Magazine article Mortgage Banking

The Shocking Truth about eMortgages

Magazine article Mortgage Banking

The Shocking Truth about eMortgages

Article excerpt

The other day a friend of my kids' was over at the house wearing the ultimate spoiler T-shirt--the front of the shirt was emblazoned with a litany of movie "spoilers" (Rosebud is a sled, the boy's analyst is a ghost, etc.). I was amused to find several spoilers that I did not already know, and it made me think how often these days I see the words "spoiler alert" in the press.

It seems it's become harder and harder to discuss a variety of subject matter without first getting some critical, but secretive, piece of information out in the open, thus risking spoiling the surprise for the reader. These articles typically start off with some kind of setup to draw readers in, then issue a clear warning to read no further if they don't want the secret revealed--the so-called spoiler alert.

This has been the setup to this column; now, here comes the warning.

SPOILER ALERT. If you want to go forward continuing to believe that eMortgages are all about a technology revolution that will dramatically change our industry, read no further. SPOILER ALERT. Still with me? Well, you've been warned. Now here's the secret divulged: The trick to success with eMortgages is not about technology, it's about people and process. Sure, technology is a critical component of the eMortgage paradigm, but too often it seems that people think eMortgage is all about the technology--and that simply isn't right.

A few years ago, Cleveland-based AmTrust Bank had made the strategic decision to be the industry leader in eMortgages. Rightly speaking, the strategic decision was not "to be the leader," but rather to truly reap the benefits that eMortgages offered, which meant significantly increasing the volume of eMortgage that AmTrust produced each month.

The truth be told, AmTrust was already the industry leader in eMortgages, at the time producing dozens of eNotes each month. But to achieve their goals, AmTrust management figured they had to up their game significantly, increasing monthly volume from dozens to thousands, because the real benefits of disruptive innovation can only be realized when new approaches become regular and routine.

Here is where this story gets really interesting. For the most part, the technology to produce eMortgages was already in place, fully implemented and in use, being leveraged to produce those handfuls of eNotes each month. Further, getting the boost in volume they sought did not seem insurmountable, as AmTrust Executive Vice President for Mortgage Banking Jon Baymiller had a pretty good handle on using "the carrot and the stick" to get his account execs and clients to deliver the loans electronically instead of on paper.

Instead, the problem AmTrust execs faced was simple: Counter-intuitively, it was proving to be more expensive to produce eNotes and deliver them to their investor--not less costly--because the process could not truly evolve until the unit velocity forced changes in behavior across all key aspects of the business execution.

While some of the costs incurred were related to technology services that could reasonably be expected to decrease on a per-loan basis by virtue of ramping up the volume, the bulk of it came from operations. The people and process costs of dealing with an electronic note were not decreasing sufficiently to produce the compelling return on investment (ROI) that Baymiller expected from the eMortgage investment.

To successfully reach the goal of shifting production increasingly to electronic mortgages and reaping cost benefits from that change required that AmTrust re-evaluate everything it did in the back office. Digitally signed electronic loans needed to be processed as the norm, not as exceptions, and that meant AmTrust had to examine what it did and begin doing things differently.

The management team determined that an independent and objective view was required, given everyone's vested ownership of the operation's legacy processes, so AmTrust engaged CC Pace to bring external technical and process expertise to bear on the assessment and redesign effort. …

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