By now, everyone’s a bit tired of hearing about the collapse of the mortgage industry. But if anything, it has reminded us that our present-day marketplace has evolved into an interconnected one, a marketplace without borders and one not restricted by traditional ‘brick and mortar’ operations. Fueling this evolution, is the advancement of technology, the proliferation of the internet, and the progression of international trade and finance legislation. While in some areas of the country the outlook for the mortgage industry is a bit brighter; In general, mortgage companies are being forced to close down their operations in record numbers. With home values declining, underwriting guidelines tightening, and fewer loan programs available in which to place borrowers, there is simply not enough refinance and purchase business available. Mortgage companies must reduce overhead, in order to remain profitable.
One of the best ways of reducing overhead is outsourced processing. Five years ago, we would not even be having this conversation, as processing duties were primarily handled in house. Immediate access to loan information was the primary deterrent to processing mortgage loans outside of a mortgage company’s physical location. There were certainly qualified loan processors that could work remotely, but not a feasible streamlined method to share and collaborate on loan information. However, thanks to the internet and technologies like hosted document management, farming out processing duties is now possible. And you can expect a level of quality that is as good as, or better than, your in-house loan processing. Mortgage processing can now be outsourced all over the country. There are several things to look for when choosing a processing company with whom to partner, but before you pick one, you need to know the primary duties a processor should perform as part of their service.
What exactly does a loan processor do? For the most part, the processor is responsible for collecting loan information from parties that may include the loan originator, the borrower, and third party service providers. The processor moves that loan information to the individual making the underwriting decision on the entire mortgage transaction. There are many other tasks for which a processor is responsible, but in its simplest form, loan processing is the organization, and movement of loan data. Most good loan processors have the ability to organize loan information, organize their daily duties, and possess excellent communication skills.
Typically, a loan transaction starts, with a loan originator taking an application on a borrower, qualifying the borrower for the best loan program available, and then selling the loan program to the borrower. Often times a loan originator will collect initial signed loan disclosures, income documents, photo identification, purchase agreements, and other various documents that may be needed to thoroughly qualify a borrower. Once these things are completed, the loan processor takes over the loan transaction by managing and monitoring its progress from loan submission to closing. This usually involves, but isn’t limited to the following items:
• Review the loan file for any deficiencies that may be required for initial loan submission.
• Running Automated Underwriting when applicable.
• Making the initial loan submission to an underwriter.
• Ordering third party services such as Appraisal and Title.
• Review the appraisal to insure the value, comps, and adjustments are in line.
• Review the title to insure all liens, judgments, taxes, etc. are rectifiable.
• Ordering all verification documents such as VOE, VOD, and VOM/R.
• Updating Insurance Information to reflect the lender’s mortgagee clause.
• Ordering payoff information on existing mortgages.
• Once the loan is approved, the processor will collect and clear any additional conditions requested by the underwriter
• Once the loan conditions are cleared the processor schedules a closing date.
• Request signed closing documents to include in the loan officers file for compliance.
Turning this laborious process over to a qualified processor frees up valuable time for the Loan originator to go out and develop new business. Outsourcing this service will allow Sales Managers to do what they do best, and that is, manage and develop their Loan Officers. Why manage two job functions, when you can concentrate on the one that generates income, while delegating the processing to a specialized company? Outsourcing loan processing will cut a mortgage companies overhead, by reducing guaranteed salaries and benefits, and also help it become more productive by streamlining their daily operations.
So what will these immediate cost-savings look like to the owner of the mortgage company? The benefits of Outsourced Processing are exponential, but it all starts with the elimination of guaranteed base salaries. More specifically, an experienced, qualified processor can usually command around $40,000 per year in total compensation (with benefits) and bonuses usually add to this amount. In a good month, your in-house processor may be able to process 20 to 25 loans. What about those months when business is slower and the processor only processes 5 loans? The bonus may change, but the base salary and benefits payout does not. By outsourcing and paying on an as-needed contractual basis per funded loan, instead of a guaranteed base salary, benefits and bonuses, you can save thousands every year. Typically with outsourced processing, you only pay on processed loans that fund, meaning you eliminate losing money for loan processing. Even if a mortgage company employs in-house processors that have a steady processing pipeline, there still may be a need to work with an outsourced processor. An in-house processor like any processor has a maximum capacity. There are a maximum number of loans that any processor can effectively process in any given month. Once an in-house processor has reached their capacity, you need to have an option for all additional loans. Whether it is 1, 5, or 10 additional loans, they still have to be processed. Who’s going to process those extra loans? You’ve got a few options: you can hire another processor and hope that business maintains, or picks up quickly enough to cover that new salary and benefits; you can take time out of your busy schedule, away from managing daily operations and developing new business, in order to pick up the slack; or you can outsource the processing, which keeps you concentrating on new business and keeps you from having to commit to more overhead in salaries and benefits.
Just because you’re giving the workload to someone outside of your physical office doesn’t mean you’re giving up control of the process. Thanks to advancements in technology and the proliferation of the internet, mortgage companies are still able to oversee their entire loan pipeline and get up-to-the-minute statuses on every loan in-process at any given time. Choosing the right outsourced processing company means finding a company that employs experienced processors, who have access to these types of technologies. Having the right web-based technology allows for true collaboration on all loan files, giving all parties involved anywhere, anytime access to all pertinent loan information directly from a computer. Outsourced processing companies should have the ability to maintain a completely paperless loan file, in a secure hosted environment, that can be accessed any time, through a website. Today’s processing and document management software allow outsourced processing companies the ability to maintain a completely paperless loan file, in a secure hosted environment, that can be accessed any time, through a website. These software technologies allow for tracking of documents in and out of the system, changes in loan data, changes in loan statuses, and much more.
The global economy has created an environment that demands increased competition. With this competition comes increased value. Borrowers can shop around for the best deals on rate, program, etc., and so can Loan Officers. With the internet, mortgage companies are no longer restricted to only do business locally. They can shop for the best processors all over the country. A mortgage broker in California or New York can have their loan processed digitally in Louisiana or Florida, and vice versa.
So, times have changed and they’ll continue to change. But thankfully, they are good changes. Outsource Processing is not the future; it’s the here and now. The right processing company, using the right technology, can drive the efficiencies that allow mortgage companies to more easily respond to the ebb and flow of our industry. And like everything else, this economic downturn will pass and we’ll emerge leaner, more efficient and more dynamic, better able to compete in the global economy, and ready for the next real estate heyday.
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