Electronic Mortgage Bottlenecks, Part 1 – Organizational Challenges (A manager’s view on the adoption implications of straight-through mortgage processing) -- May 8, 2007 (Also appearing in the MBA Tech NewsLink)
As a result of the media coverage that has been generated from the large number of topical national mortgage conferences, we are now keenly aware that the mortgage industry is lagging in electronic mortgage technology and business process adoption. But are the rationale and implications of this “lagging acceptance” truly understood?
As we have learned from prior initiatives, the bottlenecks for adoption are many and ingrained within the established organizations, legacy systems, process interactions, and even industry regulatory oversight. Nonetheless, does this fully justify the industry implementation rate and on-going efforts for straight-through processing of electronic mortgages (i.e., eMortgages)? What are the little known implications and lessons learned that are slowing adoption and sustainability?
While many industry groups advocate education and training as the priority for electronic mortgage adoption, executives may be quickly asking themselves and their teams if this collegiate approach will be enough. During the last six months, there have been numerous studies on why adoption has lagged what many perceived as common sense -- “why wouldn’t you implement a comprehensive electronic solution that decreases costs, reduces cycle time, and virtually eliminates errors and rejections?”
Tim M. Anderson, Vice President of eMortgage Services at Stewart advocates, “A critical requirement for an organization is a basic understanding and education on first just ‘what’ an eMortgage is and actual benefits of adopting an eStrategy today. This has not been greatly communicated out there and the individuals that have been quoted in the press are the ones that have been forecasting the standard citation that eMortgages are still three to five years away (perhaps because they really haven't been involved, they can't make the investment or are not remotely close to delivering a solution). These statements provide the wrong people a stage to promulgate the same tired quotes and old myths while disseminating bad information -- this is what lenders hear and read. Because of these communications, there is still a lot of confusion on who the ‘real’ players are that have made the investment and have deliverable solutions today. To avoid the challenges, organizations, and individuals need to get involved with MISMO (‘real’ players) to see just what and how much has already been done.”
“Mortgage Banker, Heal Thyself…”
“Whether the real estate market is hot or cold, banks and mortgage providers still face intense competition for business,” according to Diana Helander, Group Manager for Worldwide Standards for Adobe Systems. “To attain a competitive edge, they must reduce cycle times and close deals faster. Relying on paper forms, faxes, and e-mail increases the chance for error and noncompliance and slows down the process. Given a tight market with multiple providers, customers will look for two key differentiators -- faster service and competitive pricing. And (PDF-based) eMortgages will aid on both fronts.”
For smaller and entrepreneurial organizational cultures, the barriers for electronic mortgage adoption may solely reside with technology or process implications. In contrast, for the established organization with a proven and often times unyielding internal culture, the recognition and subsequent adoption of new ideas may become laborious and drawn out, burdened with endless meetings, review sessions, competing stakeholders, and disingenuous participants. The consequence is an elongated adoption timeframe that is nonlinear when comparing relative sized entities.
“As the mortgage process continues to be compartmentalized, lenders are going to be squeezed by the demands of the new savvy consumers and the delivery of electronic mortgages to the capital markets. The capital markets (i.e., investors) will entice lenders to deliver faster, accurate, and electronic mortgage loans for better execution while on the front end of the lending cycle, new generation X and Y consumers will require on-demand and self service technology solutions to their lending needs. These two elements will squeeze lenders to implement eMortgages not just for the ROI’s that are hard to determine, but for the demands of the new consumers and the demands of the investors.”
With the increased specialization or compartmentalization of mortgage and real estate processes, Tim Anderson was asked if the sponsors and/or stakeholders were prepared for the breadth of change both procedurally and human capital that are implied and must be realized when accepting the rationale for adoption? “No. Most companies and departments within those companies (channels of business) are still significantly siloed and approach the market place as separate companies and processes. The majority operate on their own P&L's … but share no common technology to make all operate more efficiently as one.”
To uncover unreceptive and passive-aggressive resistance within the organization, a definitive baseline must be performed not just on the technology and process, but on the people, their roles, and accountability. At a bare minimum, these include:
- Who are the “involved” and “secondary” stakeholders? We are not just seeking direct line managers or even the c-levels, but those supporting role functions and divisions who will be impacted by changes, information availability, or even cycle-time changes. With many organizations being a “blend family” of cultures due to acquisitions and mergers, the complexity of identifying the stakeholder impact and value chain is often underestimated. Often times, in a rush to gain the executive office support, implementation teams and vendors inadvertently alienate the workforce needed for sustainability.
- Is the organizational culturally able to recognize and sustain eMortgage initiatives? Organizations possess a wide range of operational characteristics that are a direct result of their personnel, contractors, and vendors. Therefore, the plans of action for eMortgage adoption are not uniformly generic. During difficult industry times and contrary to some popular misconceptions, the ability of an organization to comprehend, focus, and execute on new procedures, processes, and technologies is far more complex and internally less compelling.
- What alliances and partnerships must be formed? While this topic is often utilized for technology and product joint ventures, the same concepts are seldom applied to the internal organization. Adoption of any new idea requires active dialogue and creating an operating environment that benefits all parties of the transaction. Whereas stakeholder assessment determines “who and what,” it is the alliances and partnerships that determine the functional types, “the why’s and the when’s.”
- What is the communication plan, visibility, and “continuous dialogue” that must be employed? Often this is the most overlooked of the implications when considering eMortgage adoption. Addressed as simply a part of the education or retraining plan, it fails to address the potential level of revenue and profit importance, competitive advantages, compliance and regulatory improvements. What are the dashboards, scorecards, and informational / town hall sessions being planned or released to obtain a “measured” success?
The problem with the aforementioned representation is that within a larger or diverse organization, the steady-state condition for assessment tends to shift and change depending upon the internal team’s composition and the initiative’s stage of growth. Nonetheless, these categories are useful for starting the dialogue and ensuring that plans can be achieved within the proper level of quality, time and resource commitment.
Cy Brinn, President of Metavante Lending Solutions, remarks, “Organizations which attempt to utilize a “big bang” deployment approach do not appreciate the implications that increasing their level of loan origination automation will have and/or require of their organization. Instead we strongly recommend lenders utilize an incremental approach. Specifically, we encourage lenders to target three to five key areas or process to evolve to a higher level of automation. Once the new automated processes are deployed and the lender’s staff can directly and completely appreciate the impact of the newly automated processes they can then evolve their organization and down-stream processes accordingly.”
When BAU is No Longer Relevant
Every organization is composed of numerous cultural characteristics. It can be described as conservative, risk taking, stodgy, inept, stellar, innovative, object-driven, unfocused, profitable, collaborative, diverse, methodical, chaotic or customer-driven. Yet it is this combined set distinctiveness that guides and even determines the aggressiveness of migration and adoption strategies (and results). For employees and the corporate contractors and vendors, the implementation of these cultural parameters determines organizational business as usual (BAU). For eMortgage acceleration and increased adoption, BAU is no longer relevant.
When examining behaviors that are superior for organizational adoption, Tim Anderson states “Not only must companies recognize the need to change, but they should see it and market it as a market differentiator and competitive advantage. They also must not only commit to changing their processes but actually go out and train and educate their customers on a ‘better way to do business.’ Additionally there is a requirement for dedicated people to implement and support an eStrategy and not attempt to do this with ‘shared’ resources that have other jobs and priorities. Need a total dedication and focus commitment to support.”
Cy Brinn believes, “Organizations which appreciate that they need to take an analytical and evolutionary approach are most likely to be successful. Such organizations realize that ‘they don’t yet know what they don’t know’ and won’t be in a position to understand the full and long term implications until they take some initial steps. Management teams who recognize that it will not be possible to achieve an overnight transformation will create an analytical and ‘learning’ climate for their staff. Management cultures expecting, unrealistically, that achieving the next level of automation will be a single event process, will find their approach detrimental.”
What are the criteria for success? How can relevance and sustainability be injected into the organizational delivery processes and culture? What are the rewards that must be defined and implemented as part of the adoption acceptance for eMortgages? Some of the experiential lessons learned include:
- Even with change, the day-to-day activities have to remain viable as the continuity of operations and customer experiences cannot be left to chance due to their downstream impacts.
- Multiple strategies and channels should be implemented to avoid a serialization of organizational communications and influences.
- Measures and metrics must be part of the organizational change plans balanced with the culture and operating practices.
- Risk management and mitigation are essential tools in assessing, managing, and predicting behaviors and plan actions.
- Incremental and iterative program, project, informational, educational, and training efforts should be adopted.
Cary Burch concludes, “The next 12 months will bring about an education and understanding of an eMortgage. Furthermore, many lenders will adopt several components of the eMortgage such as eDisclosures and eDelivery. The top three initiatives for 2007 will continue to be 1. credit loan quality, 2. efficiency in a smaller market, and 3. generating more qualified borrowers. Mortgage Technology, although very strategic and important, may be 4th place to the aforementioned initiatives.” However, Tim Anderson offers an alternative perspective on the potential for a broad-based adoption in 2007, “It has to be (a top priority for 2007). The economics of decreasing volumes and margins will force lenders to consider, but critical to the adoption rate and acceptance will be level of investor acceptance to purchase.”
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Change can sometimes be considered as organized chaos. With very few exceptions, organizational challenges can be identified, mitigated and even measured without resorting to draconian practices. For organizational eMortgage acceptance and adoption, the words of Alfred Tennyson ring very true, “Till the war-drum throbbed no longer, and the battle-flags were furled…”
Appearing next in the five part series – “Electronic Mortgage Bottlenecks, Part 2 – Software and Technology Obstructions”
For 2008 MBA entries, click here