PERSON OF THE WEEK: Brian Lynch is founder and president of Advantage Systems, a provider of accounting software to the mortgage banking industry. MortgageOrb recently interviewed Lynch to learn more about how mortgage accounting software has advanced in recent years – and how lenders can take advantage of the new features and capabilities offered in today's systems.
Q: How have the accounting systems used by lenders changed over the last few years?
Lynch: What we have done over the last 24 years is to provide the tools needed to manage the loan level detail that lenders face every day. The level of detail is unavoidable because each loan is different. While every loan might have similar transactions such as a funding, a warehouse advance, a purchase and a settlement, no two loans are the same. The loan amount, the type of loan, the warehouse lender involved, the appraisal fee and even the investor differ from loan to loan.
The accounting system needs to ensure that each loan is accounted for properly. By meeting that challenge, today's accounting system can take the drudgery out of mortgage accounting which allows the client to more easily close the month and in so doing have the time and the wherewithal to analyze the data to spot opportunities and weaknesses.
By capturing the loan level detail into a well-structured database, as opposed to numerous spreadsheets, the level of reporting improves dramatically as does the level of transactional control. By capturing transactions at loan level, reporting on profitability by loan, loan officer, loan type can be done at the click of a button. This same loan level detail allows users to reconcile balance sheet accounts in seconds instead of days.
Because accounts are more easily reconciled the more likely they are to be reconciled – which leads to an increased level of confidence in the numbers being presented to management. The result is that management has access to the most timely, accurate and meaningful data ever.
The latest trend is to package that data to management and others in a format that is easily taken in. The use of dashboards to present useful key performance indicators (KPIs) such as income per loan, income per loan officer, days to close or funding to sale or product mix of purchase versus refinance have become essential. The ability to start with any data point and drill into the supporting detail is giving management the ability to know where they are and if they care to drill into it, why.
By addressing the most pressing concern, (i.e. managing the loan level transaction data) the focus for years has been on addressing the next most difficult challenge, the calculation of commissions. The need to attract loan officers to an organization demands the ability to address the compensation structures needed to attract those loan officers. The ability to calculate unit and volume tiers has become an essential element of calculating loan officer commissions but even that is not enough. The need to calculate ‘overrides’ to non-loan officers has become extremely important.
Q: What can lenders do to take advantage of these changes?
Lynch: Having timely, accurate and meaningful data at your fingertips can be an awesome recruiting tool for branches and loan officers. Branch managers not only have immediate access to their KPI's, they also have immediate access to their financials. The labor savings of no longer having to package month end reports to each branch is significant. Loan Officers can see which loans have funded and what their commission will be without calling the accounting department.Â
Q: How can lenders benefit from having a mortgage-specific accounting system, compared to a traditional accounting system?
Lynch: The most important thing to remember is that mortgage accounting systems are designed to save lenders time. The right tool for the job does make a difference. The ability to bring data into the system without manual data entry makes dealing with loan level detail possible and it goes a long way to allowing a client to grow without adding staff. The ability to easily support account balances with loan level detail has made auditing easier.
An auditor facing a sea of spreadsheets has a much tougher job ahead than one looking at a systematic approach to managing that loan level detail. In our experience warehouse lenders and investors have been impressed when a lender is able to provide accurate, timely and meaningful financial statements.
Q: What features should be non-negotiable in a lender's accounting system?
Lynch: Lenders should insist on automated systems providing loan level detail. Without it, the lender is forced to manage the loan level detail in spreadsheets or in a homegrown intermediary database between the loan origination system and the accounting system. Both approaches are extremely expensive, the spreadsheets in the time involved and the database in its development and ongoing maintenance.
The intermediary database approach has the added penalty of holding the lender hostage to the developer of that database. Having a system dedicated to the mortgage industry ensures that not only will your most pressing needs be met but using a system that is being used by hundreds of other companies in your industry means that it is highly likely that your future needs will be met as well.