STRAIGHT THROUGH PROCESSING-MORTGAGES

Straight Through Processing (STP)- MORTGAGES

Digitization in mortgage lending is still at a nascent stage; lenders have started realizing the value of data, which has all the potential of transforming the industry in terms of asset quality and risk assessment, regulatory compliance and cost containment. Traditional process controls and legacy loan origination (LOSs) are still in place which are no more attractive, considering the current traction in the industry with the increase in demand and competition.

The challenge set before mortgage lenders is to bridge the gap between current systems and platforms and the easy to use customer centric systems and features that are already the norm in other industries.

The mortgage banking industry needs to invest in digital offerings and technologies to improve the loan origination process and customer experience.

Straight through processing in mortgage has assumed a space of paramount importance. Before moving ahead we need to understand the meaning of STP in mortgage parlance.

STP Mortgage Parlance

A new process supported by policy that allows a mortgage lender to enter elements of loan request along with all supporting data and, for credit-decision life cycle and to reuse information for credit-decision life cycle. It’s a digitized process using various technology solutions and doing away with document-based handwriting.

The other important point here to note is that lenders do not have the luxury of implementing digital technologies with the existing traditional mindset of planning months and years in advance. In the era of Netflix, Google and Amazon the consumers are not ready to wait and are more demanding, which is the biggest push factor for the lenders to quickly adapt to digitization; which is picking up at a rapid pace, requiring the adaption on an ongoing basis to be seamless.

In order to bring the industry into the digital future state, an understanding of the current state is a pre-requisite. The gaps need to be quickly identified basis which an approach to digitize the process for mortgage lenders can be developed.

TRADITIONAL APPROACH

The traditional model has grown from necessity or from being reactive to market demands rather than proactively looking at the future business needs. Customers today need competitive advantages and market differentiation.

SETBACKS OF TRADITIONAL APPROACH

  • Standardized product
  • Limited scope of process innovation
  • High touch operating model
  • High per unit cost
  • Low on customer experience
  • Low operational productivity
  • Low accuracy
  • Higher Turnaround Time
  • Manual Workflow

WHY STP?

“UNDERWRITING HAS BEEN AN ART, IT’S TIME TO EXPLORE SCIENCE NOW”

Mortgage as an industry has a huge number of variables impacting the performance (both internal and external) of a loan. Envisaging the risks at the right time is of paramount importance.

Human tendency is, when things are going good, risk assessment takes a backseat, which may often lead to poor risk management.

One of the effective ways to identify risk in a volatile mortgage climate is to check existing data recording quality, for it should be of the highest standard.

Often analyzing the existing data which gives new insights on the upcoming risks coupled with recent market changes (Economical, Political, etc.).

Apart from this, keeping a close tab on intellectual processes and policies and making them more dynamic to adjust to any changed scenarios in the real world is need of the hour.

STP brings various value additions to the table, which further confirms the impact it’s going to bring, the efficiencies in the model are well depicted by the following image:

With every new change a whole lot of new challenges come up- both external and internal to the organization. To combat which, organizations need to work as a close knit, cohesive unit. Some of the key challenges:

  1. Slow Start and piecemeal results- The journey should begin with the long-term view in mind and the business value that can be achieved with digital capabilities and offerings.
  2. Legacy IT systems.
  3. Lack of coordination (Risk, It, Operations)- Several stakeholders need to align and remain constantly aligned over a prolonged period.
  4. Lack of trust in automated decision making- It is best to use new technologies on existing data/cases which assists in providing a comparative approach.
  5. Limited data access

Lending Institutions must adopt digital solutions to remain relevant. Moving from a traditional mortgage model to a digital solution based mortgage model will require dedicated organizational alignment. Cultural shift should be managed, and road map should be defined to follow steps wise approach.

An Ideal Road map should look like this

CONCLUSION

A common misconception is that technology can salvage the business. A holistic approach involves an enterprise-wide, unified path to process management, focus on policy process and people before investing in technology.

While the challenged in digital lending transformations are daunting and path to ultimate success can be bumpy, experience proves that the efforts expended are fully repaid in competitiveness and profitability. Success means much faster credit decisions, with customer getting loans up-to 80 percent sooner, lower cost with 30 to 50% less time spent on decision making and better risk decision which translates into greater profitability down the road.

By: Anuj Sharma, Associate Director, Operations

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