Computers, regulations, consumer demands, economic turmoil and industry deregulation have altered the mortgage lending process. Savings institutions are responding by integrating automation with organizational changes. In this regard, patience and organized planning are essential; they can save you money and relieve stress.

Common mistakes made by lenders when switching from manual to computerized loan origination or servicing, or from mini- to micro-computers are buying hardware before software, imposing a new system within the company without first obtaining a consensus of those involved, lack of planning and not knowing their needs.

Before discussing how to avoid these errors, it is important to understand what technology is and how it relates to your business.

One illusion that can lead to misdirected thinking is that a computer system is more than it is, perhaps even "magic." Consider this technological tool to be nothing more than an expensive, high-powered "hammer" -- one that can do the same thing many times over with results looking generally the same.

Equally important is understanding your business -- what it is now and what it will be in the future. For a lender, each loan has its own "personality" associated with the borrower or purchaser and has several elements in its composition. Consider each loan's personality to be one of your "nails".

An incredible number and many types of nails are available: adjustable rate mortgages, biweeklies, Fannie Maes, Ginnie Maes, FHA, VA, irregular payments, collection problems, federal and state reporting requirements and more. These must flow smoothly within your internal environment and be driven accurately by the right hammer. Using the wrong one can cause sore fingers -- and if you are not careful, you could smack your hand!

Computers are not magic. A lender with ten $40-million loans is in a different situation than one with 10,000 $40,000 loans. The lender with ten loans has ten different nails and needs a specialized hammer for each. The other lender probably has 9,500 identical nails or loans that are similar, and can use one hammer for those and perhaps one or two others for the rest.

To determine your needs, several considerations must be investigated before plunging in with the significant expenditures associated with hardware and software.

An effective decision-making process has five elements; the most important is planning. The others are knowing your requirements, selecting the software, selecting hardware and implementation of all within your organization.

It is imperative to assess and evaluate your internal and external business environment objectively and determine your needs systematically before purchasing any software or hardware.

Let's examine more carefully how to begin the process

1. Do you have a manual system that works? If you do not a computer will only make your mistakes faster. Fix this first! Before proceeding to computers, your manual system must work. The "culture" must be in place. Make a list of those things you are doing right; you do not want to compromise this later.
2. What are your existing costs of operations? People are your most important asset, of course. But have you looked for hidden costs associated with the employees' functions and where they are most efficient? How will a computer solve the problems you are looking to resolve and allow employees to do other things to help the business grow? Does the cost of mistakes -- that is, errors in quoted payoffs -- justify the operational changes necessary and attendant costs for computerization?
3. After determining what you are doing that works, you can now decide which part of your operation needs automating. What problems can you eliminate or smooth out? Which must be solved immediately and which good elements of your operation should you keep because they work? Make a "wish list" of those things you would like to add; make another of things you refuse to tolerate. This is extremely important.
4. If you carefully and systematically work through the first three items and faithfully make your lists, you can generally determine the kind of system and software you need to best drive your operation smoothly and accurately.

Mistakes to Avoid

• Which software system will give you the ability to attract customers away from your competition by offering innovative services? In other words, which software offers the answer to your specific requirements (origination, processing or servicing), making it possible to serve your customers more quickly and accurately while simultaneously fulfilling the latest government lending requirements?
• Attend your association meetings and ask for referrals from associates working in comparable businesses.
• Hire a software consultant. (Make sure you check this person's references and industry knowledge.)
• Find it yourself with your management information systems supervisor. Research trade magazine ads and software catalogs. Call potential suppliers, ask for demonstrations, attend trade shows and seminars.

The second most common mistake in selecting a computerized mortgage package is having a person impose a new system on an organization rather than making the decision based on a consensus of all key employees. The strongest commitment must come from one level above the person who will be doing the work and should include all levels above. Making the system work properly requires dedication, craftsmanship and the commitment to the concept.

Idea Ownership

The first step, determining responsibility, is crucial and needs further discussion.

Because computers are only tools, the human commitment from the person one level above the employee doing the work must focus intently on coordinating goals with realistic results. This person must inspect what he or she expects to happen. The commitment for successful installation must be strong.

Do you know your goals? Do you have a picture in your mind of the results you expect or desire. Do all those involved understand what is expected. If you have properly written out your plan obtaining results will be simplified. Can each item be checked off in logical steps. Each day you should evaluate these steps and make sure they are all done in the order you require.

Soon your plan will be complete. What was supposed to be done on Friday morning is done. Tuesday afternoon work is complete on Tuesday afternoon, and so on.

The ingredients of operating a successful lending business are generally repetitive and can be organized into categories. But a good recipe also requires a touch of creativity.

A Meal or a Snack?

Without industry consensus of what is necessary to be successful in the lending business, and lack of widespread personal communication among lending professionals, it is easy to create your own dynamic identity.

With little standardization in loan servicing practice, and with regulations varying from state to state and country to country, you must find systems that work with many variables. Software products of all kinds are available to help your business, but only a few systems can do the job right the first time and are flexible enough to include the many variables within the industry.

It is imperative to understand that as technology improvements accelerate, it is to your advantage to expedite your vision simultaneously. Soon the power of microcomputers will eliminate the need for minicomputers, and the reliability and speed of printers will grow to meet your requirements. You must align your operations to be compatible with these changes.

The Time is Now

The increasing demand from consumers for quicker and more flexible lending products, pressure from local, state and federal regulations, the need to be profitable and a continuing consolidation of banking and thrift institutions can all contribute to the demise of unprepared independent lenders.

As new and different national and international financing techniques influence our system, the dynamics of change will strongly affect the way lending is done. At no time in U.S. history has there been a more important reason for operating a lending business using the most modern and flexible means available.

Every lender has access to the right "hammer" and "nails" to build a growing and thriving business. But envisioning present and future requirements and strategies is the key to opening windows of opportunity for integrating vision with reality. Be sure the technology systems you choose will do the job.

Dynamic Interface Systems Corporation
5959 W. Century Blvd., Suite 1200
Los Angeles, CA 90045 USA
Tel: (310) 568-4567
Fax: (310) 568-0740
email: info@loanledger.com

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