A Changing Landscape

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How do lenders adapt to changing regulation? A.R. Smith is an experienced executive consultant with over 25 years in mortgage banking, which includes all aspects of originations, operations, servicing, secondary marketing, human resources and technology. She has a proven track record in creating systems and models to achieve an organization’s strategic objectives, with an emphasis on applying technology and human talent to complex solutions. In this interview she talked to our editor about how the mortgage industry has changed and what lenders need to do going forward to remain both compliant and competitive.

Q: How did you get into mortgage banking?

A.R. SMITH: As the daughter of a dairy farmer in central Pennsylvania, I first learned about lending when taking a job at Farm Credit Services. I had responsibilities at a branch for doing all aspects of lending for mortgages and short-term loans. I also did title search work for the mortgages by taking weekly trips to the courthouse. Times have certainly changed, but I am so glad to have had the opportunity to understand the process of how to do all aspects of lending without the technology. It was an excellent foundation for what would become my career in mortgage banking.

In 1988, I was hired by a Savings and Loan Bank to migrate their manual processes (we were using typewriters and TIL machines in the 80’s) to an integrated software platform that would be a central customer database, print laser forms and perform the calculations for the disclosure documents. It was a transformational change to the organization. I remember going around the bank one night and taking away all the typewriters that were used to create application and disclosure documents so that the employees would be required to use the system to fulfill all the loan requirements for closing.

It was my first experience as a “hands-on change agent” for an organization. After completing that initial project, I took on additional responsibilities for the servicing portfolio and lead another platform change for managing all the activities of servicing as well as integrating multiple third-party vendors into the process. My responsibilities expanded to include managing all the operations as the bank’s COO, in addition to taking on the CIO responsibilities. With this experience, I was hooked on mortgage banking and applied technologies.

Q: How has the mortgage industry changed since your early days at Farm Credit Services?

A.R. SMITH: The changes in technology are light years from where it was when I started in the mortgage industry. Our company was a beta site for Freddie Mac’s automated underwriting system in the early 90’s. Technology is now a business imperative in the mortgage landscape.

Technology is touching every aspect of the mortgage process. There are now multiple investors for loan and servicing purchases resulting in the rise of pricing engines, and the automation of appraisal, credit, marketing, loan accounting and loan origination to name a few. There are more powerful LOS solutions for lenders of all sizes leveling the playing field while allowing all lenders to use today’s most advanced technology. In addition, the cloud has reduced the significant investment in hardware and technology infrastructure.

Q: As a former CIO, how has technology’s role in the mortgage industry evolved?

A.R. SMITH: With technology now being a business imperative, today’s CIOs need to be a part of the strategy for the organization delivering solutions that have a return on investment through creating efficiencies and competencies of the organization. Technology in the past was viewed as a “tool”, whereas it is now an integrated business solution. With the influx of technology solutions and the constantly changing mortgage and technology landscape, there needs to be a higher level of expertise and ability to create strategies for execution.

Q: How has the industry approached technology in the past?

A.R. SMITH: Often the strategy to solve one’s issues with integrating technology within an organization is by hiring IT staff, such as an analyst, developer, or CIO depending on the size of the organization. However, often it is advantageous to hire a person who has a broader understanding of the overall operations to ensure strategies are applied that optimize business processes through increasing revenue and efficiencies while decreasing costs. That person needs to be strategic, conceptual and have the experience to understand operational issues and how to solve them through applied technologies.

If that person does not exist within the organization, a consultant should be selected using the same criteria of a new hire to create and execute the integration of technology solutions to all facets of the mortgage process. Often organizations will settle for getting the fundamentals right that support the business, such as ensuring that the systems do not “crash”, having adequate response times and systems that do not cost much. However, the greatest return on investment for any organization is the integration of the technology to solve corporate and operational issues.

Q: You have transitioned from the lender side to now consulting, what lead to that decision? How has your experience as a former CIO/COO helped you in your consulting business?

A.R. SMITH: When working as a COO in a bank-owned mortgage company 20 years ago, one of the bank’s board members was an owner of a foundry who taught me the principles of “lean manufacturing” and its application to the mortgage banking environment. Those principles were not part of the LOS platforms at that time; however, we adapted our LOS system to create a workflow model for efficiency through the principles of lean manufacturing. We were successful in reducing turn times from application to closing, measuring performance of individual roles for productivity, identifying opportunities for growth and integrating support functions to include accounting and human resources.

I had the opportunity to be part of the group that founded American Home Bank in central Pennsylvania that originated mortgage loans in over 30 states, which included retail, wholesale, construction and correspondent lending. As a growth company, systems, processes and workflow were critical to facilitate our ongoing growth. After the sale of the bank in 2010, I began consulting to focus on assisting other mortgage company executives to incorporate those execution strategies using those lessons learned in developing processes to integrate operations and technology. It was my desire to assist other companies to adopt the power of technology to grow their business and view their technology platform as critical in executing corporate strategies.

Q: What are the biggest challenges that mortgage lenders face and how can they be fixed in your opinion?

A.R. SMITH: Mortgage banking in recent years has experienced a move by LOS platforms to workflow management similar to what other industries have done. However, the LOS is limited by the application of the workflow process in an organization if the strategy and employees of the organization do not embrace the power of the workflow to increase efficiencies and enhancing the customer experience.

Mortgage banking is at a critical stage as profit margins are being squeezed and costs and efficiencies need to be managed closely while balancing the needs of the regulated environment. The best strategies to accomplish this balance are through using technology that manages the customer experience and measures the cost of acquiring a new customer. In addition, efficiencies in operations and supporting functions such as accounting and human resources that reduces the dependency on manual or redundant efforts in the workflow process are strategies that address lenders’ biggest challenges.

Those solutions often involve third-party vendor solutions that must integrate with the core LOS platform. Mortgage banking is fortunate to have competing vendor solutions allowing price and suitability issues to meet those corporate objectives.

Q: How does an organization accomplish these goals of efficiency and integrated technology as a solution to tightening profit margins?

A.R. SMITH: A strategic focus and desire by the organization to diagnosis their workflow, systems and people that results in action plans for transformation change within the organization is needed. It is often difficult for an organization to do this process on their own because of lack of time and knowledge or because of high loyalty to existing employees who may be blockers to the much needed changes.

I tell clients that often a consultant is like surgeon. You may have back pain and try to resolve the pain through drugs, cold packs and targeted exercises. However, you often cannot fix it yourself, it requires the expertise of a surgeon to diagnose the underlying issues and set a plan of action for a full recovery, which requires change in our behaviors and willingness to accept the advice of the skilled surgeon. Often organizations try to resolve their technology and efficiency issues, but cannot get to the core issues without the assistance of a skilled consultant who diagnoses the core issues and can make recommendations for those transformational changes.

It is critical that the consultant is strategic and conceptual and has prior executive management experience in integrated processes in all aspects of mortgage banking. All aspects of the company need to be examined, including sales, operations, secondary, accounting, funding and servicing. In addition, the consultant should be able to provide assistance in execution through multiple disciplines in sales, operations and technology. I believe it is a good time to invest in technology and operational efficiencies to increase profit margins and prepare for the growth in origination in the next 2-5 years.

Industry Predictions

A.R. Smith thinks:

1. Mortgage banking will need to employ continued vigilance around meeting regulatory requirements and documentation of those policies, procedures and systems, which are critical in responding to the regulators.

2. Strategically deployed technology will drive operational efficiencies to compete in today’s market.

3. Mortgage banking will need to continue to introduce innovative technology solutions to the new generation of borrowers who are Internet savvy.

Insider Profile

A.R. Smith is President/CEO at AR Consulting Partners LLC. She is an experienced executive consultant with over 25 years in mortgage banking, which includes all aspects of originations, operations, servicing, secondary marketing, human resources and technology. She has a proven track record in creating systems and models to achieve an organization’s strategic objectives, with an emphasis on applying technology and human talent to complex solutions.

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