SAN FRANCISCO–Of every dollar spent on labor costs to originate a mortgage, 85 cents goes toward activities that don’t add value to the process.

Many of those – such as creating and following checklists – could be automated, saving money for a company, said Neal Siegel, senior consultant with IBM. Siegel’s comments were part of a session this week on “Lowering cost through automated underwriting, decisions and scheduling” at the Mortgage Bankers Association’s 2004 convention.

In addition to cost, the other reason mortgage companies should consider automated systems is speed, he said.

“A mortgage is a perishable product,” Siegel said. “Rate locks expire, commitments expire. Appraisals become stale as do credit reports.”

With an automated system, a loan “is not going to sit on a processor’s desk a moment longer than it necessarily has to,” he said.

Allan Redstone, CEO of GHR Systems pointed out that automation is not the same as technology because automation reduces or eliminates the need for human touches during the process, and technology is just a tool. Technology is used to scan documents, whereas automation occurs through a system that automatically orders third-party services whenever process milestones are reached. GHR provides lending automation technology and services.

Productivity gains from technology have been largely realized across most industries, including mortgage origination, he said. The next true cost reductions will come from implementing automation systems, not from technology.

Automation systems can be programmed to have a date tickler function, which issues reminders when certain points in the origination process are reached, eliminating the need for endless checklists. They also can take care of certain tasks themselves such as ordering certain reports.

Such automated workflow can help solve the problem of employees not knowing what to do next and managers being unaware of where bottlenecks occur in the process, Redstone said. It also can help more clearly define tasks and ensure those tasks that require a human touch are assigned to the appropriate person.

Automation should be touchless, paperless and measurable, Redstone said. Companies should be able to measure the impact of automation and solicit feedback on the systems.

Benefits of implementing such systems can include cost and time reductions in the loan origination process. In some cases, companies have seen both the cost and time needed to close loans cut in half, Redstone said. They also can reduce the number of human touches on underwriting decisions by 65 percent. Fewer human touches leads to fewer errors and an improved overall quality of the process.

That, combined with the increased processing speed, can lead to better customer satisfaction, he said.

Still, the idea of automation can be daunting for many. Companies may feel they must automate the entire process, but both Siegel and Redstone advocate a smaller, more incremental approach.

“Keep it small, keep it tactical, get it done,” Siegel said.

That also keeps it cheaper, a key factor since automating everything all at once can be expensive. That approach, while potentially the fastest way to true automation, is also high risk, Redstone said. It’s difficult to think of every process all at once without forgetting different pieces.

A less expansive approach also can result in small successes, allowing a company to see whether it is getting a good return-on-investment by automating that particular segment, Redstone said. The incremental approach also can help ease employees into the change process.

“There’s a lot of resistance to changing, so you really have to consider that change management component,” Siegel said.

To make automated systems successful within a company, Redstone said, the change needs to be easy for all the stakeholders.

“The mortgage industry has a long history of failed technology attempts,” Redstone said.

And, Siegel said, companies must allow for more than just one loan assembly line in their automated systems. Each loan application has different requirements and variables, meaning lenders should have automated systems that can deploy 50 to 100 different models to process loans.


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