Mortgage bankers are studying the possibility of streamlining lenders' loan transaction processes by converting them to more cost-effective, standardized computer systems and software - particularly in loan delivery and investor reporting programs - and a technological revamping of those methods may not be far off.
The Mortgage Bankers Association unveiled a detailed study Oct. 26 that outlines deficiencies in the current systems and makes suggestions on improvements. The move toward the study's suggestions are "logical and inevitable," said one MBA technology analyst, who stopped short of forecasting a time frame for implementation.
The study was conducted by Gartner Group Consulting Services, a Stamford, Conn.-based consulting agency and contracted by MBA's Interagency Technology Task Force. It was designed to evaluate the impact of implementing secondary mortgage market loan delivery and investor reporting standards. It also focused on projecting costs of adapting existing technology to the proposed standards.
The group conducted three case studies based on about 200 returned questionnaires from an original mail out of 800:
First among the benefits the study team found, the standards would shorten the funding cycle by an average of 321 days. This would allow the typical company to fund a 3,276 more loans annually. That equates to a little more than one extra funding cycle per year;
The standards would introduce product data model standards that would shorten the funding cycle by nearly three days and would result in an annual increase in the productivity of a loan processor by about 9%;
A shorter cycle, the study team found, would boost the percentage of loans that can be delivered a month earlier to investors.
Lenders enjoy a favorable rate differential for this earlier pool settlement date and, taking into account the favorable differential and warehouse spreads and applying those numbers to five-year projections of industry loan volumes, the savings to the industry are estimated at more than $567 million.
The typical lender would incur one-time, up-front costs of more than $200,000 to install the new loan system but reap substantial benefits, the study team said. The startup expenses would go toward installing the new loan system, the borrower and property standards and investor reporting standards.
Calculated for a lender that produces more than $1 billion in secondary market-bound originations annually, the average return-on-investment period would be 15 months for changes to loan, borrower and property standardizations, and nearly 16 months for investor standardizations.
"The most shocking finding is that companies in the financial services sector are not investing in [systems] to facilitate the sharing of information that is demanded by partnering or quality programs when the corporations they serve are," said the study.
"The risk financial services companies face is that their corporate customers are redefining how they will conduct business by implementing processes that embrace supplier and customer partnering and quality programs. If the financial services companies are technically and procedurally unable to participate in the corporation's redefined business models, they will be cut out."