delivered software platform.
The ability to utilize a LMS in this way highlights the flexibility that a modern architecture gives for handling application-specific tasks through a common interface that is easily mastered by generalists, wearing one of their many hats within the organization. Further, these modern, web-based Loan Management Systems are able to integrate easily with appropriate legacy data systems without requiring any expensive IT resources from within a lender’s organization. This usability and integration enables what were once separate silos of experts within organizations to be replaced by generalists working on a common platform, with a common interface and data repository. An additional benefit of these modern Loan Management Systems is that embedded logic allows calculations and decisions that were previously arrived at either manually or through enormous decisioning spreadsheets that specialists had to populate by hand, to be automated within the LMS and presented in a context that generalists are accustomed to and comfortable with.
While there is still a great deal of knowledge required of anyone involved in the loan origination and management process, this new generation of Loan Management Systems allows users to rely on the web-based platform to increase their efficiency, aid in their proficiency, and allow them to expand the realm of loan management activities which they may perform. This may all be done through a common interface with direct connectivity to guidance provided by a community of valuation, compliance and documentation experts. It’s not at the Microsoft Word for Loan Officer level yet, but with some systems such as XetusOne available in the market today, it’s headed quickly in that direction.