Or Will They Cut Paper Costs to Be More Competitive and Compliant?
(Editor's note: This select print feature originally appeared in the June 2016 issue of MReport magazine).
By Chris Strammiello
With stable interest rates and increases in housing starts and home sales, a healthy mortgage market is to be expected this year. According to the Mortgage Bankers Association (MBA), originations for one to four-family homes are projected to total $1.48 trillion in 2016.
With the rise of homeownership comes the desire of originators to improve the customer experience. Banks are constantly looking to improve the speed, efficiency, security and simplicity of their processes, especially in a competitive loan origination environment. Coupled with escalating costs and changing government regulations, the name of the game is to cut where you can.
TowerGroup, a financial services IT research firm, recently reported that a mortgage asset can only deliver on its potential “if financial institutions can leverage their technology systems to improve mortgage customer retention rates and cross-sell other financial products.”
That’s much easier said than done. Bank IT systems are generally old and their mortgage origination processes even older. But there are a chosen few that are wising up.
One way some banks are boosting operations through improved technology is by cutting down on the use of paper, or eliminating it altogether.
At the Housing Industry Forum in September 2014, James Grizzle, who chaired the Fannie Mae CIO Innovation Challenge Team on Data Quality, talked about how mortgages were one of the few processes in origination that are driven by paper. “Paper should be the product (of that process), not the driver,” he said.
The Paper Problem
While online and mobile banking services represent significant progress toward paper-free processes, banks have been slow to break the pervasive reliance on paper and manual tasks in loan processing. IT systems may be critical to customer retention, but the complexity, errors, and delays inherent in the prevailing paper-based mortgage processes are key contributors to customer dissatisfaction and attrition—the exact opposite result from what banks want.
According to a global study by analyst firm IDC, 37 percent of document processes in financial services are still driven by paper. Copying, faxing, scanning, printing, and manual keying of data occur at every point of the loan process. A typical loan package can easily grow to hundreds of pages and completing the process can take over a month.
Along the way, time, costs, and frustration add up as documents are sent by courier from branches to central scanning facilities, information is re-keyed multiple times off of paper documents into siloed systems that cannot capture data from scanned images, pages are lost, and errors are introduced. These inefficiencies appear to be the norm, rather than the exception.
An InfoTrends study found that only 18 percent of branch banks scan loan-related paperwork directly into back-end electronic systems. IT integration is so lacking in some institutions that documents that start out in digital form are actually printed to paper so they can be scanned.
Each error or missing page holds up the process until corrected, with customers losing patience and confidence over their lack of visibility into their application’s status and the bank’s repeated requests for the same information. And once loans are closed, regulations force lenders to get everything into the servicing system in compressed timeframes. Any missing information could create liabilities for the bank in the form of potential fines or write-offs due to errors if proper processes and supporting documents cannot be demonstrated.
The origination process has grown so inefficient and costly—$6,253 net cost per loan according to the MBA—that in the first quarter of 2014 mortgage banks reported a net loss of $194 on each loan originated.
To become more competitive, compliant, and efficient in their mortgage processing, banks need to capture documents and information electronically. By doing this, banks will eliminate the paper trail, automate manual steps and workflows, add security and control whereverpaper is required or information is transmitted, as well as simplify the sharing of information between business units. And finally, the main factor all financial institutions are looking to do: save time and money. Banks that do not automate their mortgage processes, and improve the customer experience by doing so, are essentially ceding business to competitors that will.
Three Steps to an Improved Origination Process
Banks looking to transform their origination process into a faster, more compliant, and better overall customer experience can follow these three steps.
How to create a simple, streamlined, and paper-free process:
- Digitize Documents at the Point of Origin
Typically, a customer seeking a mortgage loan comes to the bank branch with all of the supporting materials needed for an application, including tax returns, pay stubs, employment verification, photo ID, and more. Branch loan officers initiate the bank’s loan process, enter information into a computer, and collect the customer’s documents as part of assembling the loan package.
Customer signatures can further complicate the process with digital signatures still not widely accepted and no uniformity among the states. Oftentimes, the required signature drives document printing—which results in the printed form replacing the digital data. Ideally the signed contract should co-exist with the digital documents.
At a paper-dependent institution, loan officers would then place all the documents in a courier pouch, for one- or two-day delivery to the bank’s service center. To streamline the process, bankers should instead use the branch’s multi-function printer (MFP) or a mobile device like smartphone or tablet to capture and distribute all customer documents at the time of collection and directly into the bank’s mortgage loan system.
To unlock the device, loan officers authenticate themselves by swiping proximity ID cards or entering usernames and passwords, or PIN numbers on an MFP’s front panel or on a mobile device. With the bankers securely logged in, they will be presented with the predefined workflows that each individual is authorized to use. In this case, one of these workflows will capture the documents and transmit them securely to the bank’s service center, eliminating the logistics, time, and costs of manual handling and physical delivery. The banker involved in this case is notified immediately if the submission was successful, including the total number and type of pages. If there is an error in the document, the banker can be notified before the customer even leaves the bank.
Digital capture also facilitates “self auditing,” helping banks ensure all the appropriate documents have been properly processed through the tracking and auditing capabilities of the scanning software. It provides a consistent method that can extend across multiple locations, including offshore, enabling a corporate-wide best practice. Self auditing can improve the overall process as well, as errors can be caught before the customer even leaves the bank.
- Automate Error-Prone Manual Steps
Manual processes are inherently susceptible to mistakes—even when dealing with digital documents. Errors in tasks, such as the naming, batching, filing, and indexing of scanned documents, can create delays and require manual rekeying of information. Automated data extraction, document type identification (with or without barcode), image correction and cleanup, blank page removal, and double-sided scanning speed the handling and processing of loan documents, increase accuracy of the package, and eliminate the delay and errors of rekeying.
Loan origination solutions need to be designed to simplify use, minimize user tasks, and reduce risk. Bidirectional database lookups can auto-fill fields, speeding package completion for prior or current customers. Entire workflows can be predefined and saved to a single MFP button. Scanning functions that are fully automated can transform data into industry-specific formats without the user needing to know or specify any input or output settings. Also automated can be routine, error-prone tasks, such as barcode-based naming, batching, splitting, filing, and indexing of scanned documents. Validation and filtering at the point of origin ensure accurate document handling and routing, including the immediate routing of documents requiring wet signatures. When user action is required, visual prompts limit human error.
Taking these steps means that within seconds, bankers can receive automated notifications confirming successful scans, including the total number of pages by type. They can access this information, and future updates, at any time through a History/Status function on the MFP, and their desktop PCs and mobile devices.
- Accept Documents From Any Input Source
Suppose a customer’s proof of insurance was missing from the scanned documents. First, the loan origination system should immediately notify the loan officer of the exception, providing a barcoded cover sheet to assure the document—if available for scanning—gets correctly appended to the customer’s application. But if the customer left a document at home, even that’s no cause for delay.
The customer can capture the needed document and fax it with a specially barcoded cover sheet that automatically connects this document to the exception. Or the customer can send the document by email, with or without the barcode identifier, either to a one-time address linked specifically to the exception or to the banker’s business email address. The system needs to be able to capture documents from any input source, including scanner, email, fax, web forms, Outlook and Notes integrations, and a mobile client. So in whatever form the information exists, it can become part of the customer’s application.
The banker, in turn, can receive and review the emailed document on a smartphone and forward it to the loan origination system. From the smartphone, the banker should be able to securely access the same predefined workflows to add the customer’s document, resolve the exception, and check the loan’s history and status to confirm that the electronic loan package contains all required documents.
The Time to Act Is Now
Increased competition, escalating costs, changing government regulations, and simmering customer dissatisfaction provide ample reason for banks to improve the speed, efficiency, security, and simplicity of their loan origination processes. The delays, errors, and expenses of paper, in particular, need to be replaced with the quickness, accuracy, and economy of automated workflows.
Further, banks that automate mortgage processes will not only be able to process more loans while saving time and money, but more importantly, they will improve the overall customer experience. Customers today want to do business with banks in the channels they are already using—online and mobile—so financial institutions need to get up to speed and meet that demand.
Lenders are competing with other businesses that already have newer, centralized technology in place, even some non-traditional lenders like Amazon. The time to implement these changes is now. If banks don’t act, they are essentially ceding business to competitors that have based their operations on improved technology.