TMORTGAGE BANKING | J U LY 2 0 0 9

When you’re weary, feeling small,When tears are in your eyes, I will dry them all.I’m on your sideWhen times get roughAnd friends just can’t be found,Like a bridge over troubled waterI will lay me down.—PAU L S IMON , Bridge Over Troubled Water© 1969, Paul Simon

he year 1969 was marked by political

upheaval—the Vietnam War, nationwide

protests, college unrest. It was also a year

of striking new technological advances—

men landing on the moon, e-mail, the auto-

mated teller machine (ATM), the artificial

heart, the Boeing 747 and the Concorde all

debuted in 1969. Many pop-culture icons

were also launched in 1969, including

Sesame Street, The Brady Bunch and Wendy’s® Old-Fashioned

Hamburgers. � And in New York City, singer/songwriter

Paul Simon wrote one of the best-selling and most award-

winning songs of all time: Bridge Over Troubled Water. �Simon’s plan was to craft a simple gospel-style song about

comforting a friend. But when it was released on the Simon and

Garfunkel album of the same name, Bridge Over Troubled Waterskyrocketed to the top of the charts—becoming a multi-platinum

hit that won six GRAMMY® awards. � In many ways, 2009

is a lot like 1969—a time of uncertainty, crisis and change. And

at many of today’s banks and credit unions, many mortgage

lenders are looking for a bridge over the troubled financial

waters that are out there—a set of practical strategies they

can use to compete, grow, reduce cost and stay profitable.

MORTGAGE BANKING | J U LY 2 0 0 9

The challenge: Point-of-sale silosToday’s banks and credit unions are facing a serious chal-lenge: how to increase mortgage volume, boost efficiency,improve service and reduce costs—and do it all despite beingcaught up in the most unsettled economic environment sincethe Great Depression.

One of the problems that too many lenders face—andthe topic of this article—is a lack of efficiency, productivityand borrower convenience right at the beginning of themortgage process, when the consumer is shopping andapplying for a loan. Many lenders find themselves dealingwith a cumbersome mishmash of point-of-sale (POS)automation solutions for providing mortgage quotes, takingapplications, and pricing and approving loans.

Most lenders have a set of discrete POS silos: one forconsumers to use over the Web and another for the callcenter (that is, if the call center even takes mortgage appli-cations), as well as a completely separate tool set for profes-sional loan officers. And the idea of using branch staff totake complete and accurate mortgage applications for mostlenders is just that: an idea.

As a result, borrowers are often forced to deal with frus-trating inefficiency as they plod through a time-consumingmortgage origination processthat locks them into a singleapplication channel.

Did you start your loan onthe bank’s Web si te? Don’tbother contacting the call cen-ter, then, i f you have ques -tions—call-center staff typicallywon’t even know you’re work-ing on a loan application, andthey can’t answer any applica-tion-related questions.

And what about lender impact? POS silos can contributeto poor productivity, borrower dissatisfaction, higher per-loan costs, lower pull-through rates and—ultimately—reduced loan volume. So when interest rates fall and mort-gage applicants stream into the branch, busy loan officersare forced to make borrowers wait. How long will cus-tomers sit around before they get up and take their busi-ness elsewhere?

Today about 70 percent of mortgage shoppers begintheir search on the Internet, regardless of whether theyapply online or in-person, according to The Silver Lining inLending: Turning Doubters into Online Believers, a May 2008report by Annette Tirabasso and Kimberly Spears, pub-lished by Deloitte Development LLC. In fact, writing in aMortgage Banking article in August 2008, Tirabasso stated,“Most consumers who applied online have become onlinebelievers.” But while the last 10 years have witnessed theemergence of the Web as a low-cost yet efficient way toreach “self-serve” borrowers, it is now time for the next bigstep forward.

That’s because today’s consumers expect the same appli-cation convenience via the Web, over the phone, in thebranch or when they sit down with a loan officer. Regard-less of the channel through which borrowers apply, lendersmust be able to deliver the same convenience and effi-ciency that online borrowers routinely receive. But espe-

cially in today’s uncertain economy, adding staff is a priceypath to better service.

Knowing this, we at Mortgagebot LLC recommend a newpoint-of-sale business model—a holistic, borrower-centric,enterprisewide approach that uses intelligent software solu-tions to unify and streamline the mortgage point of sale.Let’s call it the integrated point-of-sale (IPOS) strategy.

Industry call to action: Integrate, streamline, accelerateThis new strategy calls for the tight integration of mortgageapplications, pricing and approval throughout the lender’sorganization to create a seamless, efficient and satisfying bor-rower experience across every mortgage point-of-sale channel.

� For lenders, the IPOS strategy can expand their mort-gage business beyond what just loan officers or Web sitescan produce, providing borrowers with the same stream-lined, high-quality application experience regardless of thechannel they select. And the efficiency of an IPOS solutioncan help lenders gain more new loans, reduce per-loan costsand increase loan volume—but without having to add staff.

� For borrowers, the IPOS approach delivers a consumer-centric mortgage shopping and loan application experience.For example, with IPOS technology a consumer can easily

start and complete a mortgageapplication in minutes from thecomfort of home. Or the con-sumer can start an applicationonline and finish in the branchwith the help of a call-center repor loan officer.

In recent years, industryexperts have been calling forlenders to integrate their mort-gage POS channels so borrowerscan be served more cost-effec-

tively, and through the specific channels and in the specificways in which today’s borrowers want to do business.

One of the clearest voices promoting this kind of inte-gration is Deloitte Consulting, whose report The Silver Lin-ing in Lending identifies a lack of channel integration asone of the major challenges currently facing both borrow-ers and lenders. In her August 2008 article in MortgageBanking titled “The Online Opportunity,” Deloitte Consult-ing’s Tirabasso writes: “Study results suggest that lendersneed to make it seamless for a consumer to begin an appli-cation online, talk by phone to a representative to havequestions answered, and then complete the applicationwhenever and wherever they feel most comfortable—online, by telephone or in a branch location. This is onlypossible if a lending institution tightly integrates dataacross channels. That allows consumers to be recognizedwhen they switch channels, so they will not have to providethe same information again and again and will receive con-sistent product information.”

Consulting firm TowerGroup, Needham, Massachusetts,has written much about the need for channel integration. Inan October 2008 report, 2009 Top 10 Business Drivers, Strate-gic Responses and IT Initiatives in Retail Banking, Tower-Group analysts Robert Hunt, Kathleen Khirallah and TomBrogan stated, “Consumers around the globe have demon-strated they prefer multi-channel delivery of products and

One of the problems that too manylenders face is a lack of efficiency,

productivity and borrower convenience right at the beginning of the

mortgage process.

services. Ensuring that customers reach the right person toanswer an inquiry and equipping that person with the rightworkflow-management tools are critical.”

In a separate study also from October 2008—2009 Top10 Business Drivers, Strategic Responses and IT Initiatives inConsumer Lending—TowerGroup analysts Craig Focardi,Bobbie Britting and David Hamermesh noted that now isthe time for lenders to “breakfree of old systems and con-straints . . . [ lenders should]actively seek channel enhance-ments to serve customers morecost-effectively, and in ways thatthey want to do business. . . .”

The IPOS strategyHere is the three-part strategy werecommend for point-of-sale chan-nel integration. But first, it isimportant to note that as an outsourced, software-as-a-service(SAAS) strategy, the IPOS concept has a number of inherentbusiness advantages: It is affordable and scalable to financialinstitutions of every size, it can be implemented surprisinglyquickly and easily, and it requires no new investment in hard-ware or infrastructure.

1) Provide an intelligent, interactive online channel Before the World Wide Web was introduced in the early

1990s, most homebuyers completed cumbersome papermortgage applications, either across the desk from a profes-sional loan officer or by mail with phone support. Thosepaper applications then went into a back-office processingcenter, where manual data entry transformed them intocomputerized data files. There was much shipping andmailing of documents, and it took weeks to apply for amortgage and get approved.

In the late 1990s, the first Internet-based mortgage POSsystems appeared. But in 1998, only 26 percent of Ameri-can households had Internet access (mostly through slowdial-up connections), according to “Digital Divide Facts,” anarticle in Economic Development Digest, (volume 12, No. 3;December 2000/January 2001), published by the NationalAssociation of Development Organizations (NADO) and theNADO Research Foundation, Washington, D.C.

The first online mortgage POS systems that debutedaround that time were lender Web sites that took applica-tions directly from consumers.

Today, the most effective online, consumer-direct POStools employ intelligent, interactive, question-and-answer-based application technology that enables a borrower tocomplete a mortgage application over the Internet in just afew minutes. The “smart” nature of this type of POSautomation uses business rules to interactively guide con-sumers through the mortgage application process.

Sad to say, Mortgagebot research indicates that as ofMay 2009, only about 20 percent of banks and creditunions had implemented a truly smart system for takingmortgage applications.

Smart loan-application technology enables a borrower toobtain pricing, receive accurate disclosures and correctlycomplete an entire mortgage application without having

any specialized knowledge of the mortgage process. Andbecause the overall cost of taking an online application isnegligible, lenders are using these solutions to reduce busi-ness costs and gain a reliable way to take applications any-time, anywhere.

“With subprime lenders out of the way and fewermortgage brokers on the street, more mortgage applica-

tions are coming straight to thecredit union,” says Dean Clark,real estate lending manager atTampa, Florida–based TampaBay Federa l Credi t Union, afull-service credit union with$279 million in assets and eightlocations.

Clark cites an intelligent mort-gage application solution as akey contributor to his organiza-tion’s mortgage growth. “Our

mortgage Web site has helped us more than triple ourapplication volume and reduce our average processing timeby 33 percent, without having to add personnel,” he says.“Our online mortgage department is open 24/7, and itsintelligent functionality walks members through the mort-gage application process step-by-step. So they get theanswers they need to apply with confidence, whenever it’smost convenient for them,” he says.

Clark’s results are consistent with the conclusions of theDeloitte Consulting report (see Figure 1). The Silver Liningin Lending study found that online lending can provideremarkable lender benefits, such as:

� Compressing origination cycle times up to 90 percent;� Reducing overall per-loan costs up to 80 percent;� Expending 45 percent less effort to close mortgage

loans; and� Delivering borrowers who are 61 percent more likely

to recommend their lender to others.

2) Equip loan officers for speed and successDespite the increasing popularity of the consumer-direct

online channel, many mortgage applications are still taken

MORTGAGE BANKING | J U LY 2 0 0 9

Lender Benefits From ImplementingOnline Lending Technology

Figure 1

S O U R C E : DELO ITTE CONSULT ING

Percent Better

Borrower Likely

to Refer

Reduced Mortgage

Closing Effort

Reduced Overall

Per-Loan Costs

Faster Origination

Cycle Time

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

61

45

80

90

Mortgagebot research indicates that as of May 2009, only about 20 percent

of banks and credit unions had implemented a truly smart system for taking mortgage applications.

by professional loan officers. According to the Washington,D.C.–based American Bankers Association’s (ABA’s) 16thannual Real Estate Lending Survey, compiled in March 2009,while 3.5 percent of all mortgage applications are takenthrough the Internet channel, about 86 percent of applica-tions are still taken through the “classic” retail channel—which means loan officers are handling those applications.

James Jones, president of First Wellesley ConsultingGroup, Wellesley, Massachusetts, agrees with the ABA’sfindings. “My perception is thatwith most banks and creditunions, the vast majority ofmortgage applications are stilltaken by loan officers,” he says.

For borrowers, loan officerscan bring real benefit to themortgage equation. After all ,they are mortgage specialistswho are trained to provide theadvice and counsel that manyconsumers desire, particularlywhen dealing with complex transactions such as construc-tion or bridge loans.

But while many borrowers appreciate the help and sup-port of a lending professional, distributing mortgage prod-ucts through loan officers is expensive. That’s why lendersstrive to maximize loan officer productivity, calibrate stafflevels to meet market demand and implement compensa-tion structures that balance lender profitability with com-petitive pay.

Historically, traditional loan officers have used paper-based mortgage applications. Paper is cumbersome, ineffi-cient and error-prone; but loan officers have favored paperbecause they often had limited access to an easy-to-use loanorigination system (LOS) or POS system.

There are now powerful POS tools designed to meet theunique requirements of loan officers and their salesprocess. These intelligent Web-based application toolsemploy flexible user interfaces specially designed for loanofficers, and are integrated with the pricing, documentationand underwriting services that loan officers need access to.

Such tools free loan officers from having to use paperapplications or manually enter application data into a back-office LOS. And, according to a June/July study by FirstWellesley Consulting Group of banks and credit unionsthat have implemented smart online lending solutions inmultiple POS channels, the benefits can be significant (seeFigure 2).

To make loan officers as productive as possible, somefunctions that might normally be associated with a tradi-tional LOS can be incorporated into a loan officer tool set,including loan pricing, automated underwriting approval,fraud checking and the production of Truth in Lending Act(TILA) documents, Good Faith Estimates (GFEs) and com-mitment letters.

A good example of the dramatic results that are possibleby properly equipping loan officers and integrating theirtools with a consumer-direct Web site can be found in theexperience of Mansfield, Massachusetts–based MansfieldBank, a state-chartered, mutual co-operative bank with $320million in assets and four locations.

According to Ron Carlstrom, Mansfield Bank’s directorof marketing, March of last year was the first full monththe bank operated its new integrated Web site/loan officerPOS solution—during which the organization took in 164mortgage applications. About half of that volume came indirectly from consumers via the bank’s new mortgage Website; and the other half was originated by the bank’s loanofficers. The loan officers used their new loan officer-spe-cific POS tools to take applications in face-to-face customer

meetings.What’s so remarkable is that

just two months earlier, in Janu-ary 2008, some of the bank’smanagement team had indicatedthey were expecting the newPOS solutions to bring in onlyabout 15 applications per month.

“We’re thrilled to be able toexceed those expectations,” saysCarlstrom. “But it was actuallythe result of a carefully con-

ceived plan. The new Web site came online quickly, and itwasn’t difficult to train our loan officers to use their newpoint-of-sale tools. We did a bit of search-engine optimiza-tion [SEO] and ran a modest ad campaign, but most of theborrowers who came to us in March were already shoppingfor a mortgage on the Internet.”

“It’s interesting to note,” Carlstrom said, “that whilemost borrowers found us on the Internet, about half ofthem chose to sit down with a loan officer to complete theirmortgage application.”

3) Empower the branch and call centerThe final facet of the IPOS strategy is what I view as a

revolutionary concept—just now beginning to gain markettraction—that enables lenders to create an entirely newmortgage distribution channel: the branch and call center.

Branch-based mortgage automation is set to play a signif-icant role in the future of American financial institutions.That’s because, despite the impressive rise in use of theInternet, the branch is still the channel through which most

MORTGAGE BANKING | J U LY 2 0 0 9

Lender Benefits From Mortgage Point-of-Sale (POS) Channel Integration

Figure 2

S O U R C E : F I RST WELLESLEY CONSULT ING GROUP

Percent Better

Increase in Monthly

Application Volume

Reduction in Paper

Applications

Reduction in Errors

per Application

Reduction in Time

for Loan Officer to

Take an Application0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

207

93

67

60

While many borrowers appreciate the help and support of a lending professional, distributing mortgage

products through loan officers is expensive.

MORTGAGE BANKING | J U LY 2 0 0 9

Americans prefer to interact with banks and credit unions.According to a February 2009 study by the Deloitte Cen-

ter for Banking Solutions, New York, Adapting to a Chang-ing Environment: Evolving Models of Retail Banking Distri-bution, by Jeff Brown, David Cox, Scott Griffiths, NitaSanger and Denron Weston, “The good news is thatbranches are not going away. Over the next decade, the pri-mary channel . . . will likely remain the branch.”

However, the study notes that branches must make“operating model and staffing changes to improve cus-tomer service by engaging the customer in new ways.”Deloitte researchers also observed that branches are in needof “technology enhancements to improve the customerexperience.”

The study concludes that financial institutions “should[seek] greater levels of integration and more proactiveapproaches to meet customers’ cross-channel needs.”

But wait a minute, you may say—there’s significant riskinherent with the complexity of the mortgage business.That’s the primary reason most banks and credit unionsrely on professional loan officers to handle their mortgagelending.

It is true that loan officers understand the ins and outsof mortgage pricing, documentation and underwritingrequirements. They’re familiar with every aspect of themortgage lending business and they’re trained to minimizetheir employer’s exposure. Yet when interest rates decline,mortgage demand rises. And toomany currently lean-staffedlenders find themselves unableto deploy the number of loanofficers they need to meet thedemand in the branch or callcenter.

This is where the IPOS strat-egy enters the picture. What iffrontline personnel such as per-sonal bankers, customer-servicestaff and call-center representatives could quickly, effec-tively and efficiently take accurate and complete mortgageapplications?

A new class of expert systems—browser-based softwaretools that are designed specifically for use by frontlinestaff—now makes that possible.

These systems intelligently prompt users for requiredinformation. And because they are pre-programmed to han-dle nearly all application-related issues, the branch or call-center employee does not need specialized mortgage knowl-edge. Instead, the frontline employee can personally deliveran effective application experience, thus freeing the bor-rower from having to wait for a loan officer.

This new type of solution leads frontline staff through aset of interview questions (similar to a Web-based, con-sumer-direct “smart” application). The software dynami-cally and interactively adapts to each mortgage applicant’spersonal profile and the loan product being considered.Such systems generate loan-pricing options, can be inte-grated with automated underwriting systems to supportinstant loan decisions, and can automatically issue theappropriate disclosures.

One innovative lender that has bought into the vision of

empowering the branch is Springfield, Illinois–based IlliniBank, a state-chartered commercial bank with $248 millionin assets and 12 locations. Gregg Formigoni, vice presidentand mortgage department manager for Illini Bank, saysthat equipping branch managers to take accurate and com-plete mortgage applications has helped the bank increaseits mortgage application volume by an average of 70 per-cent per year over the last three years.

Formigoni is extremely pleased with how his organiza-tion’s in-branch POS solution “enables all of our branchmanagers to take ‘face-to-face’ mortgage applications,” hesays. “We employ only two professional loan officers, andsome of the rural communities we serve do not yet havebroadband Internet access—so we absolutely must be ableto take applications in the branch.”

Largely due to the bank’s integrated POS solutions,Formigoni says he and his mortgage team were well able tomanage the unprecedented volume of mortgage applica-tions that flooded into Illini Bank during the low-rate refi-nance boom that began during the 2008 holiday season.

“We were buried in refis,” he says. “Thank God we hadthis technology.”

Channel integration—a lender imperative?The entire world is looking for ways to bridge today’s trou-bled financial landscape. And the call for an integratedmortgage point-of-sale solution is not just American—it’s

international. The global consult-ing firm Infosys TechnologiesLimited, Bangalore, India, notedin a 2006 study that mortgagechannel integration is necessaryfor lenders to ensure “futurecompetitiveness.”

Citing “stiff competition interms of customer acquisitionand retention,” the firm identi-fied channel integration as one

of “five key technology trends that will drive competitive-ness for mortgage lenders” worldwide, stating that lendersmust “create a holistic customer view to deepen the cus-tomer relationship.”

Infosys researchers stated that it is “imperative” forlenders to “provide a similar and consistent customer expe-rience . . . irrespective of [the borrower’s] desired channel,”according to Technology Trends in Mortgage Lending—Mortgage Marketing, a July 2006 report by Amit Mookimand Manoj Ramachandran, published by Infosys Technolo-gies Limited.

The final verse of Bridge Over Troubled Water includesthe lyrics, “Your time has come to shine; All your dreamsare on their way.” While the IPOS strategy probablywon’t usher in all of a lender’s dreams, it offers signifi-cant benefits in terms of efficiency, increased volume,cost savings, service improvement, customer loyalty andimproved competitiveness. And that adds up to real-world business advantages that can truly make a mort-gage business shine. MIB

Scott Happ is president and chief executive officer of Mortgagebot LLC,

Mequon, Wisconsin. He can be reached at scott.happ@mortgagebot.com.

The call for an integrated mortgage point-of-sale solution is not just American—it’s international.