Discover Bank is approaching $1 billion in home equity-related receivables, a milestone for the six-year-old home-loan division that aims to rework the lending process for both its customers and loan officers, providing the latter with key advantages over more traditional competitors.
For one, it has reassembled the mortgage origination process, changing the order to make it more efficient and less costly, and enabling potential customers to understand within five minutes whether they meet the bank's criteria for a mortgage and the types available to them.
"We can tell them in most cases the exact loan terms we can offer them, and it's not a guess or estimate, but the actual terms of a loan they can get," said PK Parekh, SVP of Discover Home Equity Loans.
That's a boon to customers. It also means that Discover's 80-odd loan officers won't be wasting time and effort to get to that point, and instead those customers have already been approved for a loan meeting their needs and are likelier to move ahead with the process.
Another aid to loan officers' sales efforts is that Discover does not charge lender fees and it covers any third-party fees on its first- and second-lien mortgages, which comply with Truth in Lending Act and Real Estate Settlement Procedures Act rules. The majority are second-lien, closed-end installment loans to existing homeowners, differing from home-equity lines of credit.
Parekh noted that historically low mortgage rates over the last several years often mean borrowers do not want to refinance the entire mortgage and pay the accompanying fees, so Discover's loans provide a way to cover home improvements or other expenses.
Its first-lien mortgages can simply replace an existing mortgage, and they can provide additional financing, typically also for home improvements or to consolidate debt. Parekh said customers consolidating debt on average lower their payments by $600 a month, another attractive selling point. For homeowners with no current mortgage debt, acquiring a first-lien loan through Discover can provide them with a long-term, relatively low-cost funding.
Discover sells loans in 47 states and Washington, D.C., and it plans to enter Texas later this year, Parekh said. All mortgage businesses is conducted online or through central call centers, and the bank has designed its own front-end origination system. Parekh said it considered systems including Roostify and Blend, and he remains in contact with them to determine whether it makes sense at some point to work together.
"We decided to build our own online experience, because we can make it better than what we find in the market," he said.
New employees start with "classroom training that lasts several weeks" where they learn about Discover's technology system, processes, financial products and the culture of the company. Then they are eased onto the floor, typically working with a reduced pipeline at first and interacting more with their team's leader, coach and a more experienced employee until they become self-sufficient. Each leader and coach interact regularly with the team to facilitate operational change, improve the customer experience and the way loan officers work, and help them with their personal development, Parekh said.
"We also have refresher trainings periodically on key topics such as regulatory compliance and how the loan process works … things we like to make sure are fresh in people's minds," he said.
Parekh said that as a relatively new business, Discover's home-loan division is still making significant changes, continually finding ways to automate and simplify the process and otherwise improve customers' and loan officers' experience. For example, it is developing templates to automate loan officers' communications with customers, as well as validations that warn loan officers of potential application problems before a loan file transitions further into the process. To that end it bundles changes into two "change dates" each month.
"Communications go out associated with each of those change dates to explain what is changing, what they need to do, and how the process will work," Parekh said.
Loan officers never meet face-to-face with customers, so they must instead build a rapport with them over the phone. Discover applies across the company what Parekh described a "very robust framework" called iShine that aims to instill in employees the company's longstanding general principles of getting to know customers, hearing their needs, and helping them.
The bank's centralized operations are a boon in that regard, compared to competitors whose retail division is spread across numerous branches and offices, because all customer interactions are recorded.
"We can listen to, monitor, score, evaluate and provide feedback," he said, adding that coaches and team leaders can review the recordings with the specific agent and explain what they did well and what should be improved. Plus they can listen to exemplar calls with other agents, to show them what excellence looks like.
"It's a real advantage to having a centralized operation because management is collocated, so if people have questions they can ask supervisors in real time," Parekh said. "There's a deeper support system available in a centralized structure."
