Smart Decisions-Smart Business
Suri, Anil

(Anil Suri is President and CEO of Intelli-Mine, Newport Beach, Calif. The company's Web site is www.intelli-mine.com.)

Like most other industries, mortgage banking faces an increasingly competitive and volatile market. Concerned about "adapting to changing conditions" and "creating lean and mean organizations," management must now turn their attention to the constraints emerging from a slowing market.

The challenges faced by mortgage bankers are driven, like all businesses, by the two classic objectives of business management: first, operational performance-keeping the business profitable; and second, business vision-steering the business toward the new opportunities created by the ever-changing market conditions.

For the mortgage industry, the formula for operational performance begins with a robust pipeline-the backbone of the business-producing a continuous portfolio of solid loan assets, which can be marketed at attractive yields or securitized into the bond market.

But the formula depends on the skills and productivity of the organization, the sustainable source of finance through solid management of the company's credit worthiness and the level of competitiveness achieved by the business within the marketplace.

The performance of the above factors depends on the quality of the organization processes, a "team culture" capable of executing the strategy defined for the business and a technology platform capable of supplying the organization with the functions and information required to achieve their objectives.

Economic uncertainty and market volatility threaten mortgage bankers' ability to accurately develop and execute their business plans. The increasing complexity of doing business also contributes to the internal complexity of their organizations as they manage multiple origination channels, expand geographically over multiple States, deploy new product to maintain their competitiveness and change operational processes in their constant pursuit for cost reduction.

The Multi-Dimensional Model of the Mortgage Lending Business

A loan is a collection of relationships which, given their characteristics at the time, yield a specific financial result to the mortgage banker.

Let's consider a mid-size mortgage company with two channels (Wholesale and Direct via Web Site), 1,200 brokers and 10 Web reference sites, 22 products, borrower's demographics classified in 16 profiles, 8 processing teams, 4 warehouse lines and 14 active investors. That's 1,210x22x16x8x4x14, or almost 200 million possible combinations.

So, using conventional reporting tools to analyze loan relationships for this company would be totally inadequate for the intended purpose. The challenge grows much too complex for management of larger businesses, where the combinations are much higher.

Whether the financial outcome of a loan is negative, mostly from fallout, or positive, from closed loans, it is the combination of these relationships management needs to identify in order to improve their loan's ROI. So the task begins by identifying which current relationships yield the best and the worst returns.

But management also needs to analyze other attributes of these representative loans, to understand why these relationships perform in the opposite sides of the profitability spectrum. Factors that considerably expand the size of the matrix information are items such as the number and type of loan conditions, outline of borrower's demographics, loans fees, cost profile, history of funding, inventory activities, investor's compliance, revenue points and the loan consolidated financial sheet. This is just one example of the multi-dimensional nature that characterizes the mortgage business.

All levels of management, from senior vice presidents to supervisors, face a set of relationships particular to their domain of action (whether is at the marketing, operations, cash management or secondary market level; or at the account executive, branch manager, underwriter, funding, document management or pool management level). Each needs to understand what is and is not working, why the performance variance exists and how to correct the problems affecting their performance.

Like other business models that characterize the financial service sector, mortgage lending is, in fact, a complex structure of information that fits the analytical framework supported by business intelligence (BI), the technology specifically designed to assist management on their daily decision-support process.

To be effective, management needs an information analysis and reporting platform oriented toward this multi-dimensional model. A tool that simplifies the selection of desired dimensions and measurements to be analyzed, and produces a complete set of metrics and indicators, applicable to the manager operational domain. A tool that displays results in graphic or matrix formats, allowing the manager to drill down into any branch of the information tree and sift through the data needed to complete the thought process, that triggered the research action.

The ability to follow any desired information thread and complete the analytic thought is vital to the issue of timing and a key factor in determining the quality of a decision. It is the timely feedback of business conditions, captured from knowledge and insight that makes possible for managers to take action and improve the quality of their business processes.

It all comes down to the management's ability to make informed and timely decisions. As the organization gains experience with their decision-support platform, other components can be integrated (digital dashboards, collaboration tools, balance score cards (BSC) and portal access), to further raise their level of effectiveness.

The Role of Technology in Managing the Mortgage Business

The strong growth experienced by the mortgage industry in the last few years has brought focus on the technology required to improve operational efficiency. But the industry has yet to adopt the technology available to assist management in their two main tasks; 1) the quest toward continuous improvement of the business performance, and 2) the relentless search for those new opportunities their business must explore to remain viable.

Business agility is the new path toward competitiveness, and it is all about improving the cycle of managerial action. Managerial procrastination is the cause of additional capital expenditure and missed opportunities, which can no longer be ignored. But is the existing IT infrastructure of mortgage companies capable of supporting their organizational agility?

Line managers are the basic building blocks of agility. While their actions are taken on the basis of context, managerial context depends on the stylistic preferences of each manager. That's because no two managers respond in the same fashion to identical input, like no two borrowers respond the same way to the same loan product. Therefore, "agility" is based on the capacity of a company's information infrastructure to respond to the needs of heterogeneous line managers."

Unfortunately for business executives, there is a serious impediment to obtain information content required to take effective actions timely. At the heart of an adaptive organization are its managers and they have at least three requirements to shorten their action cycle:

Availability of information context. To act every manager not only needs information, but information without context is of little value. "Context is defined by a specific concern or a question that the manager faces at a point in time, requiring action on her/his part." So, a marketing manager who wants to know why loan origination was less than 70 percent of forecast last week, is now concerned with a context driven by three dimensions: the topic (loan origination forecast), time (last week), and geography (the branches by region). Further, the manager may want to know whether the discrepancy is a one time event or part of a trend and the percentage of the total branches and projected volume of loans represented by the population of branches that owns the shortfall.

Capacity to create new knowledge and insights. Managers need to consider alternative courses of action and make choices. They need to interact with an information system that allows them to explore new and different questions, and to evaluate their "theories" and prove their intuition." Typically, managers are not willing to explore and navigate through their informational context if the system is not capable of providing real time responses. It's unpractical to maintain an evolving idea and evolve a thought if you have to wait hours or days for the answer to each step of the process. Management needs to create new knowledge and insight about their business in order to act. In fact, "agility without knowledge and understanding may be worse than procrastination."

Resource Reconfiguration. For management action to take place, rapid reconfiguration of resources is required from the organization.

Technology designed to assist management emerged in the early 90s with the concept of data warehousing (DW), a reporting repository of operational data consolidated from all areas of the business. The initially poor reporting capabilities of DW evolved into a higher layer of analytics; a set of powerful reporting tools capable of providing management with an insight of their operations that was never before possible.

The foundation of this management information technology is the multi-dimensional data cube, also known as On-Line Analysis Processing (OLAP), which made possible the arrangement and analysis of the complex set of business dimensions that characterize today's business.

Business intelligence is the technology that consolidated all the above components, to provide management with relevant, timely and accurate information, using the matrix of multi-dimensional information that models their business operation. Each enterprise, given its particular offerings, market, customer base, vendor relationships, and operational structure, requires different types of data and indicators. Yet, the main purpose remains consistent, transforming data into the information needed by organizations for decision-making purposes.

The set of dimensions and measurements that models a mortgage lending business provides the foundation to assist mortgage bankers in making informed and timely decisions.

(The views expressed in Tech Forum do not necessarily reflect the views or policies of the Mortgage Bankers Association. MBA Tech NewsLink welcomes your contributions. Articles and inquiries should be submitted to Mike Sorohan, editor, at msorohan@mortgagebankers.org.)

About Intelli-Mine:

Intelli-Mine, delivers software and services that help companies drive, monitor and understand corporate performance.

Intelli-Mine delivers and helps organizations gain competitive advantage achieved through the strategic application of Business Intelligence on an enterprise scale. Our integrated Mortgage Performance Management solution helps customers drive performance through planning; monitor performance through score carding; and understand performance through business intelligence.

For more information, visit the Intelli-Mine Web site at www.intelli-mine.com.