With interest rates rising, refi trends falling and a significant drop in purchase volume due to low inventories, mortgage lenders are looking for smart solutions to combat margin erosion in 2022 and beyond. HousingWire recently spoke with Maylin Casanueva, President of Teraverde, about the importance of data-backed decision making and the power insightful data can have on a lender’s overall health.
HousingWire: What are some of the top challenges lenders are facing this year when it comes to profitability and productivity?
Maylin Casanueva: Rising interest rates have already led to sharp volume declines this year. Refinancing falls when interest rates rise. Purchase volume is also affected by low inventories and rising property values, and coupled with rising interest rates, can severely limit a borrower’s ability to buy a home. make the process increasingly difficult.
This rapid volume reduction has meant that marginal compression has become a major pain point. Competition for new hires to handle the funding boom of the past 18 months has also increased compensation costs. The result is many painful decisions that mortgage lenders face. How does a lender deal with declining volume, shrinking margins, and potentially overstaffing? In other words, at the end of 2021, the key question for lenders was how to close all the loans in their pipeline. Now the key question is how to cope with a much smaller pipeline, declining margins and high compensation costs?
HW: How can lenders use data-driven insights to address these challenges?
MC: Data-driven decision-making is and will remain a critical component required to make important, real-time decisions in the future. There is an enormous amount of data in the lending process and lenders are still struggling to understand it all. Some lenders have made large investments in business intelligence tools and business analysts to provide reports, KPIs and dashboards. And many executives may be asking, “So what?” Many executives have privately shared their frustration that KPIs, dashboards, and reports show the summary of what we already know: volume is down, margins are down, and compensation costs are down current volumes and margins too high.
These leaders also admit that they don’t get valuable, interesting, and actionable insights from investing in tools and people. According to one angry executive, “I don’t need programmers and analysts suggesting how to run my business.” These roles have not been successful in providing the information and critical insights that lead to action.
Why have so few lenders managed to get their data to answer critical questions that tell the full story? KPIs are alerts that provide a snapshot at a specific point in time. The pull-through percentage is a good example. The pull-through KPI does not provide enough information to see the full picture of the final status of a loan application, and what actions are needed to reduce fallout now. When a lender views fallout as a cost of doing business, it misses an opportunity to get more funding from the pipeline. For example, one lender was surprised when we analyzed the consequences by category. The lender found that certain manufacturers had service level issues that contributed to compounded episodes. The lender discovered a way to recover loans that had a specific type of consequences. Manufacturers’ adoption of a point-of-sale system had a significant impact on certain types of episodes. Also, when looking at credit metrics for approvals and denials, certain insurers’ denials were under-performing in some cases and under-performing in others.
What is the nature of fallout? Which employees are responsible for this? Are processes or production methods responsible for this? Those who know the questions can navigate to success. In short, every topic in mortgage origination has a story, and a leader needs to see the story to generate the insights (or “Aha!” moments that improve productivity, efficiency, and profitability). The leader must examine their data with the leader’s domain knowledge to find the answers that complete the story.
Combining senior-level knowledge creatively applied to the data at hand is one element of effectively implementing data-driven decision-making. Another element is direct access to the single source of truth. That is, accurate data from the original entry in the lender’s system of record. Knowing true factual data versus manipulated or transformed data is essential if you want to get to the heart of the matter.
For example, a lender found that its dashboards had variations that didn’t seem to make sense. A closer investigation revealed that the dashboards were being provided with incorrect data. Some of the mistakes were bad data entry at the beginning of the loan. Bad data coupled with the inability to identify and correct these data entry errors result in rework, potentially wrong decisions and unsellable credit.
A second set of errors can arise from incorrect coding of the data source and/or the transformation of data from the original system of record into a lender’s data warehouse. A CFO was shocked that reports from the lender’s data warehouse contained data that differed from the original ledgers. Three problems were uncovered: mapping problems, data transformation problems, and lack of error containment.
The solution is to shorten the path from the original entry ledgers to using that data, error detection/correction and proving data lineage. Lenders working with real-time data extracted from the original system of record have significantly reduced data problems. In short, the health of the data used in decision-making directly impacts the health of the lender. It’s like unhealthy food that makes human body sick. Bad data, if picked up, can sicken the lender.
HW: In what areas could most lenders improve their lending efficiency?
MC: First and foremost, executives need to ask simple questions about every report, KPI, dashboard, and BI tool they use. That question is, “If I didn’t have this report, KPI, dashboard, or BI tool, would the quality of my decision making be compromised?” If the answer is yes, the next question is, “Is the information worth the cost of production? and is there another way I can get them faster, cheaper, or more conveniently?” Insightful leaders typically answer “yes” to the second question.
Executives know that “less is more”. It’s important to get straight to the key pieces of data that influence a decision. Digging through the noise can be maddening. One executive remarked, “I reviewed all of these reports, but I ended up looking at some relationships between the data to make my decisions. The rest was non-value-added excess.” This executive also said, “When I was developing mappings using another solution, I found that many aspects of my reports were wrong, sometimes significantly. And that led to wrong decisions.”
Mortgage loans are complex, and many executives have found that directly accessing and examining data instead of using an interpreter or analyst produces better and faster results. The analyst will never have the manager’s domain knowledge. And so the analysis often lacks associations and nuances that a manager intuitively knows. Most analysts will do their best to provide exactly what the executive requested, but the analyst may just not know how to take it to the next level and look for additional insights. In order to have insight into what is happening and be able to make fast proactive decisions in these rapidly changing times, it is essential to have direct access to real-time data.
HW: How does Teraverde’s data solutions help lenders improve their lending processes?
MC: Teraverde combined the team’s mortgage knowledge with a proprietary user interface and powerful associative data engine to deliver unprecedented insights. Teraverde’s data solution is focused on solving the challenges lenders face today and getting to the root of the problems. Coheus acts as a North Star to help an executive align the lender’s data with the executive’s domain knowledge. One executive described Coheus as a “guide” to making insightful data-driven decisions that improve profits, efficiency and productivity.
Teraverde works closely with our customers to continuously improve our solution based on real use cases. We continue to build domain knowledge into Coheus, so when an executive sees the visual representation of the associated data, he instinctively knows what to do. Coheus’ playbook and North Start’s technology ensure the leader’s insight is immediately apparent. Instead of being buried in reports and noise, the leader can quickly make the decisions that make a company successful.
In short, Coheus is a different kind of solution that makes it easier for executives and managers to access the data and examine it themselves. The leader knows that their own company is the best person to tell data stories, ask the right questions, and sift through the data for answers. Our domain knowledge of the business built right into Coheus makes it unique.