Mortgage lenders need assurance that the proper hazard insurance coverage is in place for the loans they issue. But that peace of mind comes with significant headaches and unnecessary costs for lenders that still do their hazard insurance processing and tracking in-house.
Instead of focusing their efforts on new business and loan origination issues, they're forced to deal with thousands of pieces of mail, increasing loan clients' satisfaction and the ever-constant objective of reducing operational costs. These goals are even more difficult to achieve with the lenders' staffing problems. They not only have fluctuations in business that necessitate ramping staffing up or down, but they also face continual turnover because insurance processing and tracking is mundane data processing work.
The volume of paper from the mail alone is a huge problem, notes Karen Schickel, Senior Vice President of Mortgage Services at outsourcing service provider Proctor Financial, Inc. "Efficiency spirals down fast with the mail," she says. "If you fall behind in the mail processing, you start getting more mail, resulting from the mail not being processed."
Most lenders don't even know their true internal costs for loan servicing, she adds. There is a huge disparity in costs because everyone is not measuring the same things. Many don't include the mailroom cost of handling thousands of pieces of hazard insurance mail because the insurance servicing manager is not responsible for the mailroom or its budget. Some also don't include the costs associated with mortgagees' calls with insurance questions because those are lumped in with calls in a broader corporate call center.
Most mortgage lenders have invested in servicing systems to automate part of the processing functions, but Schickel says many lenders are operating on a premise of established methodologies and best practices that are about 10 years old. Scanning the mail through OCR (optical character recognition) technology, for example, only processes 40 to 50 percent of the documents. There are always exceptions with OCR, which results in documents that require human intervention. OCR often cannot read a "0" or an 8" properly, for instance. "The perception that the process is fully automated, therefore, is a myth when it comes to using OCR," states Schickel. "Those exceptions must be processed a second time. That adds a time lag and additional cost."
Historically, some lenders outsourced their processing needs in loan servicing to reduce expenses. But now there's a better way to handle this work and realize benefits beyond costs.
Guaranty Bank, headquartered in Brown Deer, Wisconsin, originates mortgage loans that it either retains and services or sells to other mortgage companies or banks. Its end-to-end hazard insurance loan servicing processes have been outsourced to Proctor since November, 2001. LaSonia Virgil, Vice President/Escrow Manager at Guaranty Bank, says, "Proctor provides total insurance processing support, including processing our mail from the insurance companies, to sending out expiration letters to our customers, to disbursing and mailing the checks for the payments to the insurance companies, to taking phone calls from our customers."
Customer satisfaction is a major objective at Guaranty Bank, and Proctor's outsourcing services increase speed and accuracy to the bank's customers in a seamless manner. "Our relationship with Proctor is transparent; mailings go out from Proctor on bank letterhead and calls are routed through Guaranty's 800 number and answered by a Proctor representative," explains Virgil. Proctor's expertise results in faster, accurate processing, which leads to fewer customer phone calls and less mail.
Obviously, the bank can't put a price tag on satisfied borrowers. Nevertheless, Guaranty Bank has recognized significant savings in labor and other costs associated with insurance processing by utilizing Proctor's outsourcing process.
The icing on the cake--as if those two benefits weren't enough--is the bank's real-time access to the servicing systems data. "Anything the data processing staff inputs in Troy, Michigan is live; and we see it here in our system in Wisconsin immediately," Virgil declares. There is no time lag since there are no technology interfaces.
This is only one of the reasons Proctor's services are a better way of doing things, stresses Val Dickerson, Vice President of Outsourcing. "Each lender has already paid for its system and conformed it to run their servicing shop. We're set up on their servicing system as an agent of the bank, acting like a branch of the company, for DDI© (Direct Data Input) into their system. There are no interfaces to implement and no processes to map, so this eliminates thousands of dollars in programming costs that most outsourcing providers add for implementation and mapping."
The Impact of Expertise
Proctor, a pioneer in hazard insurance servicing since the 1970s, has fine-tuned its methodology in ways other than its clients' real-time access to data in the system. In fact, it recently successfully implemented a program for a client in lightning speed--72 incremental hours--because of its unique process.
Dickerson explains, "We sit down with a new client and go through a day or a day and a half of finding out how they want us to process their work. We establish and mutually agree on a set of business rules that are very specific to processing and to all their rules that are governed by lending regulations. The business rules we agree to up front are specific to our client's needs and servicing system."
Everything is very clear cut, both parties sign off on the method of operation, and the document becomes a part of the contract. "This alleviates a lot of back-and-forth discussions about doing something different after we go live," says Dickerson. "Transitioning to outsourcing is sometimes a challenge because of change. So our method gives them a sense of security, knowing that we will do what they want us to do with the business rules."
In addition, the Proctor process doesn't include using OCR for scanning the incoming insurance mail. "We do imaging and workflow instead," says Dickerson. "We don't need a separate process to handle exceptions because everything is being handled exactly the same way." Exceptions are eliminated completely because there are no exceptions with this process.
The technology distributes the scanned documents to queues in a workflow process. When Proctor's data technology specialists arrive at the Proctor office in the morning, anything that has been opened and scanned and is ready for processing is sitting in someone's queue. As Dickerson explains, Proctor uses a dual-screen process where one-half of the screen shows the actual document in an image form and the other half of the screen shows the client's servicing system. "The data technology specialist takes the information, depending on the process, and actually enters it from the documents into the servicing system."
The next step in the process might be a letter generated and mailed by Proctor, using the individual client's letterhead, in cases, for example, where an account has insufficient hazard coverage or a flood zone is wrong. If an item is appropriate for payment, Proctor then prints and mails checks.
Another benefit of the outsourced service is that Proctor retains experts in compliance with hazard insurance regulations, thus ensuring its clients stay in compliance.
It Still Comes Down to People
Guaranty Bank interacts daily and meets monthly with Proctor to discuss how things are going, and Proctor's management team visits the bank regularly. "We give feedback to them, and it's a very open relationship," states Virgil. "Proctor has really good people to work with."
Often in outsourcing, success comes down to flexibility and a good relationship. One of the reasons Guaranty Bank selected Proctor was for its flexibility. "We needed a provider that would accommodate our needs as our business changes direction," she recalls. "We view flexibility as one of Proctor's greatest strengths."
Lessons from the Outsourcing Journal:
- Instead of focusing their efforts on new business and loan origination issues, mortgage lenders handling hazard insurance processing in-house are forced to deal with thousands of pieces of mail, increasing loan clients' satisfaction and the ever-constant objective of reducing operational costs--and doing so with high staff turnover.
- Most lenders don't know their true internal costs for loan servicing because they sometimes don't include the mailroom cost of handling thousands of pieces of hazard insurance mail, or don't include the costs associated with mortgagees' calls with insurance questions because those are lumped in with calls in a broader corporate call center.
- It's a benefit to use an outsourcer whose methodology eliminates the need for implementing interfaces and mapping processes to map, as both of these activities add programming costs.