With rising interest rates, falling refis and a significant decrease in purchase volume caused by low inventory, mortgage lenders are looking for smart solutions to combat margin squeezes in 2022 and beyond. HousingWire recently spoke with Maylin Casanueva, President of Teraverde, about the importance of data-driven decision-making and the power that insightful data can have on the overall health of a lender’s business.
HousingWire: What are the main challenges lenders will face this year in terms of profitability and productivity?
Maylin Casanueva: Rising interest rates have already led to significant declines in volume this year. Refinances fall as rates rise. Purchase volume is also affected by low inventory, rising property values and, when coupled with rising rates, can significantly reduce a borrower’s ability to purchase a home. Make the process more and more difficult.
This rapid reduction in volume has made margin compression a major pain point. Competition for new hires to handle the refinancing boom over the past 18 months has also increased compensation costs. The result is many painful decisions faced by mortgage lenders. How does a lender deal with declining volume, shrinking margins and potentially excess staff? In other words, at the end of 2021, the key question for lenders was how to get all loans in their pipeline closed. Now the key question is how do you deal with a much smaller pipeline, squeezed margins and high compensation costs?
HW: How can lenders leverage data-driven insights to overcome these challenges?
CM: Data-driven decision-making is and will remain a critical component needed to make important real-time decisions in the future. There’s a huge amount of data in the lending process, and lenders are still struggling to try to make sense of 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 say, “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 too high. given current volumes and margins.
These executives also confide that they are not getting valuable, interesting and actionable insights from the investment in tools and people. According to one bristling executive, “I don’t need coders and analysts suggesting how I run my business.” These roles have failed to provide the critical information and insights that lead to action.
Why have so few lenders managed to get their data to answer critical questions that tell the whole story? KPIs are alerts that provide a snapshot at a given time. Drawdown percentage is a good example. The pull through KPI does not provide enough information to have a complete picture of the final status of a loan application, and what action is needed to reduce the fallout at this time. If a lender sees spillovers as a cost of doing business, they miss the opportunity to increase pipeline financing. For example, one lender was surprised when we analyzed fallout by category. The lender discovered that some producers had service level issues that contributed to increased returns. The lender discovered a way to recover loans that had some type of fallout. The adoption of a point-of-sale system by producers has had a significant impact on certain types of spinoffs. Additionally, some underwriters’ rejections were too low in some cases and too high in others when examining credit metrics of approvals and rejections.
What is the nature of the fallout? Which employees are the cause? Are origination processes or methods the cause? If you know the questions to ask, we can navigate to success. In short, every mortgage problem has a story, and a leader must see the story to generate insights (or “ah!” moments that improve productivity, efficiency, and profitability). The leader must explore their data with their domain knowledge to uncover the answers that complete the story.
Combining executive domain knowledge applied to available data in creative ways is one element of effectively implementing data-driven decision-making. Another element is having direct access to the single source of truth. That is, accurate data from the original entry in the lender’s system of record. If you want to get to the bottom of things, it is imperative to know the real factual data versus manipulated or transformed data.
An example: A lender noted that their dashboards had variations that didn’t seem logical. Further investigation revealed that the dashboards were receiving erroneous data. Some of the errors were incorrect data entry at the start of the loan. Bad data, coupled with the inability to detect and correct these data entry errors, leads to rework, potentially incorrect decisions, and unsaleable loans.
A second set of errors can arise from incorrect data source coding and/or data transformation from the original system of record to a lender’s data warehouse. A CFO was shocked that reports derived from the lender’s data warehouse contained data that differed from their original input books. Three issues were revealed: mapping issues, data transformation issues, and lack of error detection.
The solution is to shorten the path between the original input books and the use of this data, along with error detection/correction and proof of provenance of the data. Lenders working with real-time data pulled from the original system of record have significantly reduced data issues. In short, the health of the data used in decision-making directly translates to the health of the lender. It’s like unhealthy food that makes the human body sick. Bad data, when ingested, can make the lender sick.
HW: What are the areas where most lenders could improve their lending efficiency?
CM: First, leaders should ask simple questions about every report, KPI, dashboard, and BI tool they use. This question is: “If I didn’t have this report, KPI, dashboard or BI tool, would the quality of my decision-making be impaired?” If the answer is yes, the next question is, “Is the information worth the cost of producing it, and can I get it faster, cheaper, or easier in some other way?” Insightful executives usually answer “yes” to the second question.
Executives know that “less is more”. It is important to directly access the key pieces of data that guide a decision. Sifting through the noise can be infuriating. One executive said, “I looked at all of these reports, but in the end I looked at a few relationships between the data to make my decisions. The rest was surplus with no added value. This leader also said, “While developing associations using a different solution, I discovered that many aspects of my reporting were incorrect, sometimes significantly so. And that led to wrong decisions.
Mortgages are complex, and many executives have found that accessing and mining data directly instead of using an interpreter or analyst produces better and faster results. The analyst will never have the domain knowledge of the executive. And so, the analysis often has missing associations and nuances that an executive knows intuitively. Most analysts will do their best to provide exactly what the executive requested, but the analyst may simply not know how to take it to the next level and seek additional information. To have visibility into what is really happening and make quick proactive decisions in these times of rapid change, it is imperative to have direct access to real-time data.
HW: How do Teraverde’s data solutions help lenders improve their lending processes?
CM: Teraverde combined the team’s mortgage knowledge with a proprietary user interface and powerful associative data engine to deliver unparalleled insights. Teraverde’s data solution focuses on how to solve the challenges lenders face today and find the root cause of problems. Coheus acts as a North Star to help an executive direct lender data to the executive’s domain knowledge. One executive described Coheus as a “beacon” for 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 awareness into Coheus so that when an executive sees the visual presentation of related data, they instinctively know what to do. The Coheus playbook and the North Start technology make the executive’s ideas jump. Rather than being buried in reports and noise, the executive can quickly make the decisions that make a business successful.
In short, Coheus is a different solution that makes it easier for executives and managers to access and explore data on their own. The executive knows that their own company is the best person to tell the story of the data, who will ask the right questions and explore the data to find answers. Our knowledge of the business domain, integrated directly into Coheus, is what makes it unique.