As the real estate and mortgage lending industries move toward paperless closings, headway is being made at both ends of the process.
While many lenders now use sophisticated loan-origination systems, there’s almost inevitably a stack of paperwork to contend with at closing.
After closing, lenders conduct painstaking quality-assurance reviews, doublechecking mountains of documents to confirm they are internally consistent and meet the underwriting and servicing requirements of secondary-market purchasers.
It might not seem obvious, but moving the post-closing process into the digital realm by converting paper forms into digital files represents progress on the road to paperless closings.
According to a midsized lender that’s believed to be the first to outsource the post-closing process, its new capabilities are a “Trojan horse” that’s speeding the adoption of paperless processes elsewhere in the company.
With $7.25 billion in residential loans funded in 2006, First National Bank of Arizona claims to be the largest privately held, family-owned bank in the Southwest. Employing more than 1,000 at its Scottsdale headquarters and 14 retail banking branches in Arizona, FNBA is also a mortgage lender in 49 states, specializing in Alt-A loans.
While the bank is focused on growing its business, it must do so in a disciplined way, said Pat Lamb, president of FNBA’s mortgage division.
“As you grow, you are constantly looking for ways to do things more efficiently, rather than just adding people,” Lamb said. “In 2005, there was a very significant push to become more efficient, and create a scalable business in our back end. Most of the concentration prior to that had been customer facing — allowing brokers to lock loan pricing, and do preunderwriting online.”
So FNBA hired Accenture — a management consulting, technology services and outsourcing company — to help the bank acquire and launch a new loan-origination system (LOS).
After helping the bank integrate Fidelity National Information Services, Inc.’s Empower LOS system into its operations, Accenture approached the bank with another idea: outsource its post-closing process.
Accenture had a proven track record in business process outsourcing (BPO), but hadn’t applied its experience to mortgage lending.
“We were approached by Accenture because we are a small, privately held company that is flexible, nimble and able to make decisions quickly,” Lamb said. “They needed to get in and prove their concept worked (in post-closing), so we were a good pilot.
“They said we’ve got people now you’ve been working with on LOS, and we are one of the largest BPO providers in the world, and we think we’ve put together a solution we’d like you to consider.”
The solution proposed by Accenture and its partner, Epitome Systems Inc., was to provide the bank with file-room services including imaging to convert paper documents into electronic form, allowing quality-assurance reviews to be performed by workers in India.
Checking with several other companies that provide similar services gave FNBA a benchmark to measure what Accenture was offering. A trip to India in the summer of 2006 helped persuade FNBA executives that Accenture had the expertise to handle the work — and could meet the bank’s security and privacy requirements.
The green light
In late December, four months after getting the go-ahead, Accenture and Epitome began imaging and processing files for FNBA.
Today, FNBA offices around the country ship loan documents to a central location in Arizona, where they are imaged and stored on servers in the U.S. Digitizing the documents eliminates the need to flip through stacks of documents, and allows the work to be done remotely from anywhere in the world.
Accenture employees in Chennai, India, perform quality-assurance reviews, highlighting and fixing discrepancies using a checklist of 350 questions for each loan.
“We’ve taken functions that are not core competencies of the bank, and moved those to Chennai,” said Accenture’s Ted Landis. Accenture’s Global Delivery Network includes more than 40 centers in 30 cities around the world, including Mumbai, Manila, Shanghai, Bucharest, Warsaw, Prague, Madrid, London, Buenos Aires and Toronto.
Landis, an 18-year veteran of Accenture, is the senior executive in charge of the company’s North American credit practice and the mortgage BPO business.
Outsourcing the post-closing process eliminates the problem of having to adjust the workforce to handle ebbs and flows in the market, and increases process controls, Landis said.
Payment is per transaction, so costs track with revenue and are predictable — an important consideration as mortgage lenders try to adjust to fluctuating revenue as never before.
“I see this as a period of retrenching for everybody,” Landis said. “As revenue goes down, you’d better match it to your cost basis.”
The system is compatible with loan-origination systems (LOS), preserving the investment companies like FNBA have made in such platforms.
Implementing the system is a three-step process, Landis said. First, Accenture conducts process reengineering, finding trigger points for failure. The next step is applying content capture and the indexing of documents, with “rigor and discipline” around operating or service-level agreements in order to resolve issues for downstream users like loan servicers or secondary-market purchasers. Finally, the digitized documents must be made available through Accenture’s global delivery network.
“The system Epitome put in allows you to view the imaged document in split screen, with quality-assurance questions right next to the document,” Lamb said. “So you can scroll through and answer the questions, and make sure they match up with the loan-origination system.”
Because the system also has optical character recognition capabilities, there’s also the potential to automate some of the quality-assurance review process, Lamb said.
In the future, FNBA plans to image documents in branch offices, so they don’t have to be shipped to Arizona to be scanned.
“Now that we have an imaging system in place, I look at it as a Trojan horse in our organization,” Lamb said. “We’re already expanding the tentacles of the system out to the rest of the company.”
FNBA employees in quality control, secondary marketing and appraisals now have instantaneous access to documents that once took days to retrieve from storage, Lamb said. If a question comes up about a loan in due diligence, for example, an appraiser can look it up online.
“It allows everybody in the company to access parts of documents they need to do their jobs, instead of ordering documents and having it take three or four days for delivery from storage,” Lamb said.
Accenture’s Landis agreed.
“We think there’s a huge opportunity to move upstream in the cycle, without disrupting the significant investment they’ve already made in LOS systems and technology,” he said.
Digitizing documents and making them available online will also help speed up the loan cycle and reduce costs for secondary purchasers to perform due diligence.
Until now, FNBA has had to produce paper copies of loan documents, and secondary-market purchasers would fly employees to Arizona review them.
“Now, when they flag loans for due diligence, we can give them access to a password-protected Web site, and they can do due diligence right away,” Lamb said, decreasing turnover time for loans.
Now that Accenture and Epitome have demonstrated proof of concept, they’re eager to pitch their system to other midsized lenders.
“This was not a one-off customized solution for FNBA,” Landis said. “This is a repeatable capability that can be plugged into any organization very quickly.”
So how big does a lender have to be for post-closing BPO to make sense?
“If you look at FNBA, I think that’s about the right scale, up on to the big players,” Landis said. “That’s a good baseline, although we can flex on that a little lower.”
Landis sees a good opportunity for Accenture and Epitome to provide post-closing BPO services to other “middle tier” lenders who are making 35,000 to 150,000 loans a year, or more.
Savings start at 25 percent to 30 percent and go up from there, Landis said.
“This does not take a lot to evaluate whether this holds water for them from a business standpoint,” Landis said. “We have a diagnostician come in and very quickly assess whether this proves out for them, and we can do it in three to four weeks maximum with very minimal upfront investment, and you pay by the drink.”
Ben Millrood, senior vice president of sales and marketing at Epitome, said that there’s more to selling potential clients on post-closing BPO than their bottom lines.
“What we’ve found is the biggest challenge for tier one, the top 50 banks … is some of the political walls management has set up in these companies to protect their fiefdoms, the technology they’ve invested in, and in many cases their jobs,” Millrood said.
“Pat had this vision — as a middle market regional player you’d think outsourcing would be tough,” Landis said. “This has given Pat an opportunity within the bank to demonstrate this can be done.”
Millrood said the collaboration between Epitome and Accenture distinguishes their BPO solution from competitors, because imaging services and the technology that enables clients to access their documents is bundled together in one package.
“We were able to get the initial deployment up in 120 days, which is amazing considering … Epitome and Accenture were working together for the first time,” Millrood said. The next client can expect to be up and running within 30 days, he said.
While the project was Accenture’s first chance to prove its BPO solution in the field of mortgage lending, Millrood said Epitome completed a similar effort six years ago for its former parent company, GMAC Mortgage.
Epitome, a GMAC Mortgage spin-off, has “deep IT experience in the banking world,” Millrood said. In addition to its imaging technology and know-how, Epitome brought its experience in application integration and business process management to the table, the companies said.
Although the terms of the two-year agreement between Accenture and FNBA aren’t being disclosed, Lamb said the bank got a break for serving as a guinea pig.
Since it was Accenture’s first time applying the company’s considerable expertise in BPO to mortgage lending, “we knew there would be bugs, and we sought and received some financial benefit for that,” Lamb said. “We feel like we’ve probably paved the way for people to do this more quickly than we were able to.”
With the bugs worked out, the FNBA executive said, “The system Accenture has put together is refined enough to be put into practice much more easily.”
“This is almost a turnkey for the bank in post closing,” Accenture’s Landis said. “You can’t ever BPO everything out, but it’s a very robust solution” easily extended into other aspects of the business, he said.