(Dan Scheuble is chief information officer for Fidelity Information Services, a division of Fidelity National Financial, Jacksonville, Fla.)
Anyone with even a passing knowledge of Microsoft Project can tell you that the mortgage transaction follows one of the most convoluted and confusing paths in modern business. Consequently, manufacturing mortgages on a large scale can seem more akin to wrangling cats than managing a supply chain.
And yet, today's technology and the modern sophistication with which lenders now manage risk makes it possible for players in this business to begin thinking like the manufacturing sector.
Why think like other industries? Thanks to intense competition from foreign markets, American manufacturing concerns have learned to cut costs extremely well. While shrinking profit margins are always a concern in the mortgage lending space, this business doesn't compare to steel or textiles, for instance, where margins are so thin that only a handful of U.S. companies can survive.
To compete, manufacturing executives have developed a number of innovative strategies, such as Just-in-Time Manufacturing (JIT), Total Productive Maintenance (TPM) and Lean Manufacturing. One of the most successful strategies employed by these firms is effective supply chain management (SCM).
Supply chain management is the application of technology to make full use of assets by streamlining the interaction and communication of all participants engaged in satisfying a customer need. The financial services sector shows signs of being ready to capitalize on SCM as a core operating strategy.
One of the most important indicators that our industry may be ready to take this step is the broad acceptance of electronic partner networks (EPNs). These technology solutions are rather like a set of pipes that carry transactional data between industry participants. They have allowed mortgage lenders to assemble the many suppliers it takes to manufacture a mortgage loan into a single chain. But EPNs do not force lenders to do so.
For any loan product, there are a number of ways that the products and services required to complete the transaction can be brought together. To use an EPN to create an SCM solution, automation is required to put all the steps in order. That allows the lender to use the EPN to secure the information precisely when it is required. By getting that data to the right place at the right time between disparate organizations, cost efficiencies, revenue enhancement and product quality improve dramatically.
Once those business rules are codified into the lender's processing system, all the suppliers, distributors and other business partners can be effectively chained together to better satisfy the needs of their borrowers. Fortunately, the technology to enable this is already built into many of the processing systems lenders are using today.
The timing is also right for lenders to consider implementing SCM. With volumes dropping, competition is increasing. It is likely that margins will be squeezed as companies struggle to maintain origination levels. Meanwhile, the recent refinance boom has provided the funds required for the implementation of new solutions.
An SCM solution requires careful planning to determine the metrics that will be used to establish and monitor the performance of the supply chain. It may also require tweaking the loan origination system to provide real-time reporting in order to track quality, productivity and output of loans, and share demand information with all members of the supply chain.
Is the mortgage industry ready for the paradigm shift to supply chain management? It depends on the institution and the situation. The technology exists today to make it work and as American manufacturing concerns have demonstrated it can be a very effective strategy. For mortgage lending, where margins are not as thin, the positive affects would be magnified.
(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; for more information, contact Mike Sorohan, editor, at msorohan@mortgagebankers.org.)