The regulatory requirements laid out by the Home Mort-gage Disclosure Act (HMDA) demand mortgage providers report detailed data about borrowers, properties, applications and outcomes of transactions. Because of new reporting requirements that went into effect last year, most lenders will now have to provide even more detailed information, including the difference between the annual percentage rate (APR) of each loan and the rate of a comparable Treasury security. Although consumers will have more visibility into the APR of every loan, the requirements have caused problems for lenders that must now update old data that was previously calculated.
In addition, the landscape in the mortgage industry has never been more competitive. Providers find that without innovative, attractive products, they are unable to grow or even maintain market share.
The fundamental problem facing mortgage providers is the lack of flexible systems and procedures within their organizations. Seemingly small changes in the requirements around procedures can lead to significant costs if all aspects of the change cannot be managed. Unfortunately, the impact of working out how regulation affects the process is not limited to the systems that control the business. Lenders and brokers must also consider the staff training requirements, additional documentation preparation and a range of other side effects as a result of having to adhere to HMDA regulations.
The new HMDA data may also lead to increased enforcement and litigation involving claims of unfair and deceptive practices and discrimination in loan pricing. The level of disruption will undoubtedly vary from organization to organization, with those that have better documented and controlled processes likely to be the least affected.
Easier Implementation
Fortunately, there are business solutions that make these types of changes easier to implement and manage. In the past, some mortgage providers may have looked at-and possibly even implemented-a workflow solution to automate and manage some aspects of their business. Vendors such as Staffware and FileNet have in the past delivered highly functional document management solutions across a wide range of industries, including the mortgage industry. Inevitably though, the shortcomings of only doing document-centered workflow become apparent, and what is appearing on a number of mortgage providers' horizons is something called business process management (BPM).
BPM is similar to workflow in some respect, but provides added value by allowing an organization to create end-to-end business process models. These models are more complete than traditional workflow/document management solutions and will typically include people, information technology (IT) systems, fax machines, telephones and any other resources required as part of the whole process.
Users of workflow will be familiar with some of the features of BPM such as task lists and notifications. However, BPM also provides the benefit of business agility. The ability to create graphical models of the process and resources means changes can be implemented quickly and easily. These models are defined in a user-friendly manner, so that a business person can quickly get to grips with the current process and how changes may affect it-both in terms of cost and time.
An ideal BPM solution should enable the simulation of the before and after states of the process, allowing mortgage providers to get an accurate view of what the effects will be. This simulation of the business process can be used to further refine or redefine the process to minimize the impact of changes. Besides the ability to model the process, a BPM solution also allows the accurate modeling of the organization and other resources that the process relies on. This is key to the effectiveness of BPM, as simulation and management of the process is only meaningful where all factors are taken into consideration. By modeling the people, systems and other resources, the true 'cost metrics' for the entire process are included. This allows the simulation of the 'to-be' process to create an accurate picture of the impact on the business process and the organization.
A complete BPM solution provides more than the ability to adapt the business to regulatory changes. It manages the processes in a live environment, and it gives mortgage providers the ability to accurately monitor and manage the processes. The monitoring capabilities inherent in BPM provide the ability to escalate late tasks before they become critical-rather than trying to recover the situation when a broker is taking the customer elsewhere. By providing staff with pertinent and timely task lists, a BPM solution maintains control over the process, allowing the organization to manage both the cost and efficiency of their processes. This monitoring and management makes a process 'repeatable'-the positive effect of which is an improvement in customer service levels. By enabling the organization to accurately set prospective customers' expectations it is seen to be more responsive to customers' demands.
Additional Benefits
An additional benefit of BPM's monitoring capabilities is that a business manager can have an up-to-date view of the number of applications made, granted, and refused; the grounds upon which each was done; and the values, LTV ratios and other risks incurred. This 'business dashboard' capability is a significant benefit of BPM, giving the user the ability to drill down into the underlying cause. For example, a manager's dashboard may highlight that following an interest rate rise the proportional split of mortgage products applied for changes. With this timely notification and information they might introduce a different limit on how many applications for a particular mortgage the organization will consider on any given day. This capability will allow the organization to tailor the process to the prevailing market conditions-rather than managing the risks once they have already materialized.
Pieter Eksteen is product manager at CommerceQuest.
