When Noel Watts, the vice president of mortgage banking at Marshall & Ilsley Bank, set out to upgrade the lender's origination platform two years ago, he expected interest rates to rise and mortgage volume to plummet.
The opposite happened.
Rates dropped and volume jumped as Watts embarked on six different simultaneous technology projects. It was a juggling act, but one that the $49 billion-asset bank, a unit of Marshall & Ilsley Corp. of Milwaukee, says has begun to pay off.
"We were doing everything we could to free up the loan officers' time so they could focus on sales," Watts said. "We knew at some point rates would rise, which would increase our need to prospect and secure purchase business."
With interest rates dipping again, this time around the bank's loan officers can promise customers that a loan will close in as little as 28 days on average, compared with 45 days to 60 days on average before the upgrades.
Many large banks take 90 to 120 days on average to close an application, much to the consternation of customers, who often get frustrated with the process.
"We went from being the Flintstones to the Jetsons," said Julie Joseforsky, senior vice president of retail lending and collections at M&I. "All of it was done in the thick of the refinance boom."
It was also done ahead of Bank of Montreal's deal to buy M&I's parent company for $4 billion, announced in December. According to Joseforsky, when executives from Harris Bank, the Canadian company's Chicago unit, reviewed M&I's mortgage operation, they said they'd make the technology a model for Harris after the deal closes in July. Jim Kappel, a Harris Bank spokesman, would not say whether this is true, though he said the integration of M&I "is proceeding well."
Mortgage lenders often grapple with unifying multiple systems.
Larry Walker, a consultant at Genpact Mortgage Services, a technology provider based in Irvine, Calif., said there is "cost benefit" when lenders make a mortgage application "as electronic as possible."
"The stronger, more sophisticated mortgage players are all moving in the direction of paperless mortgages," Walker said. "If you look at a loan file, it is common to have more than 100 documents in the file by the time the loan has closed."
One of the main obstacles is that "there are an awful lot of people that have jobs in maintaining a paper-based system," he said.
M&I Bank found that the problem went far beyond its loan origination system, which was not even integrated with a consumer Web portal. The bank's loan officers spent thousands of hours manually inputting loan applications into 16 different computers, which took time away from prospecting for customers.
To streamline the application process, the bank invested in a point of sale system from Wipro Gallagher Solutions Inc. and added a consumer Web portal from MortgageBot. Now loan officers get email alerts when a customer submits an application online. Customers will be able to go online to submit an application and check the status of their loan.
Watts estimated that these two system changes alone eliminated 3,256 hours of nonsales activity, or 22 hours per mortgage banker a year.
"I like to say we gave our sales team an additional half of a week to serve customers," he said. (The company would not disclose the cost of any of the upgrades.)
More problematic were the disclosures (and redisclosures) that the bank had to mail to customers to comply with the Real Estate Settlement Procedures Act rules that took effect in January 2010.
For more than a year, lenders have been giving borrowers a good-faith estimate of closing costs that limits any changes to a 10% increase on charges. If a charge rises more than the 10% tolerance, the lender must notify the customer and typically has to eat the difference.
To reduce costs, the lending unit cut the number of title vendors it uses to 25 from 1,000. It also outsourced the ordering of title and appraisal work to an outside management company, FNC Inc.
Enrolling all the different vendors was a long, arduous process, Watts said.
"It wasn't only the fees to manage but placing the orders, tracking it and receiving the finished title work," he said. "It becomes much more reasonable with fewer providers."
The next step was automating the process of title and appraisal orders, flood certification and closing packages. A vendor management portal saved another 27 minutes per loan file, Watts said.
The Respa regulatory requirements created a huge back-office workload that required eight full-time employees to send disclosures and redisclosures to customers because of changes to the good-faith estimate. Since the Respa changes a year ago, loans typically have two to four "changed circumstances" that require a reverification of fees and a redisclosure to borrowers, Watts said.
M&I's lending unit outsourced the process to Wolters Kluwer Financial Services, which allowed the bank to reassign most of the staff who had previously mailed out disclosures to other duties, he said.
Finally, the bank invested in OnBase, a paperless imaging system from Hyland Software, that allows bankers to view documents at the same underwriters view them. In a traditional paper-based lending shop, loans typically move in an assembly line from processing to underwriting to closing. The switch to paperless allows closing documents to be prepared while an application is going through underwriting, so work can be done simultaneously rather than sequentially.
In addition, the bank's lending unit is assigning bar codes to all of the documents in a loan file, so they can be indexed. A W-2 form or pay stub, for example, can then be easily pulled up from a file containing 100 documents.
Despite the recent dip in interest rates, most lenders had a lull in mortgage volume in the first quarter.
Watts said the technology changes have given loan officers at the bank's roughly 300 branches more time to focus on sales.
"When your job is to prospect all day and there are activities that take away from that, you're going to hear about it," Joseforsky said.
