Lending's Winding Road
When Washington Mutual, the nation's second-largest mortgage lender, revealed last week that mortgage volumes in the fourth quarter would be off 50 percent from the third quarter, it said it would replace legacy loan-processing systems with newer ones by the end of next year as part of an effort to save $1 billion in costs. The technology upgrade is being made in response to the "new realities of the current environment," said Kerry Killinger, chairman and CEO of the $287 billion-asset lender, in a statement.
Washington Mutual isn't alone. Lending institutions are deploying new technology to cope with a seismic shift in their business.
Greenpoint Mortgage's goal is to launch new loan products every 21 days. Bank of America Corp. has paired with a leading mortgage-services outsourcer to create a loan "factory" that will provide small banks with an automated loan-originating and -processing facility. Countrywide Home Loans Inc. is expanding its automated loan-origination system to let customers handle much of the application process online and underwrite loans in 15 seconds.
As interest rates creep up, fewer people are opting to refinance home mortgages. This follows several years of unprecedented refinancing volumes. With the boom fading, lenders are searching for new revenue models to replace the refinancing business. Many are looking at efficiency-improving business-technology efforts to untangle complicated, paper-bound processes that they've been too busy to retool. Several lenders are testing ways to speed the entire loan process and make their businesses more flexible.
It costs banks $1,200 to $1,500 to process a loan using traditional paper-based methods. With new technology such as online applications and workflow software, the cost can be cut to less than $500, according to Celent Communications, a research firm that tracks banks' technology spending.
Cutting these costs is a top priority at Greenpoint. The lender's low-cost, high-volume operation is powered by Fidelity National Financial Inc.'s Empower loan-processing system and Dorado Corp.'s Web services and software that let brokers submit loan data electronically. Greenpoint also uses Progeon Ltd., an Indian business process outsourcing and software company, for most of its processing and customer service.
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"Our competitive edge is in our capacity to change our loan products on the fly," says CIO Sutton (left, with CTO Rogers). Photo by Angie Wyant | |
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Greenpoint specializes in loans for people who don't qualify under the standards laid down by Fannie Mae and Freddie Mac, government-sponsored organizations that buy loans from banks. Eighty-five percent of its business comes from independent mortgage brokers, who must create loans on the spot for customers who walk through their doors. The rest comes from other banks or Greenpoint's retail channels. To serve them, Greenpoint must stay nimble in order to keep up with rapidly changing market conditions. This flexibility is letting it create a new loan product every 21 days, CIO Mike Sutton says: "Our competitive edge is in our capacity to change our loan products on the fly."
Bank of America, too, is focused on new revenue streams. It teamed with Fidelity National Financial to form Financial ServiceSolutions. Fidelity National is the largest provider of title and escrow services in the country and a leading provider of software and outsourcing services to banks. Operating out of a 150,000-square-foot facility in Louisville, Ky., the venture combines two core technologies: LoanSolutions, a mortgage-processing system that Bank of America acquired earlier this year when it bought Frameworks Inc., a developer of mortgage-loan software, and then deployed throughout its branch network; and Fidelity National Financial's RealEC, an e-commerce hub linking lenders, real-estate brokers, and settlement service providers.
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