Banking & Financial Services White Paper
Imaging: Latest tool of the trade for today's mortgage lender
By John Richie & Paul Barber
Information Services Group
Unisys Corporation
The mortgage loan business is part of a $4-to-10 trillion market, yet mortgage bankers are finding it increasingly difficult to turn a profit. How can this be, when this huge industry continues to grow at 10% annually? And how can mortgage bankers revitalize waning profitability?
Thanks to mergers and acquisitions, new accounting regulations, interest rate changes that affect loan repayment, onerous regulation, cyclical demands and a very dynamic U.S. economy, mortgage banking is undergoing rapid change. Also compelling is the tough competition faced by mortgage bankers from other banks, as well as from non-traditional providers. As lines of separation between providers disappear, external forces erode market share and increase costs for originators and servicers alike.
Next, think about the sheer volume of mortgage processing being done, and the sheer volume of paper that results.
In a recent survey of the 250 largest traditional banks in the US, Unisys discovered that the typical large bank writes an average 13,400 mortgages per year, and that its average assets in mortgage loan paper total $4.7 billion.
Another recent report--this one from Tower Group--notes that lending documents represent 20% to 30% of the document growth in banking, and that their total volume is growing at four percent annually. No surprise, since a single loan can generate as many as 300 separate documents
"Get trim and grow...or get eaten"
To assure competitive returns, the average mortgage banker expects to spend $50 to $100 to service each loan annually, and wants to show yearly productivity of 1,500-2,000 loans for each service employee. But the reality, according to the Mortgage Bankers Association of America, is closer to $105 to service each loan each year. And the facts on employee productivity? More in the range of 500-800 loans per employee.
So what's the upshot? Mortgage loan processors--faced with burgeoning paper volumes, ever-active market conditions, and a fluctuating economy--are working longer hours, under intense pressure, for less profit. And their overall perception: They must "get trim and grow...or get eaten."
Imaging improving processes
Traditionally, the loan origination, and servicing functions have been people-, paper-, and process-intensive activities. Each function is rigidly structured and typically involves over a dozen individuals and a number of mundane manual processes, processes that have been automated--but not significantly changed--over a period of several generations.
In addition, no one in the mortgage area is generally knowledgeable about, or accountable for, the total loan process.
Mortgage bankers report that their loan processors lose up to six working hours a day waiting for information or seeking file folders in use by another staffer. Yet investments in workflow and productivity tools have been few and far between, and many mortgage banks have been unwilling to accept what they perceived as the risks associated with technological innovations.
But times are clearly changing. Today's loan processors recognize a critical need to solve their lending paper problems, and to link the many players in the life of the loan. They want to eliminate cumbersome stacks of loan folders by processing burdensome daily volumes of paper on a faster cycle at reduced cost with better quality and greater profit.
Toward that end, mortgage industry leaders are tapping a highly productive medium with a track record for excellence in other markets. That medium is electronic document image processing--imaging.
Image-enabled processing systems and software are speeding document processing and managing document flow effectively in the areas of mortgage acquisition and servicing.
Banks large and small are using imaging--a technology considered too perilous and costly in the '80s and early '90s--to find new economies of scale that will
* support the growth of their mortgage business, usually without adding staff
* improve customer service and retention
* lend strategic competitive advantage
* fortify their bottom line.
In May of 1996, Tower Group noted that bank spending on full-paged document imaging and file folder workflow systems, believed to be about $550 million in 1995, is expected to grow at a rate of 40% a year.
International Data Corporation (IDC) forecasts even greater interest, predicting that banks in general will purchase over $1.1 billion in imaging technology and services by the end of 1996, a 24% share of the total imaging and workflow market.
Half of the banks queried in the Unisys study note that they're exploring imaging as a solution within the paper- and labor-intensive mortgage lending department, particularly to help with time-consuming information retrieval. Eighty-one percent say that their interest in imaging is based on the desire to enhance customer service; 56% say they are looking to increase efficiency and lower costs.
Tower Group estimates that the total number of documents imaged in the lending area is growing at 20% to 30% annually, and that these totals are just the tip of the proverbial iceberg, representing only 5% of the existing mortgage documents available for imaging.
According to Tower Group consultant David Medeiros: "Regardless of bank asset size, image processing may be the information technology that currently has the greatest potential impact on the future of the banking industry, enabling both cost-reduction and productivity improvements in operations, and providing new opportunities for improved customer service."
Today's progressive mortgage bank often uses imaging in conjunction with other business process improvement systems, such as client-server computing applications, multivendor networks and electronic commerce applications, workflow and workgroup tools, to automatically expedite and manage processes and tasks. This is especially critical in the process-intense areas of origination and servicing.
Imaging & workflow basics
Imaging's emergence truly represents a marvelous technological revolution for mortgage loan processors. This revolution is based on a simple principle of office efficiency: Handle any paper document one time only.
With a strong, effective image technology application, the loan process begins when the application document arrives at the bank and is fed through a scanner. The document's electronic image is created and reviewed on-screen for clarity. It is then assigned an index number which is used to identify and link it with related documents. That number also enables the document image to be accessed throughout the loan process.
The new document image is then stored, among many thousands of others, on magnetic and optical disc. The optical disc, in turn, is placed with other disks in a jukebox for easy selection as needed, and a file folder, or "case file," for each originated or serviced loan is then available. (The bank decides if and how original paperwork should be archived.)
At a lender's workstation, the loan processor can then speedily access an electronic file folder, retrieve and display a document within that file to review the status of the mortgage application, transmit the document to other loan processors, use it to address customer inquiries, store it, or print it regardless if someone else is working with the same file.
For example, the imaging/workflow system can generate and send requests for employment and deposit verification, as well as follow-up notices if verifications haven't arrived. As these documents are received, they are scanned into the system under the index number assigned. When all required documents are entered, the system automatically transmits the file to the underwriter for final approvals.
If the application is ultimately approved, the application file closing process can be easily completed on-screen, extraneous files can be purged, and all necessary forms can be sent to archival storage. Automated filing and retrieval keeps the document images orderly, secure, and accessible in just seconds.
The attributes and lifecycle of a mortgage make the lending process a model environment in which to apply image and workflow technology. Via imaging and workflow, loan decisions can be made more quickly, processes streamlined, projects and resources better planned, reporting improved and refined, filing errors considerably lessened, and productivity substantially increased. The entire loan process can operate more efficiently, and that efficiency can be translated into true competitive advantage!
Benefits for mortgage
loan processors
What are the measurable benefits of imaging and workflow? A 10% to 30% reduction in loan processing costs, 20% to 30% improvement in staff productivity (as high as 100% in some organizations), and as much as a 40% reduction in process steps.
The mortgage process is, by its nature, very fluid and dynamic, composed of a number of simultaneous, ongoing workstreams. A particular advantage of imaging is the fact that it permits many steps that were previously performed in sequence to be managed in parallel, reducing the cost of labor by an average of 30% to 45%. And, over time, it is estimated that most mortgage loan processors may well increase their number of loans serviced per employee to around 2,000.
Most institutions also find that imaging solutions help improve employee morale, reduce processing errors and storage-space requirements, support better workgroup organization, provide greater security for documents, minimize misfilings and lost files, and even help manage risk in writing new loans.
Case study
Take, for example, the experience of one of the top 10 mortgage loan institutions in the US. For the past year, this financial services giant has expanded its mortgage portfolio at the rate of 500 loans a day, testing image-enabled loan processing from Unisys.
The lender is working with Unisys on a multimillion-dollar solution to image- and workflow-enable the bank's entire mortgage loan lifecycle and operations environment, from loan origination and funding and broker input, through loan closing and servicing, secondary marketing, and customer service.
A long-time Unisys client, the organization will achieve highly functional open networking and workflow management for its mortgage loan process, serving 150 image/workflow workstations by strategically combining Unisys' systems integration services and InfoImage Folder software, as well as 12 large-scale NT servers, high-speed scanner units, and a Kodak Optical disc storage subsystem managing access to almost a terabyte of third-party magnetic disk storage.
Unisys InfoImage software facilitates the electronic capture and management of loan information, regardless of whether it enters the workplace by phone, fax, or mail. From loan solicitation to closing, all documents relevant to a particular account are scanned, indexed by customer name and loan number, and organized into electronic client folders. Folders are then automatically routed between and among processing steps, eliminating the problems of manual handling and the extra expenses of duplication and distribution.
Loan processors can simultaneously retrieve and view up-to-date documents and handle customer inquiries immediately from any InfoImage lender's workstation. For example, during the approval cycle, processors view a snapshot of a customer's file to track receipt of credit reports and employment verification, before forwarding the application to Underwriting for review.
When an underwriter approves a loan application, it can be assigned "approved" status and routed to a loan processor, who quickly opens a word processing package and produces a standard commitment letter that promptly informs the customer of the loan approval.
Because many InfoImage users can share and access loan data simultaneously, all the departments involved in processing a loan can resolve issues more quickly and respond to customer questions at any step of the process.
To summarize, imaging technology will enable loan servicing employees to retrieve files speedily from optical disc, review the necessary papers and answer questions more quickly than they could manually. For the large mortgage lender, this efficient approach can help to stabilize or even decrease staffing needs, even as the loan servicing business grows. Electronic storage on optical disc can also reduce the need for file space, saving additional dollars over time.
Die s Bausparkasse:
"Modern service
for satisfied customers"
One of Unisys' longest-standing clients is Die s Bausparkasse, the building society of the Austrian savings bank group and part of the number-two savings bank group in that country. Die s Bausparkasse itself, with a network of 25 branch offices, is the number-one building society in terms of new accounts signed last year.
As its business grew dramatically, this prestigious society--whose theme is "A modern service for satisfied customers"--was forced to manage increasing mortgage loan processing costs and voluminous paper files, within limited space. It also recognized a need to reduce loan processing time and respond more quickly to customer inquiries.
"We installed an optical archive system in 1991," said Andreas Watzek, project leader for the society's new imaging system, "but it was quickly running out of capacity. And it could only handle the savings part of the business. Loans documentation is much more complex, including land registry deals, signed contracts, project descriptions and other data that can't be easily converted to digital files. And unfortunately, we couldn't access information from the optical archive for on-screen display."
The organization determined that it would significantly improve work practices by installing workflow management and document imaging technology. Some 300 of the society's staff were involved in analyzing workflow and determining which areas required attention. "We identified about 1,000 small work tasks and grouped them into 60 transaction categories," said Watzek. "For each task, we identified who handles it, how long it takes, and how often it's performed, to get a complete picture of our workflow management and imaging needs."
Die s Bausparkasse then evaluated 11 vendors, ultimately selecting a solution comprised of Unisys InfoImage software and server, with workflow routing, 115 workstations with 21-in., high-resolution monitors.
"We heard from other Unisys clients that Unisys sticks to the project schedule, that its support team worldwide is very responsive and cooperative, and that its windows interface is easy to learn and use," Watzek commented.
Die s Bausparkasse is now armed with a full array of project management, integration, and implementation services to effectively automate its loan processing workflow, as well as link its imaging network with its large network of PCs and terminals and with a mainframe service bureau serving the Austrian Sparkassen banking group.
Watzek believes that the previous two-to-three-week timeframe required to process a loan has been reduced by 33%. The society's 200 loan processors now access information immediately via their desktop systems, and respond immediately to customer inquiries which previously took a half day to research, saving the society the time and expense involved in callbacks
Watzek also estimates that, daily, 7,000-11,000 sheets are scanned into the system and users are able to retrieve up to 20,000 pages of documentation. Over time and through attrition, the society expects to reduce its loan processing staff by a full 50%. In addition, Die s Bausparkasse loan processors can now obtain more and better customer data at any time, and hence deliver more attentive service all while exceeding return-on-investment expectations.
The Hooge Huys solution
Also experiencing unprecedented economies of scale is Hooge Huys Verzekeringen. This mid-sized and rapidly growing Netherlands company serves the general public with 500 employees and revenues of 500 million guilders (over $300 million U.S.) annually.
Hooge Huys sells life and claims insurance and mortgages via resellers and, by using information technology innovatively, is able to offer speedy product implementation and high-quality service to those resellers. For example, it was the first company to introduce an around-the-clock mortgage proposal service using pre-defined fax messaging.
According to N.G. Jongerius, Information Department Director, Hooge Huys' mortgage lending area was plagued by the common problems classically inherent in the process: too much paper, missing files, a steadily increasing need for more staff, and a lack of management information regarding the status of loans. "Our people were overloaded and often had to work evenings and weekends to maintain service levels," said Jongerius. "If we wanted to face the future confidently, we had to make critical decisions about our service levels and our too-rapid growth in personnel."
After evaluating several possible approaches, management at the insurance company opted to add an imaging and workflow function. "To best support our staff, we defined 32 efficiency steps, ranging from better ways to handle the mail to a redesign of the major steps in our workflow," said Jongerius. "This was important because we didn't want to just automate the same old processes--we wanted instead to streamline them, then automate those simplified steps."
Ultimately, Hooge Huys turned to Unisys for a flexible solution that has given the mortgage area complete control of its lending function and reduced by 27% the time needed to process a mortgage request. Despite the fact that every electronic file folder contains between 75 and 90 pages of documentation, the mortgage loan department is now able to handle 6,000 new requests a year.
In addition, responsiveness to resellers has been enhanced by placing key data at processors' fingertips. Because data formerly available only on paper can now be retrieved in mere seconds, and because the system now handles much of the work previously done manually, those individuals are enabled to focus on customer support.
Flagship application
The resulting solution, automating some 1,700 workflow decision points, has rapidly earned the reputation of a flagship application in the European mortgage community. It was awarded first place among workflow applications at the 1995 International Information Management Conference (IMC) in Amsterdam. Once a week on average, Hooge Huys plays host to companies who want to view the system in operation.
That InfoImage solution includes software for workflow management, ORACLE SQL Forms for special logging and ad hoc functions, Window integration tools, Uniface/Sybase for productivity and special reporting tools, and two mid-range volume scanners, and two jukeboxes.
After only two months, the company's beta test office showed a 27% cost-savings with the new system. It is presently implemented in the mortgage loans department, where approximately 80 lender's workstations are in operation. Plans are underway to interface it as well with the life insurance department, where documents will be accessed from mortgage loan folders with an insurance policy built in.
Besides this InfoImage production system, Hooge Huys has a separate system for application development, testing and internal training. A second InfoImage application is used in the marketing department to store correspondence and contracts for the resellers. Overall investment in the system was two million Dutch guilders (over $1.2 million US).
"We've built in even greater functionality during the last couple years, mostly through internal customer request," noted Jongerius. "The most important functions are integrated computer-output-to-laser-disc (COLD), automatic creation of folders and division into seven sub-folders, workload balancing, integrated fax-in/fax-out, two-way integrated updates between InfoImage and our legacy systems, fine-tuning of management information, and hotkey pushbutton access to the status of any folder in the system."
Partner with a world-class solutions provider
When seeking an effective partner for an imaging and workflow solution, it is wise to take the following steps:
* diagnose the current situation and document existing processes and work steps.
* identify potential process improvements.
* Set clear strategies and expectations.
* determine the right mix of methods, technologies, and competencies to suit your organization's needs.
To help with any or all these steps, select a world-class systems integrator.
A February, 1996 Gartner Group advisory report, "Twelve Warning Signs of Potential Problems with Imaging Vendors," concludes that finding a vendor for enterprisewide and/or transaction-based imaging solutions means finding a good systems integrator.
Choose a provider that clearly articulates how imaging will merge with your existing systems. Ideally, that provider offers modular packages that can be flexibly applied to your needs, with a useful array of complementary products to maximize your productivity.
Your prospective imaging system should support a variety of user levels and require little attention from your technical people. Your prospective vendor should demonstrate diverse, high-quality references, and offer complete support services.
As a leader in financial services, Unisys counts among its customers 41 of the world's top 50 banks and half the U.S. Federal Reserve banks. It processes half the world's checks, moves funds for over 4,000 financial institutions, and is a leader in delivering customer-focused information, imaging solutions, and clearing & settlement networks worldwide.
John Richie is the Practice Director and Principal of Unisys Corporation's Financial Imaging Practice. Both are part of the company's Information Services Group. Paul R. Barber presently serves as Unisys Corporation's Marketing Director of Imaging Solutions, Financial Industry.
|
![[LiveLink]](/file/36067/SIGCAT 97 - Conference on Convergence.ISO/Docs/webcd.gif "[LiveLink]"){kind=small}