Alterra Home Loans of Las Vegas had achieved what most in the mortgage industry would consider a successful growth spurt. It went from $200 million a year in volume before 2011 to approximately $450 million in 2012.
But as the company's production volume grew, its revenue declined, Chief Executive Jason Madiedo said.
"We were so excited…that we doubled our volume and went from making 20 to 23 basis points per loan to making even less per loan," Madiedo said. "And we realized that that was not a viable, successful way to run this business."
It began to solve the mystery when it turned to business intelligence software to closely examine its operations. Gold Star Mortgage Financial Group, Talmer Bank and Trust, and a handful of others have taken similar steps and had some success, but the process is challenging, and many lenders have avoided taking the plunge.
The first step is wanting to know the answer to a vexing question badly enough.
Like most lenders, Alterra was not seeing in real time that its expenses were rising or why.
The company began using business intelligence in the first quarter of 2013. Madiedo credits Union Home Mortgage CEO and owner
Yet it was rocky adoption process. "That created the biggest rift I've experienced in our company," Madiedo said. He put TV screens in every office in the company and displayed the data in real time to the workers.
Some people were upset that this information was now being displayed. A "good chunk of people" including some in management ended up leaving Alterra.
Production initially fell, but "a better thing could not have happened to us. We restructured, we retooled, we solidified our culture with accountability and team building," Madiedo said.
In 2013 Alterra did $300 million in production; one year later, that figure was up to $470 million. Last year it topped $1 billion.
The company is now making more money per loan than it did before and Madiedo attributes this to having good metrics and a culture of accountability.
Now it is doing some "really fun things" with business-intelligence data, he said. It has borrowed from old board games such as Chutes and Ladders and Sorry! in designing the data displays, and staffers can in a fashion play along, Madiedo said.
Because the system is transparent, Alterra is able to see where the problems are as they occur.
"It has allowed us to focus on what our passions are, instead of focusing on where all the problems in the business are,” Madiedo said.
Alterra's stated passion is to serve underserved markets. Approximately two-thirds of its business is from Hispanic consumers, while 56% comes from first-time homebuyers, said Madiedo, who is a past president of the
The shift was "a tough time but it was very important for us to do and when we did it has been great," he said.
Gold Star Experience
If a mortgage lender adequately defines its leading indicators and what those mean, business intelligence can give quick insight into the loan lifecycle.
Lenders then need to understand their cycle time so they know when loans will hit each department and they can prepare, said AJ Franchi, the chief information officer and chief of staff at Gold Star Mortgage Financial Group.
The Ann Arbor, Mich.-based retail lender has been using business intelligence for three years and has been a client of Motivity Solutions since last June.
Analytics help it identify bottlenecks in the loan-manufacturing process; previously it relied on anecdotal information to find those. Companies should not have "to throw people at the problem. That gets very expensive and erodes your competitive advantage," Franchi said.
Before using business intelligence, Gold Star was using stale data points to understand where its business stood and then made instinctive decisions without being able to examine the trends.
People who have the gut instincts are the ones who typically run the companies, but they can't expect every department manager to have that same instinct, Franchi said.
Plus if you let everyone come to their own conclusions, "everybody is inevitably going to come to a different conclusion," Franchi continued. So business intelligence gives data that empowers managers to do things, and it standardizes how it is going to happen.
"With business intelligence in general, it doesn't matter what you are measuring. What matters is that you're measuring the same thing and you can identify how it is trending. The trends are where the value is, and the trends are what you are going to make your business decisions on," Franchi said.
Talmer Prioritizes
Loan-level information gives clarity to management so it can focus on the stuff that requires their intervention, added Erin Palmer, the executive managing director of Talmer Bank and Trust in Troy, Mich.
The information helps to identify the loans that are exceptions from the norm. "Don't tell me about the 98 [loans] that flew through perfectly," he said. "Show me the two that require my intervention to get them back on the road and moving again."
So aside from being able to make better and more informed decisions, "you're going to be able to identify potential issues and solve them prior to them being uncomfortable for the customer," Palmer said. Talmer Bank is also a retail lender and Motivity client.
Any mistake that needs to be corrected costs companies time and money. So setting measurable goals for employees saves resources and makes customers happier.
Companies need to have this information integrated into regular management meetings and hold the management team accountable for performance, Palmer said.
Managers have to do the same with the employees. But sticks alone won’t do the job; to get adoption throughout the chain, companies have to offer rewards. Incentive programs have to be aligned with what the company has identified as being important, he explained.
If the employee is meeting those markers it should mean they are doing a good job and will be rewarded for that in the incentive program. If not, they need to be held accountable.
"It has to be readily apparent to the front-line employees so they can see and track their progress. And you have to manage to it, both the rewards and the accountability," Palmer said.
Remaining Challenges
But these companies seem to be the exception to using analytics.
"A majority of the mortgage lenders today are using those exact same reports," said Sherman. "Only about 10% of the market is using a business intelligence tool, and the rest of them are using spreadsheets and manual reporting methods."
This is because business intelligence software is traditionally very expensive. It is also very time-consuming to set up; companies need an in-house staff to run the software and build the necessary metrics, he said.
Larger banks have an analytics department, and can afford to invest in it. But for a mortgage banker with 50 to 100 employees, a traditional business intelligence tool is cost-prohibitive.
But in the past six months Motivity's client based has expanded beyond the early technology-adopter.
"Business intelligence and analytics software has gone from a nice-to-have to a have-to-have in today's environment, mostly because of the compliance-driven environment that lenders are in today and the enhanced competitiveness of today's environment," Sherman said.
Motivity's software comes with a best-practice set of metrics for any size lender, in any channel. The company had to make the software easy to use and affordable for users, said Sherman, adding it had to be a business solution, not an information technology solution. Lenders did not need another IT project, they needed something that plugs in and works.
Motivity and Ellie Mae are teaming up to offer Encompass users a monthly benchmarking report. Sherman sees it as a complement to Ellie Mae's
"It's a good barometer for anyone running a mortgage company to see how they stand compared to their peers," he said. The breakdown compares the lender to similarly sized Encompass users for areas like efficiency, productivity, compliance and loan quality. The report is available to all Ellie Mae users free of charge.
There are other reports out there, Sherman said, but they are issued every six months or once a year and do not contain timely data.
"Even though lenders are no longer facing the high credit losses seen post-crisis, they are continuing to experience significant income pressure from high operational and regulatory costs," said Richard Altham, a partner with the auditing firm PricewaterhouseCoopers.
PwC recently issued a report titled "You Get What You Measure. Strengthening consumer lending business management through analytics and reporting." Because of higher regulatory costs and tighter loan-origination margins, lenders must identify ways to improve profitability or they will not survive.
"The businesses that truly understand where they generate value and where they need to improve through effective analytical tools and reporting will have a critical, competitive advantage," Altham said.
