When everything about the way you used to do business is changing, it can be difficult to know where to focus your attention. When the changes you are making can literally determine your ability to remain in the business, you want to be sure that the fixes you employ meet the demands of the regulators who now hold the key to everyone’s future. Add to this the fact that all of the rules you must comply with are not even written yet and you have a nightmare scenario.
In 2014, I predict that many companies will make mistakes. Some of those mistakes will be fatal and they will exit the business. In thinking about what changes the leaders will make in their businesses in the days ahead, I have come to the conclusion that the solution will depend upon where the lender chooses to focus attention over the next quarter or two. Focusing on the wrong parts of the business will be the number one cause of failure in 2014.
Here are 3 executive tips to avoid making fatal errors at your company.
1. Executive focus will be critical
Trying to accomplish an overwhelming amount of work by a deadline can make even the most organized executive wonder where to start first. As the rules continue to come out of Dodd-Frank, lenders are finding that just about every facet of their businesses is impacted. Firms that try to do everything at once are not likely to succeed at anything. In an environment where even one mistake can be fatal, it’s important to focus your efforts.
Just about any management consultant will tell you that the key to getting more done is to make your to-do list, prioritize it and then focus all of your efforts on the first, presumably most important, task until it is finished. Then move on to the next. This can be a tough prescription to swallow in normal times, but when so many changes must be made, this conflict between the effectiveness promised by focus and the driving need to be compliant in all areas can paralyze a management team.
As hard as it is, focus is critical to making any change. It’s the only way the executive can fully explore the consequences of the change they are contemplating. In fact, this inability to focus on a single problem for any length of time may be why so many of our laws have unintended and unforeseen consequences once enacted.
It’s another tenet of modern management that what the leader’s focus on will become the priorities of those that report to them. This is most evident when the plans leaders hand down include metrics that can be measured and tracked, but it starts as soon as upper management starts asking questions about a given focus area.
When combined with follow through, focus ensures that changes actually get made and not just considered. But where should the first changes be made?
2. Know where to focus
It’s tempting to spend executive time considering changes in the area that corresponds to the next rulemaking deadline or enforcement date. Sometimes, this is a necessity, but many times it just doesn’t take that much effort to get ready. The Qualified Mortgage is a good example, at least for most lenders.
When the Consumer Financial Protection Bureau and the secondary market companies started sharing information about the new rules for the qualified mortgage, many lenders contacted us, worried about how they would ensure that every deal they touched would remain fully compliant with the new rules. In the end, some logic was added to the Product & Pricing Engine and now all they have to do is look for the color-coded icon next to the deal to know if they are in compliance. For many, QM implementation was a non-event.
Adapting to some of the other new rules that are coming may not be so simple. So, how will the lender know where to focus their attention? It seems clear to me that it all comes down to the touch points where the industry interacts with the consumer. Arguably, the most important of these will be the Point of Sale (POS).
Lenders are now tasked with making certain that the borrower only takes out a loan that can be repaid and that they have an enjoyable experience while doing it. At the same time, if they hope to succeed, they must close as many loans as they can as quickly as they can. In my mind, this comes down to the same rule I’ve been promoting for years: you must only put loans that can be closed into the loan origination system.
This requires the lender to know more about the consumer earlier in the process and to begin the underwriting process before the borrower gets into the database of record. It requires a very efficient process, but one that is gentle on the consumer and gets them into the process quickly if they qualify and setting them gently aside for drip marketing until they are ready if they don’t qualify.
3. Know what leading lenders will be doing at the POS
A customer-centric mortgage operation will be key to compliance, going forward, as the CFPB is working to make American consumers their primary whistleblowers through their public complaint database. Technology makes this possible, but the right technologies must be employed.
The first rule of efficiency says that the fewer moving pieces, the better. When that comes to technology, it means we want to see fewer platforms handling the consumer as new deals work their way from lead generation to the LOS. I don’t expect this necessarily to result in consolidation of loan origination technologies. The LOS is key to the way the lender operates the business and so I expect we’ll always see a range of options available in the market.
But regardless of the database the lender uses, the marketing platform must be capable of handling front-end compliance checks, pricing strategy to fit within QM rules, and real-time HPML and anti-steering checks as well as MDIA support. Being able to pull credit, run an AVM and generate the upfront disclosures are also very nice to have in the same platform. Lead management, with live monitoring of loan officer performance, is vital. This is the key to a good borrower experience.
Regardless of what technologies are employed at the POS, every deal that enters the LOS should close. Lenders that get this done will have a stronger business and higher levels of customer satisfaction. In the final analysis, lenders that don’t focus on these two things will not be successful in the year ahead.