“The real and effectual discipline which is exercised over a workman is ... that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.”

Adam Smith - Scottish philosopher and famed economist, 1723-1790.  Among other things, Adam Smith is known for the concept of Division of Labor. 

As we visit mortgage operations around the country, we see many types of business models. 

The mortgage business is actually pretty easy...

  1. Sales people, (loan offices), go out and kill the animal (originate a loan)
  2. The animal (loan file) is skinned, dressed and package up for market (mortgage operation)
  3. The finished product (investor file) is delivered to market for sale (secondary market investor).

Within these three broad areas of the mortgage loan life cycle are individual processes. Companies have unique methods of approaching each step, sometimes they even combine the broad areas. Let’s look at a few:

Most companies use an assembly line model.  As Adam Smith noted in his book, the Wealth of Nations, dividing up tasks and having specific people perform those task improves productivity.  Thus we see loan officers only originating loans, underwriters only reviewing files and funders only funding loans.  In shops that function this way, it is easy to measure productivity and set standards.  Sometimes customer service can be sketchy because employees only know issues related to their tasks.

Another model is the craftsman approach.  A mortgage banking craftsman is knowledgeable of many functions and can process a loan from start to finish.  A couple of years ago, a company referred to these craftsmen as Mortgage Masters.  Essentially, there were masters of all aspects of the mortgage process.  The CEO of this company conducted a survey with customers and found they wanted to work with one person throughout the entire process. 

We are also seeing a model emerge that empowers the loan officer, through technology, to perform not only the origination aspect, but a large portion of processing tasks. 

Using their loan origination system (LOS) loan officers:

(a) complete the application
(b) order credit
(c) obtain an initial underwriting decision
(d) generate disclosures
(e) lock the loan
(f) obtain all supporting income and asset verification
(g) can the file

Processors review the digital file in preparation for final credit decision, but at that point the file is almost fully processed. 

In the old days, loan officers took a hand written partially filled out application and dumped it on the processor’s lap.  Processors spent hours working with the loan officer and borrower putting the file together before it was moved to underwriting. 

I’d be interested in knowing what’s working best. If you are an originator, operation employee or the owner of a company...please post your thoughts.