Magazine article Mortgage Banking

Giving Away the Gain

Magazine article Mortgage Banking

Giving Away the Gain

Article excerpt

AmerUs Mortgage, Des Moines, has been using Freddie Mac's Loan Prospector for 20 months now, and the story of how it's changed the company's operation is an interesting one. But what is AmerUs doing with the impressive time and cost savings that come from using automated underwriting? It is giving it away in price subsidies. At least that's the word from AmerUs President James Taylor, who spoke at the Mortgage Bankers Association's National Technology in Mortgage Banking Conference in Chicago.

Taylor said that using Loan Prospector improved his firm's time between loan application and closing by six days. The time from application to loan approval has been reduced to 10 days or less using the system's collateral assessment component.

The system also produced a savings of $50 to $125 per loan. But Taylor told the conference if you compare his cost of origination in 1994 versus 1995, the bottom line gain would be nothing. That's because the 95 to 55 basis points in savings went toward giving a better rate to borrowers. "I gave it away, unfortunately, in price competition," he said.

If this proves the pattern and not the exception, then price competition in the mortgage markets is going to take a quantum leap forward. And testimonials about all the cost savings that automated underwriting can produce for lenders will be just idle talk. The reality is that the price to play in the mortgage business will just be that much steeper. And if you haven't adopted a streamlined automated underwriting system that pares back your costs, then you won't be able to play for very long, given the new price structure.

Taylor, whose company was among the first users of Loan Prospector in the pilot phase, nevertheless quotes impressive results. Today, 100 percent of AmerUs' conventional production goes through Loan Prospector. The system can give back four categories of responses: Accept (or AcceptPlus), Refer, Caution and Incomplete. At Taylor's firm, retail loan originators are authorized to approve loans with either an Accept or AcceptPlus response from Loan Prospector.

Taylor said the switch to Loan Prospector required loan originators to be much more careful about the quality of the information they take from the borrower and to take more time in getting application data fully upfront. He said that after AmerUs had automated underwriting for a year, it was still struggling with the "garbage-in, garbage-out syndrome." So the Iowa-based company put its originators through training on how to read pay stubs from the top employers in Iowa. And Taylor said the company also asked the mortgage insurers how they handle lenders that collect bad application information on loans approved with delegated underwriting authority.

AmerUs originators now have to spend more time taking loan applications than in the past in order to collect all the data correctly and sufficiently so that Loan Prospector can be used effectively. Taylor says that the loan application process now can take from 45 minutes to an hour and 15 minutes. He added that good originators spend another hour to three hours taking care of loose ends.

Taylor concedes that the system works until you get to the workload of a super producer. "Our process isn't good for a loan officer that does a lot of loans," he said, adding that a producer that does 40 loans a month might have trouble with the new system. "We are trying to find out what to do for this high-volume loan officer." Originators that do 20 to 30 loans a month in the pipeline, Taylor said, can manage those loans properly given what the lender now is asking for in the new system. …

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