During a recent visit to Yellowstone National Park, I was amazed at the number of healthy, young pine trees that covered the hillsides. It was an inspiring sight to see these young trees after the season of intense forest fires that swept through Yellowstone during the summer of 1988. Combined, these fires affected 36% of the nation's first national park; mature trees that had been there for hundreds of years were gone.Â
At the time of the fires, many people thought that the park would never be the same. In some cases, this was true. But today, the fire that angered many Americans and destroyed habitat and wildlife in the park is a distant memory, and the new life created as a result of this fire is inspiring.Â
Similar to the fire that scorched Yellowstone, we are currently confronted with a mortgage banking industry that is facing wreckage. Right now, it seems like things will never be the same (and one can't help but wonder what the long-term effects might be).
But just as mature lodge pole pine trees need intense heat to release the seeds needed for future growth, we are beginning today by planting the seeds of the future mortgage industry. Those that survive will adapt to the new landscape by re-examining and focusing on company strengths.Â Â
This examination often reveals some processes as ‘necessary to complete’ – but not revenue-generating. There are many areas that a lender can modify to prepare for the future of mortgage lending. Processes should be reviewed for alignment with company core competencies, company cost efficiencies and operational efficiencies.
One component that could have a significant effect on a company's bottom line is the activities associated with the post-closing process, which can be defined as those activities performed by a lending institution during the transition from loan funding to servicing. These steps are critical in order to optimize servicing and to ensure delivery of a final loan package that can easily meet investor requirements.Â
What is involved
Post-closing process activities differ from company to company based on the end destination of the loan, but generally include the following:
- central file receipt and shipment identification (usually barcode labeling);
- loan file imaging, which should include making the images available to a wide variety of departments regardless of physical location;
- file quality assurance audits to assure the quality of the loan transaction and completeness of the file, including both collateral and credit file audits;
- package and delivery of the collateral file;
- physical or electronic delivery of the credit file;
- trailing document tracking and follow-up;
- credit file storage; and
- government insuring.
While these steps are important, if they are structured correctly, they can be successfully moved from your organization. Today's technology allows for these steps to be performed from any location. An outsourced solution can provide advantages over a lending institution in several important areas. Company core competencies can be emphasized by allowing mortgage companies to more clearly focus on their current competitive advantages (e.g., current broker or correspondent channels, pricing, approval process) of the loan origination process, instead of being distracted by processes that aren't revenue-generating.Â Â Â
Company cost efficiencies are achieved through the reduction of fixed costs. Post-closing expenses can then be budgeted as a per loan charge. Savings are also realized when mortgage companies take advantage of fully trained vendors who specialize in post-closing services. Operational efficiencies can be realized as a result of diverting the tedious and very labor-intensive processes involved in the post-closing process to a post-closing specialist (e.g., files imaged early on can reduce the number of human touches, which, in turn, reduces costs and file bottlenecks).
An outsourced post-closing process can bring many benefits to an organization. Benefits could include the following:Â
- significant reduction of IT investment costs,
- conversion of the fixed costs associated with the post-closing process to variable ones,
- centralization of post-closing functions,
- easier absorption of volume fluctuations,
- better utilization of trained and knowledgeable staff, and
- clearer focus on existing company strengths.
Getting it done Â Â Â Â Â Â Â Â Â Â Â Â
Thorough planning and clear communication of your goals can help your organization see the benefits of outsourcing the post-closing process. Transitions are easier when mortgage production volumes are low. It is a good idea to use this period to realign company strategies and shed those processes that are not in line with company goals and objectives.Â Â
Case in point: Recently, Standard Pacific Mortgage, Irvine, Calif., began the process of evaluating how the current state of the industry would necessitate change and allow for future growth. During this exercise, the management staff at Standard Pacific identified all of the tasks associated with the post-closing process as a potential area of improvement.Â
‘While the post-closing process was an important process, we felt that in the hands of the right organization and with the right level of Standard Pacific involvement, it was one that we felt could be outsourced,’ says Rick Holguin, vice president of capital markets. ‘We are constantly looking to more closely align our resources to our company core competencies. In addition, as we continue our lending in this difficult market, it becomes challenging to build a staffing model that works well in both the slow and peak periods.’
Holguin adds that the current market conditions helped the company consider outsourcing. ‘One of our many company goals is a continued focus on reducing costs,’ he says. ‘While we are not able to eliminate completely the post-closing costs, we are able to move them from a fixed cost to a variable cost process. With new loan production down, we have had the opportunity to evaluate what we want our future to look like. In addition, the lower volumes have allowed us the opportunity to outsource this process without the added pressure of high volumes.’
Time will tell how the industry will recover from the recent crisis. Not unlike the Yellowstone forest, recovery and regeneration will not come overnight. But time can heal wounds, and – in the case of the industry – proactive strategies, such as outsourcing the post-closing process can help speed the healing for many companies that are still standing.
Jon Maughan is vice president of Security Connections, Idaho Falls, Idaho. He can be reached at email@example.com.