Centralized or Decentralized Lending? Part 2

Myth #2- Our sales team needs access to the fulfillment team to better manage their pipelines.

Believe it or not, I still hear this statement from Managers—typically within tier-2 lenders that either have not made the mental jump to "bigger and better" as far growing and improving the business or who are operating from an "if it ain't broke, don't fix it" perspective. Having come up through the ranks from sales through middle-management, I understand the argument. I disagree with it, but I get it. Managers at the mid-level are looking to keep ahead of their daily fires and keep complaints to a minimum—not to rock the boat by changing the fulfillment environment. Unfortunately, the first place executives present ideas, such as centralization, is to their middle-managers for "buy-in," which doesn't happen. Again, "if it ain't broke, don't fix it." In attempting to keep the sales force content and help push the pipeline, managers push to maintain (read "control") localized processing and even underwriting. While this approach may seem to work in a smaller environment, in actuality, it is extremely inefficient and becomes more evident as the company grows.

 

Why? When a sales and operations team are placed together, a blending occurs that causes everyone to lose focus on their core responsibility. Sales spends time in processing and underwriting trying to push loans through. Processing stops working on multiple files to focus on the one file attached to the "squeaky wheel." Underwriting stops analyzing loans to spend 10 to 15 minutes discussing a loan that was declined with an originator. Multiply that by four loans and one underwriter has lost an hour of productivity each day. Centralization combined with the right workflow and communication process can maximize efficiency and eliminate the sacrifice of communication to the sales team. As a company, centralizing enables you to properly load-balance fulfillment volumes across multiple sales centers and also to standardize the processes across your lending footprint, which further improves efficiency and reduces errors.

(to be continued)

Centralized or Decentralized Lending?

Happy New Year and welcome to 2010! It has been a couple of months since my last post and thank you to the numerous emails and phone calls from readers giving me a hard time, excuse me, "holding me accountable" to keep up the blog. My last entry was fresh from the MBA conference and I mentioned that I felt as though the industry as a whole was beginning to thaw; I was correct. November and December turned out to be surprisingly busy months with my company and our lender clients even though the year was wrapping up; but I am rambling, so on with the show…

During my discussions with several lenders over the last few months, I noticed that there is a shift towards reinventing the lending process to improve service to the customer, implement better controls and the ever present mantra of cost per loan reduction. One question that I was asked was my preference on a centralized or decentralized environment. I answered "yes". This argument is not new and both camps (sales and operations) are pretty entrenched on their opinion. In my career in lending, I came up through the sales ranks and then due to my attention to detail and process design abilities, migrated to the operations side of the house. This background gives me a unique perspective to truly see both sides of the discussion. I am going to spend the next few of blog entries discussing some of the myths around the discussion and a few of the potential benefits from my suggested solution.

Myth #1- We need an onsite team presence because they are better equipped for the "local" market. I am sure most strategic managers have heard this argument in the past. In my opinion, this is a partial myth. As borrowers grow more comfortable with online applications, banks can spread their lending footprint without the traditional brick and mortar that was needed ten years ago. This approach does have its limitations however. To truly "develop business" in an area (note that I didn't say "take applications"), a lender should have a local presence to "win the hearts and minds" of the local customer base and to be a part of the community. However, this onsite requirement is only applicable to the sales cycle of the lending process. A local operations team is not needed. Through today's automated technology and access to information, a specific local market is now accessible from any location around the globe. This takes us back to my earlier answer of "yes" with respect to my preference between centralized and decentralized lending environments; the ideal scenario for a lender would have a local sales presence in a decentralized format (call center originations work but again we are discussing business development not simply taking applications) and a centralized back office operations teams.

(to be continued)