Mortgage Lending Best Practices

Proven Leading Practices to Improve Mortgage Banking Operations & Effectiveness

Mortgage Lending Best Practices

Proven Leading Practices for Mortgage Lending Operations

Streamline and Automate the Loan Closing Process Where Possible to Reduce Loan Closing Cycle Times

Best Practice (Good)

Redesign the loan closing process, automate simple and routine processes (especially during underwriting processes) and streamline closing operations where regulatory requirements allow in order to reduce the number of days to close a loan and increase customer satisfaction. Enforce the use of a standardized checklist to ensure that all necessary documents (the loan estimate, closing disclosure, initial escrow statement, etc.) are available and distributed to the proper signatories as soon as possible.

Typical Practice (Bad)

Ensure that loan closers thoroughly examine all of the borrower's information and documentation (this includes contacting the borrower to verify income, assets and employment) before submitting final documentation to be notarized. Should an issue be identified concerning the borrower's credit activity or anything else, enact last minute "fire drills" to ensure prompt and accurate resolution.


Benefits:

Even a small reduction in closing time, a 35-day average instead of the typical 40 or more days for instance, can improve overall customer experience and bring in more business to the bank and/or mortgage institution. While regulatory requirements may dictate the necessity of certain activities (i.e., clear communication between signatories on anything that might change the loan or payment of the loan, providing the closing disclosure form at least three days before the loan takes effect, etc.), redesigning the loan closing process to include automation and streamlining procedures can drastically cut back on the time it takes to fully close a loan (this can include improved visibility into a borrower's credit activity, verifying income, assets and employment directly from the source, etc.). This not only improves overall customer experience, thus increasing customer satisfaction, but it also allows the bank and/or mortgage institution to bring in more customers by outcompeting its competitors.

Use Quality Control Checklists to Establish Documentation Submission Standards and Reduce Potential Rework

Best Practice (Good)

Develop quality control checklists to maintain accurate mortgage loan documentation and establish documentation submission standards. The responsibilities of each Mortgage Loan Operations function, especially concerning Post-Closing, should be clearly defined regarding mortgage loan documentation error resolution. Ensure that each function complies with the responsibilities assigned to them to reduce delegating error resolution to Post-Closing.

Typical Practice (Bad)

Use any appropriate medium of communication (email, letters, phone calls, etc.) to assess the borrower's needs and use a critical eye to ensure that all mortgage lending documentation is available and accurate. It is the responsibility of the Post-Closing function to identify and resolve all documentation-related errors (this includes asking customers and third-party organizations for missing documentation).


Benefits:

Higher instances of errors within submitted mortgage closing packages directly impacts the amount of communications and rework other sections of the Mortgage Loan Operations function (most notably the Post-Closing function) have to perform in order to ensure high accuracy and proper loan processing. This not only reduces overall productivity, but it also reduces customer satisfaction while increasing loan processing cycle times. As such, ensuring that every function within Mortgage Loan Operations understands their own responsibilities prevents the Post-Closing function from becoming the first and last defense against errors and missing documentation. Furthermore, developing a standardized quality control checklists not only establishes mortgage loan documentation submission standards across the group, but it also ensures that any and all potential errors (incorrect customer address, loan payment records, missing documentation) are identified early on and resolved in a timely fashion. As a result, loan processing cycle times are reduced while overall customer satisfaction rate is increased.

Triage Inbound Loan Applications Based on Underwriter Skill Level and Loan Complexity to Improve Decision Cycle Times and Accuracy

Best Practice (Good)

Develop a triage process for underwriting incoming loan applications by sending simpler, more routine files through an automated underwriting system or to an entry-level underwriter, while assigning more complex files to more experienced and skilled underwriting employees.

Typical Practice (Bad)

Assign incoming loan applications to underwriting employees either arbitrarily or based on current workload. Rely on auto-decision rules or underwriters' training to be sufficient enough to make a loan decision that will not expose the bank to default risk.


Benefits:

Assigning simpler files to less experienced underwriting employees or automated underwriting systems frees up more time for more experienced and knowledgeable underwriting employees to work on more complex or risky loan applications. This will improve the accuracy of the underwriting function as well as reduce cycle times for reaching an underwriting decision. The bank may also reduce its exposure to default risk.

Develop Clear Customer Issue Escalation Paths to Improve Customer Experience

Best Practice (Good)

Ensure that a clear escalation path to managers, subject matter experts (SMEs) and more experienced representatives are always available so as to handle failed service level agreements and other borrower issues. Use a standardized directory listing each of the Customer Service/Account Management function's employees along with a description of any expertise they may have in order to help customer service representatives quickly locate someone who would best be able to answer and/or resolve escalated calls. Ensure that the directory is easily available to all Customer Service/Account Management representatives through a centralized online resource (i.e., the bank's or mortgage institution's online portal, FAQs, Intranet-based resources, etc.) to allow them to contact and/or transfer the call to the most capable employee, thus reducing customer dissatisfaction, instances of repeated calls and attrition rates.

Typical Practice (Bad)

Transfer escalated calls concerning failed SLAs to the appropriate Mortgage Lending Group function. It is the responsibility of each function to direct the caller to the team responsible for the SLA to ensure efficient customer issue resolution. Higher hold times and transfer rates in such instances are seen as inevitable - "a cost of doing business".


Benefits:

Service Level Agreements (SLAs) are an important part of the bank's and/or mortgage institution's accountability to customers, and their compliance can impact customer satisfaction and even institutional revenue. As such, customer service representatives and account managers who are unable to resolve calls related to SLA failures should use a centralized directory of Customer Service/Account Management representatives to locate a representative who is capable of efficiently resolving it. Without a standardized and easily accessible directory, customer service representatives and account managers may end up transferring customers to other representatives and personnel who are unable to help the customer. This increases hold times and transfer rates which directly increases customer dissatisfaction, abandonment rates and customer attrition rates.