Why Mortgage Workflows Break and How to Fix Them

Marvin (0:01): 
This is Stewart in the Studio, the podcast where mortgage professionals stay ahead of the curve with expert guidance from Stewart's thought leaders. I'm your host, Marvin Stone, and each month we dive into trends, topics and tech to transform your business. Let's do this.

Well, hey everyone. Thanks for joining us for another episode of Stewart in the Studio. Today I'm joined by Rich Kuegler and unfortunately not TJ Harrington, who is in an airport in Kansas City and and can't make it today.

But with that, today we're gonna talk about speed, I guess, versus control in today's mortgage workflow. You know, they kinda go together if done well, I think. And so we're gonna kinda kinda start there.

Rich (0:43):
Yeah, I think there's a number of of issues that are that are really at this transformational time in the market, which is kind of interesting. You know, much like the market overall is in a in a weird spot because rates are where they are and you've got the “lock-in effect” and then you've got economic volatility. You've also got a very transformational time in in the mortgage market where, you know, to your point, the consumer experience has been a huge driver. The digital mortgage and the digital fulfillment process has been gigantic. There's been increased pressure on on compliance, on regulatory issues, and then introduced sideways into all this are a number of industry and investor pilots that are designed at trying to make you know, either better customer experience, reduce cost, and and try to to offer some differentiation. So, there's there's definitely a lot going on and it's it's it's exciting to be here.

Marvin (1:38):
Yeah, it's a it's a it's an interesting time to be a lender for sure. So, you know, I guess some of the stakes in this whole thing is, you know, if the controls aren't right and we're trying so hard for speed, that kind of opens the door for fraud, more error in the process, oversights, breakdowns, things that are rushed often are, you know, overlooked and mistakes on the file, which get you know, dealt with in post-closing. All you know, somebody downstream has to deal with all that before that loan gets hopefully sold. So, I mean that's that's the big place right there, right? I mean what happens in that QC piece opens the door for fraud and such.

Rich (2:17):
Yeah for sure and and traditionally it has been exactly that. It's a let's get this thing closed, throw it over the wall, and then someone else can do some post-file QC, some a loan file review, get it to the investor, and then there's a number of exceptions to try to deal with post-closing in the process. 

I think one of the areas that that we're seeing a an increased focus and and understanding in by by both investors and the and originators is that time between loan closing and investor delivery, you know, time is really money there. You've got the impact of there might be warehouse line issues, there could be fungibility, there could be potential for repurchase. All these things are are risks to an originator's business that they are really focused on. And there are also some some technology companies now that are really looking at ways to take the post-close review and and QC process and turn it into a more manufacturing focused, kind of like what I was I guess I was used to as a manufacturing engineer, which is really in-process quality control. So, as you go through each step, you're able to validate data, you're able to validate different milestones rather than wait till the end of a process and then try to check the checkers who just checked the previous checkers.

Marvin (3:37):
Yeah, so well said. You know, that that manufacturing engineering discipline I would call it is has kind of been slow to come to the mortgage side of the business because and and I think every aspect of the business in a lot of ways in a lot of shops just because we're in “mortgage” or we're in “title” and such and so when when we don't think of it in terms of that manufacturing process and that term gets thrown around a lot in in the industry, but it gets thrown a around without the engineering discipline behind it. So, the validation doesn't take place. Or like I was hearing last week at the, or I guess week before at the Mortgage Innovators Conference, is it happens too much where people are ordering electronic verifications of employment and income, and those things then get checked by the checkers. And so, you hear these stories where lenders are having to obscure the fields on the screen so that the underwriters cannot recheck what's already been proven to be true and accurate.

So, I think it's there's a lot of well-meaning work going on, but sometimes it creates inefficiency just because everybody's trying so hard to you know be checking the checkers.

Rich (4:51):
For sure. Yeah, and I I think traditionally, you know, mortgage has been looked at as a relationship business. And so at the expense of kind of process improvement and that manufacturing mindset, but I will say that you you we're not gonna take the relationship out of the out of the out of the process, but by instituting some of these more kind of more process driven steps, it's it's also been something that's shown originators that they can reduce the cost of origination because of some of that that improved discipline. So an example there would be, for example, Informative Research, which is our our, as you know, our credit and verifications company as part of part of our Stewart family, they have some really neat tools that allow their lender customers to reduce the expenses associated with credit and also verifications because they can help manage and understand when a lender is ordering a particular product and if it's a duplicate, and if it's a a triplicate, and if it's a whatever goes after a triplicate. Just to make sure that you don't have the redundant ordering and the duplicate ordering that costs more money and takes more time and also doesn't add any value in the process.

Marvin (5:58):
Yeah, it's there's so much opportunity there and and that's a vendor solution, right? I mean so you know just by choosing the right vendor you're getting things that you might not get with another vendor.

Rich (6:09): 
And that's and that's the thing I think we're seeing, you know, whether it's a and I'm sorry, Marvin, whether it's a technology partner in in a loan origination system, they're spending a lot of money and making it a lot of investment in process improvement from a workflow perspective and also from a flexibility standpoint. It used to be, hey, this is it's not this isn't Burger King, so you're gonna get it coming all through the same pipe, but now it's kind of made to order and that allows for that decision to be made in the in the LOS so that the different investor requirements can be satisfied and also processes can be improved from a technology standpoint. And then also a lot of service providers are are similarly looking at ways to help reduce costs and and provide more I guess verified data and verified information throughout the process.

Marvin (7:00):
Yeah, for sure. But then but from the borrower's perspective, they don't know any of this is going on. So their expectations are I should be able to get something as easily as I order up a car on Uber or I order groceries or order order anything like that. But at the same time we want to provide that service at that level. You already pointed out, you know, that's still a relationship business. You know, your loan officers are on the front lines, right?

Rich (7:27):
Exactly. Yeah, it's it's and it's really interesting because on the one hand you will have consumers that would expect that kind of a digital experience. You know, even a I can DoorDash something at eleven thirty at night and it shows up usually. And you know they they they kinda expect that, but at the same time, if you if you look at some of the survey results, a consumer would rather have someone that they trust and and value their opinion help walk them through this kind of a a a you know very, very intense process for a home purchase or even for a refinance or a home equity loan. You they want to have somebody that they can trust who's been there before that can help guide them. So that trusted advisor is very important throughout the process to help speed the consumer experience.

Marvin (8:12): Yeah. So for life's big things we we want somebody we can trust to go to. Which makes perfect sense. I mean the all if we haven't gotten to the all-digital mortgage by now, it's hard to say like what's missing? There's nothing really preventing us from doing that.

Rich (8:27): Right. And we we've spoken a a lot on on you know previous Stewart in the Studios where we've been focused on the consumer experience and how some of the the the digital platforms, you know, even something as simple as tracking the orders, tracking your application, being able to to kind of close where you want, whether it's you know, going to an office or having someone come into your home or even going for a remote online notarization in the transaction to make it all truly digital, there are definitely a number of of you know consumer options that are now being made available that help speed that process and and help give that consumer some better experience.

Marvin (9:02): 
Yeah. And so I guess to your point, I hadn't really looked at it this way, but you know, at Stewart we have hundreds and hundreds of branches around the country where you can close in person in a nice Stewart office, sitting there, you know, across the table from an experienced closer who's gonna walk you through the papers. We also have NotaryCam, our NotaryCam division can do remote online notarization all day, every day, anywhere that somebody happens to be. Signature Closers, a mobile notary panel, we can send somebody to your house. So, it's not like anything has transitioned from one model to another, it's that we do more than we've ever done before to make sure that the power of choice is there. 

So real quick, you know, I was just hearing that I guess the cost to originate a mortgage, which has been hovering around twelve thousand dollars to originate a mortgage has slightly dipped under that while rates went down for a little while there. But what are lenders talking about in terms of cost? I mean, there's all this pressure to improve turn times, improve the borrower experience, be streamlined, and yet the cost remains so high.

Rich (10:11):
Yeah, I mean the the the cost has really been driven by the regulatory pressures that are that are on the industry and a lot of the the kind of the added process steps that are that are now in in the origination process in addition to to other, you know, market factors as well. But I I'm hearing a lot now where where traditionally it was the question of well what's you know what's the rate and then how is that you know, what type of a spread do you have in that to help drive what that profitability might be. But there are definitely some touch points that if addressed successfully can help drive additional profitability. So really things that are toward the back end of the process that help to speed delivery to your investor community is a big profit driver and also a big driver of loan quality as well. So as as originators kind of make better quality loans, investors now receive better quality loans and then then they have better quality loans upon which to to build their investment portfolios.

Marvin (11:11):
Yeah, and I guess part of that would be quality integrations where the data is coming through, there are no missing fields. We just, you know, when you when you step into the post-closing quality control world, you just see where all of a sudden you you see so many gaps and things that you didn't see before. And I know we have I guess dozens of integrations with the LOS programs out there. And you know, those are very detailed and where whereas we know that a lot of lenders don't have those integrations necessarily or the or not maybe the best integrations that are considered first tier. And so that again speaks to the data quality that makes its way all the way down the pipe in the productions, which again goes to your manufacturing analogy.

Rich (11:54):
Right, right. And I think a lot of you know again, talk talking about kind of traditionally, that's been a a function really of of resource availability and prioritization. So, lenders will have to, you know, make that make that decision between can I get more throughput or can I work on process improvement and some of those the what may be perceived as smaller steps, but they will have a material impact when when added up. And I think now that there's more transparency about that and there are some more tools available to make that a more readily available solution. In other words, how do I cut down the time between loan closing and investor delivery? That's gonna help speed profitability or or improve profitability as well as speed that that process up.

Marvin (12:41): 
And one of the things that was supposed to really speed up the process and became sort of popular was the eClosing model. But I think a lot of lenders are still not fully on eClosing because they may not have the right partners. And so they do this hybrid approach and I don't even know does that really help the process? I mean what are you what are you hearing from all these lenders who are taking sort of the middle ground approach?

Rich (13:04)
I think it the the the real benefit will be when you truly have an an eNote and can eSign and then also have the validation completed at signature and not post-closing. So that'll eliminate a number of of potential errors, it'll eliminate a lot of inconsistencies in the process. but in the meantime, the hybrid experience from from what I understand anyway, is that it's definitely improved the the consumer experience.

I think the consumers find that that avail that flexibility to be helpful, but I don't know that it's a hundred percent eliminated a lot of the issues that that we were you know hoping to do at this point. Definitely get it's it's definitely on the path and it's a it's a roadmap and it's a it's kind of as you know as they say it's it's a one day at a time and one percent a day improvement is is all you need.

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Marvin (14:55):
So, Rich, let's touch touch a little bit on ownership and defined responsibility across the transaction. One thing I heard yesterday, as a matter of fact, is that there are a lot more people, lenders have a lot more people remote. And so, because of that, this person in this office may not be helping these three people sitting here. They may be helping people across the country working in different channels, working in different loan programs and pilots and such. So, there's a lot more variation there. I think there's more chance for error there, and and gaps. 
I mean have you what have you seen as lenders have gone remote? Not that it's new anymore, but you know, what have you seen there?

Rich (15:37):
Right, it still it still poses somewhat of a challenge. So despite the fact that it really adds a lot of flexibility to your talent pool and to your workforce, there are, to your point, a number of areas that that cause potential for gaps or or just as damaging overlap in the process. And so if you don't have established ownership of who controls what milestone or who controls what task, then you may be creating a a process that's never gonna tick effectively.

We've actually had some some meetings on site with some of our lenders to really go through that part of the process. You know, as I think, you know, we had we had talked on the side about you know different service level expectations and while you like I'll use title as the example, you might get your commitment in in in a in under a day and that's fantastic, but all the next follow-up steps that may or may not need to happen, you now need to understand, okay, who's got ownership and who's gonna do what when and if you don't know that, you may wind up with duplicate outreach to a consumer or you may wind up with no outreach to a consumer.

So we've really worked hard with with our lender partners to identify those those areas and we're we're continuing to do that to find opportunities where we may be doing a double check of something that they've already done and vice versa. So, I think those types of things are gonna gonna come to come to fruition as as lenders try to think about scale and try to think about what happens when rates go a certain direction or what happens when the market opens up. There's definitely some some concerns around that because nobody wants to go down the path of of just hiring more butts in seats, but rather let's use the technology that we have available, let's use the new tools that are emerging and find better ways to do that and continue again to confirm ownership along the path.

Marvin (17:27):
And you mentioned so you mentioned “use the tools,” right? One of the tools that's out there that really just I don't think it's used fully or maybe maybe not effectively, is the workflow inside the loan origination systems. Because when you look at the top LOSs, they really have great workflow embedded in them and the lenders can go in and you know create a variety of rules. I mean it's not easy because you've got to make sure that the rules fire in the right order and they don't overlap each other and things like that. But do you see that lenders struggle with you know setting up these workflows and maintaining them?

Rich (18:08): 
It it depends. I think there's there's varying levels of of complexity and I mean several have have, you know, dedicated teams that that work on nothing but process improvement and then more importantly, once once that functionality is determined, also make sure you can communicate it effectively as well. Larger organizations are gonna have to communicate that across either, you know, multiple channels or certainly to multiple regions. But I don't think that's necessarily a a challenge. I think it's it's really determining which are the the priority items that are gonna give you the most bang for the buck and help you to continue on your path to, you know, shrinking origination time and reducing unnecessary cost or maybe duplicate cost.

Marvin (18:50):
And I think you know, Stewart's in a unique position because we have all those services, every service you need really through the entire origination process. And so do you find yourself doing sort of a consultative approach on how to use the verification waterfall that Informative Research has and how to use Intelligent Cascade and The Valuation Group, things like that. Are those when you have those conversations, it's almost a consultative approach on what can what what's possible. What does that look like?

Rich (19:22):
Yeah, so so as we you know we'll kind of call it the the “show the flag.” So we want to make sure that that that our partners understand what might be available for them, what type of advantages there are, and also what type of process benefits that we can help create in in leveraging the different tools that that Stewart offers and the different ways that data can be deployed throughout the process as well. It's not like it used to be where you would place an order and you get a PDF and then you figure out what to do with that PDF. You know, it's a huge data payload. You can have it in various various forms and functions and and have data flow wherever you like.

Marvin (20:01):
So, I want to build on that and talk about workflow and in a little more detail. So, workflow design matters. Let's take something simple like home equity. Okay, so home equity transactions, there's no seller-buyer, it's just a it's just an owner. Sometimes you don't even have any payoffs if there's just cash coming out. Let’s just take that, for instance, and take it, kind of walk through it together with me to talk about what an end-to-end workflow might look like in a more simple case. And we'll start with Stewart Snapshot and then let's talk through all those things that can happen in the workflow to to speed this without all the handoffs and the waiting and the turn and turn between processes. 

So Stewart Snapshot. Data product. New borrower comes into the scene somehow, makes we make a the lender makes a request with just an address, nothing more. That comes back in usually three seconds or three to four seconds, and now you're looking at a description of the property, the condition of the property per the last tax assessor that took a look at it, who's on title, approximate value of the property, open liens on the property. Give us kind of fly-over on what the optimal workflow design would look like.

Rich (21:19):
Sure, yeah, and it's a great example because excuse me, as you mentioned, that that that process now is is you know, it's it's because it's a simpler process, it's a different product, the the the profit margins on those are a lot tighter. So, it's even more important to have an effective process and an efficient process that helps you verify your applicant, helps you validate the the criteria that that applicant may come in. So, a typical case, you know, traditionally has been first thing I'm gonna do is make sure I've got creditworthiness, make sure I've got ability and resources and assets to to repay potentially. But there's always been a gap in how do I validate the collateral? And now a tool like Snapshot allows a lender to help validate the collateral as part of their that initial prequalification in in early stage of the approval so that you know now what what type of loan options might I offer or might I work toward and then what might that that consumer be eligible for? 

You can use that information then to help really streamline and and tranche your your process to understand is this a is this a a fast track type of process because it fits these criteria, or is it a more traditional, more l more, you know, labor intensive type of process to get fulfillment? And then the the real the real benefit there is is one, you understand now what type of product options are are available and and are going to be good for the consumer and for for you as an originator. And you'll also be able to set the expectation with that consumer so that you can get their commitment and you can also provide them with visibility and transparency throughout the process. Because a lot of times that's where loans fall out is, you know, we talked about different stages in the process and and if you don't effectively communicate, again getting back to relationship in addition to manufacturing process, that now means you won't be successful and you're not going to have that consumer convert because they've gone somewhere else because you never told them what's what's happening.

Marvin (23:20): 
Yeah, great points. So we're gonna wrap up here, but I guess the the key takeaways are that a couple of things. One is look at the technology stack you have as a lender and see if it's if if it's a good fit for the market going forward where you have so many options and so many so much variation in the loan process. Look for the key integration points, make sure you have integrations with key partners. Obviously, we believe that Stewart integrations are the best and that we're a great partner. So Rich, that's it for this episode of Stewart in the Studio. If you have any closing words, I'd love to hear ‘em.

Rich (23:53):
Yeah, I would say I would just encourage everyone as as you look at your process and you look at your providers, not only service providers but technology providers, make sure you ask the right questions about what type of advantages they can bring, what type of process controls and and what type of of improvements that are again kind of that one percent a day improvement that'll help you with your process ongoing, not as a one-time but as an ongoing partnership.

Marvin (24:19):
Perfect. Thanks so much, Rich. Great to have you on again. And hey everyone, we'll see you for the next episode of Stewart in the Studio. 

That's it for Stewart in the Studio, where mortgage professionals turn for fresh thinking and real-world solutions. Find more episodes and insights at Stewart dot com slash lender. We'll see you next time.

Dislcaimer (24:38):
This podcast is for informational purposes only and reflects the views of the speakers. It should not be considered legal or business advice, and listeners should consult their own advisors before making decisions.