How does a lender ramp up yearly origination volumes from $300 million to $550 million without doubling staff? This was the challenge before Paul T. Pouliot, president of Bedford, NH-based CFX Mortgage, Inc., a subsidiary of CFX Bank, who found part of the answer in automated underwriting. "Automated underwriting has allowed us to add a small increment of people for this big-volume expansion. We can do more with less people," he says.

CFX Mortgage, a long-time Freddie Mac customer, currently uses its Loan Prospector, an automated underwriting system, to underwrite the mortgage bank's mostly fixed-rate conforming product. Pouliot's strategy is to move from four processing channels-conforming, FHA, VA and portfolio-to one channel for all loan types, using Loan Prospector as a universal underwriting engine. CFX Mortgage is in its second stage of automated underwriting deployment.

winning acceptance internally

Initially, Loan Prospector was limited to CFX Mortgage's underwriters. The biggest implementation issue with its underwriters in stage one, Pouliot says, was in breaking old habits. CFX Mortgage uses credit and collateral features of Loan Prospector, which underwriters were initially hesitant to accept. Underwriters would not rely on Loan Prospector decisions, he claims, and, for the first few months, insisted on reviewing paper credit files and paper appraisals for loans already approved by Freddie Mac.

CFX Mortgage's second reengineering challenge involved changing the processors' collective mindset. Previously, processors compiled and submitted complete files to decision makers-the underwriters. In stage two, processors became decision makers, responsible for obtaining required information, submitting a loan to Loan Prospector and, based on receiving an approval, validating the data and issuing a commitment letter. Non- affirmative Loan Prospector responses led processors to submit these loans to underwriters.

Pouliot says that are several advantages to Loan Prospector, notably that Freddie Mac's investment to create an automated underwriting system was one that CFX Mortgage could not afford on its own. With Loan Prospector, Pouliot argues that CFX Mortgage can now compete head to head with national lending giants that design and implement their own proprietary automated underwriting systems. Also, he claims that Loan Prospector, since it can produce appraisals with lender waivers, reduces a lender's risk of doing business.

In the future, Pouliot would like to see "statistical appraisals, a pure model allowing us to send in the loan information and, in two to three minutes time, receive a credit approval and a statistical appraisal. This will make it a true point-of-sale (POS) transaction." He also says that he'd like to see a flexible automated underwriting model for portfolio loans, permitting portfolio loans to be automatically underwritten using lender-defined criteria.

Experience has its advantages. Pouliot has learned that when implementing an automated underwriting system, start with your underwriters. Sell automated underwriting as a tool, "not a threat to their survival that will put them out of a job". Second, focus on training and "hand holding," not just during the implementation, but in the months that follow. Third, pre-sell the benefits of automated underwriting. And finally, communicate the vision from the top so that employees will embrace change positively, rather than view change as a threat. One such vision: 48-hour FHA approvals through Loan Prospector, a goal Pouliot has discussed with his staff on a number of occasions to prepare them for this future reality.

Like CFX Mortgage, GMAC Mortgage Corp., a $5 billion originator located in Horsham, PA, is benefitting from its automated underwriting initiatives. It has used Fannie Mae's Desktop Underwriter since November 1996. Currently, GMAC Mortgage processes nearly 80 percent of its loans through Desktop Underwriter, including loans eligible for Fannie Mae purchase, as well as other non-conforming loans, where the system is used as a credit policy tool, says Eileen Mitchell, manager of underwriting operations and Credit Policy. GMAC Mortgage, a retail originator with approximately 150 retail branches, three telemarketing centers and a construction lending unit, is currently implementing a process called "Operation First Class," which will ultimately move Desktop Underwriter directly into the hands of loan originators at the POS in the customer's home, allowing originators to provide approvals at time of application. POS automated underwriting, Mitchell says, will be available in 1998. Today, Loan Prospector is used by GMAC Mortgage processors to determine documentation requirements and also by underwriters to approve the loans.

GMAC Mortgage's initial implementation of Desktop Underwriter was technically more advanced than the approach taken by some lenders, according to Trish Nicolo, Desktop Underwriter technology project leader. "We have taken Desktop Underwriter and directly embedded it into our loan origination system. Embedded Desktop Underwriter services mean reduced user training and no double keying of information, and they also allow the user to stay in the current loan origination system by just adding one menu option," she maintains. Nicolo says that GMAC Mortgage is currently testing the embedded automated underwriting interface in several originator laptops.

tightening approval times

GMAC Mortgage implemented its automated underwriting system in several stages. In November 1996, GMAC Mortgage implemented Desktop Underwriter in its three underwriting centers. By June 1997, Desktop Underwriter was available to all processors for the first time to help them determine the document requirements for individual loans early in the process. Next year, "Operation First Class" will extend the Desktop Underwriter service to loan originators' laptop tool kit, which will permit POS loans approvals. Mitchell estimates that current Desktop Underwriter usage, with a 65 percent approval rate, has reduced the average time to close from thirty days to fifteen days. She contends that "Operation First Class" will further cut the time to close in half. GMAC Mortgage officials are anxious for a non-conforming loan underwriting module and more information as to how the system actually makes its decisions-in other words, a peek into the "black box."

Initially, GMAC Mortgage's biggest hurdle was in managing internal change. "Automated underwriting was totally foreign to the underwriters; it took two months to get the underwriters to accept a machine-driven decision. Some underwriters were quicker to accept automated underwriting than others," says Mitchell. To harness the benefits of automated underwriting, she says that lenders must make a full commitment to the project and consider workflow redesign throughout the entire origination process.

James Jones is president of Massachusetts-based First Wellesley Consulting Group, which assists mortgage bankers with strategic planning, technology and operational improvement programs.

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