Margin Pressure As Housing Affordability Reaches All-time Low. 3 Unique Cost-cutting Methods Lenders Can Focus On.

Mortgage QC and Data Intelligence

Despite the positivity in the economy overall, and the strong job market and low unemployment numbers, the housing industry in the United States has been seeing some slowdown and headwinds lately. This may seem surprising because the overall economy seems strong, but if we dig deeper, we can identify some reasons for the slowdown in the housing market, and 3 simple solutions for lenders to cope with the market slowdown.  

Current scenario and market trends in the housing industry  

Housing affordability has been reaching an all-time low over the last decade. Tighter inventory conditions, lower supply, and rising construction costs are all causing home prices to rise with upward pressure on the market. Even with unemployment getting to record low numbers, American families are not able to afford the higher home prices, making home ownership tougher.  

Statistics prove this declining trend 

Of the families earning U.S. median income of $71,900, the number of houses they could afford amounted to 57.1% of the new and existing homes sold between the months of April and June. However, this was the lowest number of houses sold since mid-2008 – the time of the financial meltdown. National median home prices jumped, moving from $252,000 to $265,000 – a big enough increase to slow home purchase.  

The foreseeable future 

With housing prices on the rise and constrictions in the market, the room for further growth has been minimal and affordability is at a low. However, there is some expectation that the strong economy, which has fueled job growth, will lead to more housing demand in 2018. These assertions, however, have been subdued because of growing concerns about trade, higher mortgage/ interest rates, continuing tighter inventory, and rising construction costs – which indirectly become a reason for price rise and lower demand. 

The way ahead for lenders 

With the mortgage market slipping, lenders are obviously feeling the cost/ margin pressure. The fight to survive is greater than ever today. In order to sustain, one of the first methods adopted is to cut down on costs. While lenders have specific ideas when it comes to cost-cutting, they may overlook a not-so-common idea – key processes that can be optimized to bring the right balance between cost and benefits.  

Having worked with 100+ companies in the mortgage and mortgage services industry for more than a decade, including some of the biggest mortgage lenders, we can talk about two such areas that are usually not even on any lender’s radar, but we know can result in increasing lender costs that can be easily optimized 

  • The Cost of Quality Control across the origination lifecycle
  • The Cost to Curedefects in the origination processes

In this particular discussion, we touch on 3 important steps that can ensure a low-cost solution to reduce the cost of QC processes, and even more important steps that can make the QC process directly contribute to process improvement and intelligent optimization. 

1. Identify issues as loans are produced and not after closing 

Lenders and big banks have a variety of processes, and multiple touch points and hand-offs, between when a borrower files a loan application, to the point when the loan goes through post-close. Having a quality check after the loan closes is an additional cost, and does not reduce the large amount of re-work and extra steps that may have added cost to the process, in case the earlier steps caused in-line defects. In this case, what if continuous Quality Checks could be done across the process, at minimal cost and integrated with the origination process?  We have simple technology-enabled QC interventions that allow quality checks, completed multiple times, and potentially at every step with minimal disruption to the process flow. This way you can minimize risk by catching any errors early on. This could be a huge benefit, as one can detect any error before sending a loan application through to its next stage, thus eliminating rework and any extra non-value steps.    

2. Identifying continuous process improvement from process QC using data intelligence

Any quality control (QC) steps seem to be an ‘added’ cost to the process – as the typical focus of WC is only to remove errors (which should not have occurred in the first place). However, what if the output from QC tasks was actually used to introduce continuous process improvement in your business processes? Process improvement and data intelligence are two areas that really go hand-in-hand; in the sense that one complements the other to bring more efficiency, and less wasted output. By having accurate data from QC, we can deconstruct each stage of origination, identify inefficiencies and turn the ‘non-value-add’ QC process into inputs for process efficiency. Using Data Intelligence from process QC guarantees consistent identification of enhancements in lender operations to make the process more mature, less redundant and more efficient.  

3. Predictive reporting with trend analysis and actionable intelligence

After gathering data intelligence from process QC, the next step is to provide actionable intelligence for process changes, followed by predictive reporting. The intent here is to get more out of the data you already have. This can be done by studying trends in the data already collected – e.g. analytics related to root cause, escalation tracking & remediation, process SLA scorecards, performance reporting at the individual LO, processor, underwriter or funder level, etc. Once identified, improvements can be put into place.  This whole cycle, now put into motion, can work like a machine – having a totally improved set of inputs, processes and final outputs that are together more seamless in designing better processes. And as final insurance, setting up a “warning” system to avoid going back to old inefficiencies or developing new potential ones. Process-level data classification, regression, clustering, and association can be used to report deficiencies impacting straight-through processing, quality standards, effort optimization, productivity index, error categorization, and traceability. This can help to reduce risk, eliminate waste, accelerate time to improvement, determine true process capacity, reduce process cycle time, optimize resources (especially staffing levels and schedules) and much more.  

SLK Global’s Mortgage QC and Data Intelligence solution does this with little or no technology intervention, and with almost immediate effect. We don’t stop at detecting the issues, but take a step ahead and use the data from process QC to study and analyze trends to proactively suggest a remediation plan to remove defects from the production process itself. With a Zero-defect target stance, we make sure there are continuous process enhancements by using a three-step process 

  1. Rules-driven collection and collation of deficiencies
  2. Identification of root-causes and specific problems using data analysis
  3. Actionable intelligence to enhance processes, with a feedback loop and trend analysis

Here are some success metrics achieved by our customers, from this solution: 

  1. 14% Improvement in Quality of Underwriting of Mortgage Loans
  2. 85% Reduction in Mortgage Post-Closing Errors
  3. 37% Reduction in Residential Mortgage Closing Deficiency
  4. Risk Analysis of Closed Mortgage Loans using DTI% and Other Loan factors

For further information on how technology-enablement can transform QC operations in your organization into producing actionable data intelligence, please contact us at salesinquiry@slkgroup.com or visit www.slkgroup.com/global to know more about these and our other solutions. 

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