Although most mortgage brokers have a passion for advising clients and writing new business, many of the very best mortgage brokers in the country rate loan processing as the MOST critical function in their practice. This article explores how getting your back office admin function right (and employing the right loan processing solution or service for you) helps to drive practice growth.
What is “Loan Processing”?
Loan processing refers to the back office administration function associated with submitting, tracking and settling a residential home loan. The process encompasses:
- Gathering information and documents from the borrower (the client)
- Preparing the loan submission
- Submitting information and data to lender(s)
- Requesting and supply the correct supporting documents to the lender
- Tracking the loan through to unconditional approval and settlement
- Settling the loan and managing the client relationship moving forward
Why Loan Processing Is The Most Critical Function In Your Mortgage Broking Practice
We recently asked a sample of top-producing mortgage brokers what the most important function in their business is. Perhaps surprisingly, most replied “loan processing”.
Although other functions such as lead generation, sales conversion, referral generation and loan strategy and structure often get most of the attention, loan processing is the un-sung engine room of top producing firms.
Here are just three reasons why your back office administration function is crucial to get right if you want to grow:
- It usually doesn’t take many hours to recommend the best lending solution, but it takes many hours to process the loan. Usually around 14 hours, to be exact. So if you’re not efficient in processing, your time can easily get sucked away from sales, strategy or service.
- The loan submission, approval and settlement process is a BIG part of the client experience, and it’s one that most clients don’t enjoy. There’s a lot of paperwork, complexity and waiting periods. There may also be deadlines and stress. So if your loan process isn’t sharp, you run the risk of frustrating and angering clients.
- Loan processing is a function that a broker can employ other team members to do. This frees up the broker to focus on what they do best. In a word, getting this function right offers you LEVERAGE.
The Ideal Mortgage Broker Loan Process
What does the ideal residential home loan process look like? We’ve given a huge amount of thought to this question, and as a result have come up with the following “ideal” loan process.
Dozens of BrokerEngine software users have VALIDATED this process and provided input to refine and improve it. So while any process can always get better, this is a workflow that has been thoroughly tested in the field by some very big loan writers. It’s not just something we plucked out of thin air.
Loan Processing Stages
There are 15 loan stages in our recommended loan process:
|1. Get Supporting Docs||Supporting documents are being collected from the client|
|2. Prepare Deal for AIP||Prepare deal for Approval in Principle (Pre-Approval)|
|3. Sent for AIP||Loan has been sent to lender for Approval in Principle|
|4. AIP Issued||Approval in Principle has been issued by the lender|
|5. Prep Deal for Formal||Prepare deal for formal approval (unconditional)|
|6. Sent for Formal no Val||Deal has been sent for formal approval with no valuation|
|7. Conditional Approval||Deal has been conditionally approved by the lender|
|8. Send for Formal with Val||Deal has been sent for formal approval with valuation|
|9. Formal Approval||Deal has been formally approved (unconditionally)|
|10. Mortgage Docs Posted||Mortgage documents have been issued by the lender|
|11. Mortgage Docs Returned||Mortgage documents have been received by the lender|
|12. Ready to Settle||The loan is ready for settlement|
|13. Settlement Booked||Settlement has been booked by the lender|
|14. Settlement||Settlement has occurred|
|15. Lost/Declined||The deal is not proceeding. The deal is automatically archived after 2 weeks|
Tracking Loan Status
It’s important for a broker and their loan processors to maintain a real-time overview of which stage each loan is at. These days it has become more common to use a “Kanban-style” dashboard to achieve this. A good dashboard gives you immediate insight into how your pipeline is tracking. Here’s an example taken from BrokerEngine:
Each “tile” on the screen contains key data, which highlight important facets of the deal:
Where the deal is running late or is in danger of missing a deadline, the tile is further highlighted with a red border to draw the immediate attention of the loan processor:
Loan Processing Automation
Humans are well-suited to performing tasks like strategy, sales and service. They’re good at solving problems and unsticking (both important qualities in a great loan processor!).
But there are some tasks that computers and software can do faster and cheaper than humans: particularly process-driven, data-intensive or repetitive tasks.
So, in between the loan stages, there are a many tasks that may be completed or augmented by smart software and automation. These include:
- Client fact finding
- Document collection and collation
- Status updates via email and SMS messages
- Phone calls to lenders
- Preparation of Reports and Advices
- Preparation of Lender Submissions
- Preparation and Submission of Discharge Authorities
- Ordering and tracking valuations
- Applying for lender pricing
- Progress updates to Solicitors, Agents and Referral Partners
- Online applications
When you start to look at all the automation possibilities, things start to get very detailed, very fast.
It’s generally true that “all home loans are 80% the same… it’s the 20% differences that can sink you.”
In other words, despite the fact that the broad structure of all loan processing tasks may be similar, most loans have a few peculiarities that alter the administration steps or workflows.
These little differences can trip up many a new or experienced loan processor alike. That’s why you need robust processes and workflows for dealing with these exceptions.
We’ve identified 25 such exceptions that we call “1-Click Workflows”. These include:
|01. Lender Rebate||Lenders may offer a rebate in the form of a cashback offer post settlement, refund of LMI or fee waiver post-settlement.|
|02. Guarantor Home Loan||A client may use a guarantor to avoid a deposit requirement or reduce the LMI payable.|
|03. Fast Refi||Some banks offer “Fast Refi”, which allows the new lender to pay out the incumbent without the outgoing lender being notified. This is so the outgoing lender can’t call in their retention team.|
|04. Non-Standard Ownership Structure||The borrower may wish to purchase property with a particular share/interest. For example, 50/50 where both parties hold equal shares, or 80/20 where one party legally owns 80% and the other 20%.|
|05. Client Lives Overseas||The client may purchase property while living overseas. The borrower will need to ensure they are informed of appropriate witnessing requirements etc.|
|06. Construction||Construction loans entail a specific drawdown structure.|
|07. FIRB||Some migrants/visa holders may require Foreign Investment Review Board (FIRB) approval.|
|08. Mat Leave/ Pregnant Pause||For clients who are planning to go on maternity leave or have children in the next 1-3 years|
|09. Deposit Bond||Some borrowers may require a deposit bond upon unconditional approval if they do not have sufficient funds at that time to pay the deposit or there are tax reasons for not doing so. Therefore a deposit bond will be required.|
|10. First Home Owners Grant||For borrowers applying for a First Home Owners Grant (FHOG)|
|11. Off the Plan||When purchasing property “Off The Plan”, there are certain risks that may apply. Brokers may need to advise the client of the risks at appropriate times.|
|12. Debt Recycling||Debt recycling is a tax strategy that allows a borrower to convert non-deductible debt into deductible debt.|
|13. Purchasing in a Trust||Some borrowers may be purchasing within a trust structure for tax mitigation or asset protection purposes.|
|14. Rate Lock||“Rate lock” is a feature that allows a borrower to lock in a fixed interest rate between time of lodgement/approval and settlement date.|
|15. Favourable Purchase||A favourable purchase is where a client will purchase a property below market value from a related party (e.g. mum and dad).|
|16. Multiple Offset Accounts||Some lenders allow multiple offset accounts per loan.|
|17. Cross Securitisation||Cross-securitisation is where a borrower uses multiple properties to secure one or more loans.|
|18. Interest in Advance||Interest In Advance is where a borrower pre-pays loan interest for the next finance year or years. This brings in further tax deductions this year.|
|19. Refinance||Refinances have specific sub-processes.|
|20. Debt Consolidation||Debt consolidation|
|21. Simultaneous or Prior Settlement||Simultaneous or prior settlement|
|22. Repayment Type IO vs PI||Repayment type – Interest Only vs Principal and Interest (for Loan Strategy Report preparation purposes)|
|23. Split Home Loan||Splitting the borrowings between fixed rate and variable rate portiongs (for Loan Strategy Report preparation purposes)|
|24. SMSF||SMSF residential property loan|
|25. LMI Waiver||Where LMI is waived under medico or industry specialisation policy, the lender needs to be prompted to apply the waiver.|
Within BrokerEngine, each of these 1-Click Workflows is specified using a one-click checkbox. These allows the broker to simply check off the exceptions that apply to a particular deal. As a result, the downstream workflow changes to accommodate:
Using Loan Checklists To Error-Proof The Process
It is one thing to have processes, systems and procedures to ensure that your loan process is carried out in a standardised way. It’s another to ensure it’s actually done that way, every time.
The only thing is that for lending, these checklists need to be Dynamic Checklists, as opposed to Static Checklists.
Static Checklists are the same every time, whereas Dynamic Checklists adjust to the exact particulars of the loan in question.
This is why we built Dynamic Checklists within BrokerEngine that tie back to the specific features of every individual deal.
These checklists not only ensure that everything is done right, but they also provide an audit trail for each deal in case anything should go wrong. Here’s one example:
By adoption the right loan processing system, you free up time to focus on marketing, client acquisition and client service. These are the activities that ultimately grow the value of your practice.
Mastering The People Side: Who Will Drive Your Loan Process?
This article has explored the ideal loan process structure. The other aspect to get right is to decide who will drive your loan process. For help answering that question, see this article on Loan Processing Options: Do It Yourself, In-House, Outsourced or Offshore?
Your Loan Process: From 14 Hours To 4 Hours Per Deal
We asked our users how long it takes to process each loan “the old way” (i.e. before BrokerEngine), and the consensus was that each loan requires 14 hours of work. This includes meeting with the client, through to settlement and post-settlement care.
When you use BrokerEngine, this time is reduced to 4 hours. Here’s the data behind those figures:
Mortgage broking is too competitive to waste up to 10 hours per deal. And if you want to grow, then ensuring you have the right back office support is critical.
If you’d like to know more, contact us for a Free Demo of BrokerEngine software. We’ll show you streamline and automate your workflow, so you can get back to what you do best…
…sitting in front of more new clients, and creating amazing loan solutions.