Process Automation And Standardization, Part Two

Last month, I recommended that now is the right time to review and automate lending processes. Volume is forecast to decline this year.  As the mortgage market tightens, it is increasingly important for lenders to convert every lead as efficiently as possible.

Business is already shifting from refinance to home purchase. Though borrowers are eager to buy, they are faced with a limited supply of available homes as well as escalating home values.  Potential buyers become increasingly likely to fall-out as the length of their home search increases.  This early lead-fall-out is an example of why it is so important to start process review and redesign at the top of the funnel. 

As a reminder, the three stages of process review include:

1) Map your process.

2) Identify starting and ending points

3) Choose and implement systems and software

The shift from a refinance to a purchase market involves a mind-set shift.  The existing refinance process should not be used as a model.  Today, lenders need to map the ideal purchase lending process, which will be more protracted than it has been in recent history due to reduced supply of homes.

That purchase process starts with pre-qualification, not application.  In this stage of the process you will review your prospect’s credit score.  Acording to data compiled per the Home Mortage Disclosure Act (HMDA), credit is one of the top reasons why prospects do not qualify for a loan, and it impacts the loan products and rates you can offer to borrowers. So, this is one of the first moments where a prospect is likely to fall-out of your pipeline. That’s why a systematic approach to working with customers whose credit keeps them from qualifying for a mortgage, or the best rate, must be part of your ideal purchase lending process.

In today’s tight lending market, credit is even more important.  Limited housing supply extends the buying cycle and credit scores fluctuate over time.  A borrower that qualifies today may not qualify tomorrow when they are ready to buy. Partnering with borrowers to keep them credit-ready retains these prospects in your pipeline and increases the probability they will close on a loan with you.

Credit-readiness may be a new concept.  Different than either credit repair or credit counseling, credit-readiness is about engaging a prospective borrower to help them understand their credit landscape and build a plan to reach their best credit score potential.  It relies on sophisticated, analytics-based technology rather than dispute resolution.  Helping prospects achieve and maintain credit-readiness  should be every lender’s goal.  Done the right way it aids lending teams and borrowers in three ways:

1) Transparency.  Borrowers generally do not understand credit scores – where they come from, what influences them, and how mortgage credit scores differ from the ubiquitous consumer credit score.   Lending teams are often not experts in this area either, which makes it difficult for them to accurately guide borrowers. Processes that connect loan officers with credit specialists or credit analysis and simulation software give lenders the tools they need to understand and explain credit issues to their borrowers.

2) Step-by-Step Action Plan.  The right processes and software can also create a credit-ready plan for lending teams to present to borrowers.  The plan shows borrowers exactly which credit actions to take and gives lending teams meaningful reasons to follow-up with borrowers and build enduring relationships.  More borrowers will follow-through and remain in your pipeline as a result.

3) Time.  Time impacts credit scores. This might not be an issue in normal purchase markets, when homes are available.  Today, though, the supply of homes is at historic lows, and consumer financial situations have been impacted by the pandemic.  The home buying process will take longer, and credit scores can naturally fall over time.  Again, the right systems and software, combined with the right processes, can help borrowers understand what actions will impact score and keeps borrowers credit-ready.

There is also a fourth benefit to analytics-based credit-readiness.  When borrowers understand credit scores and what impacts them, they change behaviors. This makes them better borrowers today and for many years beyond.

The time for standardizing your early pipeline process for a purchase market is now.  Standardization will help lenders operate efficiently and optimize their pipelines as markets tighten.  Our Xpert Credit Process provides lenders with a head start on process definition.  Our CreditXpert product suite underlies the process, making sure lending teams and borrowers have the right technology to keep them credit-ready. 

Want to talk more about your specific process?  Contact me at rsheyner@creditxpert.com.