The Process of Manufacturing a Mortgage
Jim Deitch Author of the Digital Transformation of the Mortgage Banking Industry Shares his insight on the issues in the loan manufacturing process.
Coest2Coest - Transcript
Jim Deitch:
Um, you know, I saw some statistics from corelogic and others is defect rate on income is something like half of all these assets that are looked at in the files and review. So half the income computation related. And when you look at the number of files that have defects of any kind, it's still a pretty high number. So think about this. Um, I walked from the manufacturing facility that makes a very large parts for earth moving equipment and oil industry equipment. He's parked weigh hundreds of pounds to thousands of pounds. They have 50 to 60 operations on where they're drilled their machine tolerances of a thousandth of an inch and it's done reliably and each time the operator who's doing this on a, on a, on a manufacturing platform does it.
They look at the bill sheet, they build it, they tested someone else's looking at it before they, they, they use actually turn them loose to, to manufacturing the part and as it moves down that line of manufacturing, it comes out the other end and the defect rate is zero and you go, how can that be? This is hard. You've got people that are skilled operators but they're not physicists or college degreed individuals. They really, really very good. A tradesman I think can make these parts without any problems and complex parts. Think about southwest airlines, went through their training facility as part of the research, got to understand how difficult it is to dispatch an aircraft. She wasn't properly to get it to the right gate to get the maintenance done.
Brian and Fritz:
Probably that's something where it's like what they please explain in one sentence, the world and all that is within the way and you don't even get the fly southwest as great as they are. Don't even get the fly P51. I'm going to bring the conversation back into those Mustang's at some point. Going to do it.
Jim Deitch:
Yeah, well get. We'll get that, but my point is that you can do that reliably and the airline transportation industries had no fatal crashes in the last 18 or 19 months and they are making money and they moved 250,000 or more people a day just because they have a process that is the same degree of regulation is not tiger because you're not talking about people's lives as opposed to a mortgage, but they reliably do it because they have a process and they follow that process and people training and that process is unbending and that process works, but yet the pilots still have the freedom to break off and approach and slide visually if they wish. They still have the freedom to to, to, to essentially take the route and picked the maneuvers that they need to do and to request whatever they want from some of your traffic control. Same as a manufacturing process I spoke of earlier that people have the freedom to do that, but they know the end game is to make the product perfect, to deliver the passenger safely on time and deliver the parts completely free of defects to thinking in the mortgage business, but picking the morphine businesses, he put consumer happy. Keep the realtor happy. Sixth alone after the fact.
Brian Coester:
Just they got that mean that, I mean they're just happy they got the loan. Let's just be real here. There, there, there, there. Well, to a certain extent, I think also, um, and this sounds a little like far fetched, the maturity of the sales process in the mortgage industry to me is still somewhat immature. Meaning like in the car business is, is the, the, the manufacturers are concerned with manufacturing, right? The sales aspect is done through dealerships. Very few except for Tesla have distributions directly. I mean there are some, but there's very few. Whereas in the mortgage industry, you're responsible for manufacturing, delivery, and selling at the same time. I think with the digital technology, you look at companies, let's say I'm like Wyndham capital, Jeff Douglas Straight Guy, um, you know, they're building technologies to where they're doing purchase business, online realtor relationships online. I'm managing the purchase process online.
And as that kind of continues and let's say online is the destination versus, you know, up to let's say five years ago, it was kind of a combination of both. Right? I think you'll still see that, right? Because it's hard to, you know, kind of adjust these anomalies when you have an industry that is somewhat fragmented where I liked the sales process is OK, you know, am I sending them on a paper application? Is the realtor getting going to get involved in going to say no use my lender is um, you know, is the lender not going to be able to do the loan process for a variety of reasons, you know, what does the underwriting timing, the variants and underwriting time, um, or closing time is tremendous. Like you have some companies that can close a loan in 60 days and you have some companies that can close a loan and let's say seven days like, dude, get my buddy over at movement.
Right? Where that alone creates confusion amongst consumers. Right? Like if you said, OK, well you go to this company and you want to buy a car, it takes seven days and you go to this company, you want to buy a car and it takes 90 days. Well that's Kinda different. You know what I mean? When you're talking about the same in car, which is a fannie, Freddie product. Um, do you think that. What do you think that, uh, well, number one, do you agree or disagree with that point regarding some of his transitioning in the, in the sales process? But then secondly, where do you think it's going to end up two years from now? Do you think it's all digital or do you think, what do you do with the consumer retail groups? I'm the art director. Can direct to retail groups or do you think is going to be some hybrid? Flatten that question.
Jim Deitch:
Yeah, so let me first answer the question from Maverick, we spoke to and, and to a Maverick the sense is a hybrid, not necessarily using a face to face, but if you don't have the ability to have a human intercede and answer questions and coach of the borrower through the process, you probably are going to have a difficult time. So the pure retail side, uh, you know, clearly even pure retail is a hybrid because many loan officers will give the consumer a link and said, hey, go load your documents, go, go pre-populate some of this information. So when we're together we can spend more time, uh, you know, managing your data and managing the transaction structure as opposed to trying to just fill out the [inaudible]. Having said that, I still have a couple of friends that, that, that out by hand because that's the way they do it. They've been in the industry a long time and that kind of change.
Brian Coester:
I think that's always going to be the case though. Like I always think he's talking about the automation of appraisals, right? And it's like there's always going to be an element of automation and then there's always going to be an element of a block and tackle, right? I don't think it's going to be either one or the other. Like there'll be companies that had carve out niches locally that you know, nobody could compete with. And then there's going to be companies that go pure digital, pure online, everything almost cert extent compete in a different space. Right. You know what I mean? Like the guy who does the channel three manually, he's still may be able to do that, you know, for the rest of his career, you know, and be fine.
Fritz:
Well think about it this way more. I think the, the, I, I do agree, I think because there's always going to be some element or some holdover of any industry that doesn't want to advance to the next step of technology. And case in point, if you go to central park, you can still ride around on a horse and buggy. They go, OK, now granted it's a very, the technology or lack of, in this case as applied very differently. It's not necessarily, you know, like [inaudible] library stable, so it's not necessarily for transportation of goods. We don't necessarily move products that way anymore. We don't necessarily use that as a primary form of transportation for individuals. It's more of a recreation and fun kind of thing, but there's still some element of it that exists now. I think the same thing is going to likely happen as we've made the transition digitally in the mortgage industry, just like self-driving cars.
Fritz:
You know, uh, at this point, you know, we're being told by 2020, which is only two years away, that self-driving cars are essentially going to become ubiquitous and you're not in the trucking industry is going to be gone and you're not going to have truckers anymore. It will just have automatic automatic cars, self driving cars. Again, there's going to still be a human element involved as long as humans are involved. There's going to be a human element involved. But I think what we're looking at here is, uh, and, and what Jim's really focused on is how we're going to utilize that technology to make, to minimize the human interaction or minimize the human element. Right? And make the focus on the human element, the service aspect of it. You know what I mean? Because that's the part of it that the technology can't replicate the human service part of it, the interaction, the human or actually to Jim's point, the person to answer questions, right? The person that can intervene if something needs to needs to have an answer or resolution.
Jim Deitch:
It's a very solid point because when we talk about digital transformation, successful digital transformation occurs when you take the low value added commodity activities like collecting documents or we're doing the mathematics or something that file that can be digitized. And with thoughtful process starting at the back end going forward, you didn't make a lot of process improvement that it really makes a difference in the amount of labor and touch labor. And we work that has to be done. So I don't think we'll get to the point. I don't think we'll get to the point where is never a loan officer involved, but here's, here's the point that I think comes through from all the average human interaction with the customer or the reader should be on high value added relationship building activities. It should not be given me your pay stub for the seventh time.
It should be. Let's talk about how long you gonna be in the home. Let's talk about what's going to happen to income. Do you have a left calf to comfortably live in this house and do all the other things that are there and almost should I float? Should I? Should I lock? Should I take an arm to take a sip? All those types of questions, build the trust and the relationship of the lumber rack for the loan officer or who's ever interfacing with that customer. That's the high value adds. It probably shouldn't be digitizing. What shouldn't be digitized is just all of the processes to get that information to verify and get into a place where an underwriter can say, yes, it makes sense. Yes, there is nothing left for me to do. I put all these conditions and I can reliably say and comfortably say with certainty this little needs to requirements.
We invested in a way that is possible today just by, I mean literally starting with the back and working for quickens approach to business. They really need the pro, the customer, but they are a direct lender that has the highest consumer satisfaction. Eight years in a row you look at death penalty still from pulte mortgage. They never meet the customer. The customer is always presented to them through a direct to consumer channel. They achieved tremendous relationship with the customers and they achieved tremendous, uh, uh, customer satisfaction scores from a customer you're never face to face meet that customer. I've got through her process of buying a home in Florida and it worked pretty well. The person that was my loan officer, I got to know pretty well and most of the time we were talking about high value add stuff. Yeah. I didn't have to get my tax returns three or four times, but you know, there you go.
Source: Brian Coester - Youtube Channel and you can also watch complete episode of this podcast here.