3 Steps to Build Business Analytics in Mortgage Lending

Austin Wentzlaff Analytics, Business Intelligence, Credit Unions, Decision Support 0 Comments

Credit unions rely on quality mortgage loans to establish a stable asset base for their operations.  Quality assets allow them to fulfill their purpose of serving members with innovative and personalized products and services.  High quality mortgage origination and investor relations with 3rd party mortgage investors such as Freddie Mac allow credit unions to leverage mortgage loans to drive their business.  Originating and selling sound mortgage loans enables credit unions to secure cash flow in exchange for their value-producing mortgage loan processes. To ensure this process is carried out effectively it is vital that credit unions implement high quality business analytics (BA) throughout the mortgage loan life cycle (MLLC).

1.)    Defining the purpose of Business Analytics

Two of the most important and often overlooked aspects of a BA implementation are the “why” and “what” of BA.  An understanding of why BA is necessary, and what the credit unions wants to gain from it, should be well established before jumping into it.  Recent practices conducted within the mortgage industry are a hot topic in the United States.  The 2007 financial crisis was caused, in part, by unstable retail mortgage practices.  This was the crack that began to permeate throughout the entire United States financial infrastructure.  Poor attention to detail, and outright arrogance of many mortgage loan origination decisions caused many financial institutions to lock-in risky loans to their own detriment. In an effort to counter this disaster, credit unions are partially responsible rebuilding the foundation of the industry.  Utilizing new technological innovations (i.e. BA), credit unions can reap the benefits that analytics has to offer. The origination of high quality mortgage loans allows value to flow downstream throughout the mortgage loan business processes.  Improved processes cause a positive chain reaction throughout the entire MLLC.  Utilizing BA throughout this lifecycle will give managers deeper insights and guide decision making.

2.)    The Foundation of BA: Data Collection and Gathering

Collecting quality data during the mortgage origination process is essential.  Dates, rates, loan amounts, property addresses, and many other details add tremendous value in the analysis of the MLLC.  It allows credit unions to remain in compliance with regulations that are becoming tighter by the day.  After collecting this data, credit unions can “pool” loans according to various attributes.  This allows them to more effectively communicate with third party investors when selling the loans in the secondary mortgage market.

Data collection has become much more effective with the automation and digitization of the retail mortgage industry’s business processes.  Many loan applications are completed entirely online before a borrower begins speaking with the financial institution.  Software used throughout the MLLC has become much more data friendly.  Drop-down fields (in lieu of the infamous free-entry text fields) are becoming the industry standard.  Institutions that do not have their software up to these standards will fall out of compliance, or worse.  With recent innovations occurring throughout the retail mortgage industry, credit unions now have the opportunity to harbor high quality data within their institution. Through improved data gathering, the monitoring and measuring of business processes can begin.  This is the beginning of BA.

3.)    Business Process Management: Data Driven Decisions

BA gives management a deeper vision into the MLLC and the decisions they must make to increase its effectiveness.  With high quality data collection already established in the origination processes, accurate and reliable metrics can be built around these loans (Step 2).  Measuring the time it takes a loan to go through the various stages of its life gives managers an effective tool to master the business process flow which is essential for building high quality mortgage origination processes.  However, high quality and robust data collection will not produce value without data-driven decisions based on the BA insights.  Getting this powerful analysis into the hands of those who know the industry best is the goal.  Currently, many analytics solutions are residing within IT.  While data governance should be the responsibility for IT, they are not the intended users.  BA is ultimately used to give managers the opportunity to act on new insights.  It is up to the business to execute what they do best: Business.

 Article written by: Nate Wentzlaff, Business Analyst at OnApproach

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