Designing the Loan Origination Process: A Call for Evolution

The following is an excerpt from Chapter 1 of Volume II of The Mortgage Professional's Handbook:


Jennifer Fortier, CMB, Senior Associate

The most obvious motivations for mortgage lenders to adopt a business process approach are fairly straightforward – controlling skyrocketing fulfillment costs, controlling risk and loan quality, and providing responsive customer service.  Along the way, some unexpected benefits are likely, and some of the same old challenges will continue to hang on.

Opportunity: Align Processes And Strategy

There’s often a considerable disconnect between a company’s strategic intentions and the execution of the loan production process.  Consider the potential range of strategic positioning–perhaps it is high-touch service, low cost provider, or specializing in niche products.  Now consider the loan manufacturing process and attempt to identify specific things that support (or counter) that strategic objective.  For example, a lender may state that they are a high-touch provider, but the process has no mechanisms to invoke communications with the customer at certain milestones, customer communications are cryptic and difficult to understand, or the consumer carries more of the processing burden than they would like.

As processes are designed, they should be tested against the strategic objectives.  Does the process support the objectives or work against them?  Are the planned changes contributing to the strategy, or are they only ‘nice to haves’ that distract from achieving more meaningful goals? Too often, lenders embark on process projects without a clear intent or objective, hoping that a random collection of incremental changes will amount to a recognizable benefit that shows up on the bottom line.

A business process approach is a tool for executing strategy.  Lenders that invest in building a process-oriented approach to executing strategy will be able to clearly tie efforts to goals and test the validity of projects.  Too often, companies design a strategy, but process happens accidentally.  Management turns over process development to production people who are not trained or are not singularly assigned to designing a process that aligns with strategy.

Change Strategy or Identify New Ones

Process-management disciplines can illuminate new opportunities to gain market share that were previously unapparent.  For example, a retail lender whose key strategy is attracting a retail sales force with high compensations plans may focus on building a robust consumer portal to reduce overall costs.  Along the way, the lender may realize that they have a unique competitive differentiator that sets the stage for expansion into the consumer direct channel.

Opportunity:  Fully Engage A New Workforce

The aging of the mortgage industry population is a prominent theme at the moment.  Few lenders are attracting young employees.  In fact few are trying.  Lenders typically have a ‘hire only experienced people’ approach.  Consequently, as a whole, the industry is self-inflicting the aging workforce problem by imposing the experience conundrum on young workers.  Companies that are process oriented and engage in thoughtful process engineering can create a platform that provides the structure and support on which less experienced workers can quickly and successfully provide value.

Companies that make the investment in developing less experienced employees would find themselves in a happy ‘chicken or the egg’ dilemma. The exercise of creating processes and systems that allow a less-seasoned worker to accurately execute tasks while building a base of knowledge also result in a process and system does not necessarily require seasoned employees.

Challenge: Focusing on All of The Enablers

Many companies embark on process improvement with the idea that it is a one-time event.  Or, management sets the bar for improvement quite low – ‘quick wins’ and ‘low hanging fruit’ - and hopes it is enough to collectively result in significant recognizable benefits.

In the effort to gain momentum and build excitement, it is tempting to skip the hard work of establishing the true strategic objectives and prioritizing focus.  Sure, the processors would love to automate the USPS validation and it would certainly be a quick win, but does that really support management’s primary objective of improving customer communications?  While there is merit to quick wins and easy fixes, unrelated incremental changes do not add up to enough benefit for the effort to feel worthwhile.

One tendency is to dive right in, identify and solve small problems and hope that this somehow add up to a true process advantage.  Another is to avoid the harder enablers - those more emotionally driven, such as rewards and job roles.  This haphazard approach is a disservice to the initiative.  If the changes are not deliberately intended to achieve a predetermined outcome, it is too difficult to make an impact that is meaningful and identifiable.  Employees need to see a clear connection between the intention, the change, and the result.  Otherwise, they will not become convinced that process-focused projects are worthwhile and will eventually lose faith in the concept altogether.

Challenge: The Powerful Stronghold that People Have on Process

An individual’s process is also not always aimed at the same objectives that management would place first.  While management is concerned about risk, efficiency, costs, and service, a processor may be concerned about avoiding the wrath of an impatient originator, ensuring that his decisions will not later come under scrutiny, or simply avoiding the effort and discomfort of overcoming inertia to learn or adapt to new processes.

Most fulfillment processes, despite automation tools, data validation techniques, and system services, are still highly manual in most lender shops.  Management often operates on the assumption that a seasoned employee’s past experience is a sound and trustworthy way to produce satisfactory results.  Policy and rule development that drives employee decision-making and action is not typically well-developed, perhaps on the assumption that seasoned employees do not need detailed direction.

Regardless of why, the combination of the two dynamics means that the employee has a very high degree of control over how they execute processes.  The problem that is difficult to solve is how to drive employees’ behavior and approaches to produce a reliable, predictable process that is aligned with the company’s strategic objectives.  Management typically has little visibility into the nuance of each individual’s techniques and approach; yet these techniques and approaches are the very heart of the business.

There are plenty of examples that probably feel familiar to a lot of lenders:

  •        Deciding to take five steps to complete a task, when two would do, in order to feel confident that they have not missed any details.
  •        Taking it upon oneself to perform more work than is required due to distrust of the upstream process or because of sense of personal satisfaction for being very thorough.
  •        In an attempt to maintain a sense of control, putting up artificial obstacles in response to feelings of being overwhelmed or frustrated.
  •        Over-executing because of fear of accepting responsibility for decisions.

Read the rest of this chapter in The Mortgage Professional's Handbook!

Jennifer Fortier, CMB, has 15 years of comprehensive experience in mortgage banking.  Prior to joining STRATMOR, Jennifer was Senior Vice President and shareholder for an independent mortgage bank, where she was closely involved with corporate planning, strategy, and execution.  Jennifer provided oversight and guidance in numerous areas, including regulatory compliance, quality control initiatives, and operational procedures.

Jennifer participated in the MBA School of Mortgage Banking and the Future Leaders program in 2004. She was awarded the Certified Mortgage Banker designation in 2005. She participated in numerous committees, including the MBA Secondary and Capital Markets Committee, the Louisiana Mortgage Lenders Association Board of Directors, and the Louisiana Residential Mortgage Lending Board.

Prior to entering the mortgage banking industry, Jennifer worked with a start-up broker/dealer, where she held a Series VII Registered Representative designation. She also spent several years as a product manager for an industrial manufacturing company and filled a systems analyst role on a team focused on an HR system for the U.S. Department of Defense. Jennifer held an appointment as an adjunct professor at Tulane University teaching business management and marketing. She holds a Bachelor of Science in Industrial technology from the University of Southwestern Louisiana and a Master of Business Administration from the A.B. Freeman School of Business, Tulane University.  Jennifer currently resides in New Orleans, LA.