To make the most of the available talent to control costs, mortgage companies need to make significant changes. One change, redefining jobs, was discussed last week.

This article deals with restructuring the organization.

There are three major approaches to such restructuring: centralizing and regionalizing; developing alternative methods of retail originations, and finding alternative origination sources.

Centralizing Operations

Under centralization and regionalization the objective is to concentrate operations into fewer and larger locations where staff can be used more efficiently.

The first step is to analyze market locations. Review the cost effectiveness of each location, including the labor costs, future business potential, and feasibility of incorporating other production channels into the same operation.

One must examine the productivity, including loans per processors or closer or originator; and turnaround time, which reflects the level of processing errors and the physical movement of paperwork.

Thus, the lender can know the long-term market viability and productivity of a geographic site.

The second step is to develop a new organization structure. Determine the manpower needs based on projected volume. Identify the needed positions and develop the position structures. We must assess the job designs and the tasks to be accomplished by each position and candidate for the jobs.

Then, assess the system's support needs to ensure that the new organization structure can be implemented.

Analyzing Costs

The third step is to conduct a cost analysis. The organization must evaluate the compensation-cost differences and model the office costs of the central or regional approach.

Additionally, it must evaluate the missed opportunities. If the organization no longer has processing or even a sales branch in a particular geographic location, will it lose some of the business? Or can the sales staff effectively reach these customers, either through telemarketing approaches or through visits to the area.

The fourth step is to develop an implementation plan. One of the keys to making any organizational change is advance communication to make sure employees buy into the process.

The company must prepare for the changes and arrange for the relocation of employees.

Also, compensation plans must be redesigned if necessary. Retention bonuses may be considered to keep those people whose positions will be eliminated until they can be replaced and the new organization is up and running.

In addition, the company must arrange for offices and support functions. And finally, it must predict the costs to ensure the value of the change.

Alternative Methods

A second approach is to look at alternative methods of retail origination. The objective here would be to use centralized lower-cost telesales personnel to generate business or to restructure the job of the loan officer to use a marketing assistant.

The process should include:

* Analyzing the marketing potential. What is the potential for new loans, refinancings, or development of affiliated organizations.

* Developing a pro forma of the operation, modeling the cost and the profitability based on any change.

* Modeling feasibility, which involves evaluating scenarios of productivity, volume, and performance.

* Ascertaining what implementation programs are needed.

Alternative Sources

The third approach is to utilized alternative origination sources. The objective is to reduce loan-officer compensation costs through leveraging quality sales staff over a larger volume. Thus, the effective basis point cost per loan is reduced.

New sources include relocation business, affinity groups, and correspondents. Most cost effective are the relocation and the affinity businesses.

Relocation is the development of relocation agreements with corporations to provide loans as an employee benefit.

Benefits can also be advertised by the company for non-transferring employees. This permits passing the reduced cost of the telesales origination to the borrower in the form of lower rates.

Group Solicitations

Cultivating affinity groups involves agreements permitting solicitation of group members or company customers through direct mail and telephone. The strategy again is to offer lower costs through reduced origination costs, using well-trained telemarketing staff with underwriting knowledge to counsel customers.

Centralized operations allows lower processing costs. The risk is creation of a capability that may be too large or small. It is hard to predict response rate. Thus, this approach requires financial strenght to ensure sufficient start-up time.

Mr. Jacobs' firm is based in Woodland Hills, Calif.

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