A Lean Banking Case Study in Mortgage Operations Transformation

The Lab Consulting

If you’re seeking to achieve lean management and operations transformation in banking in 2021, some of the biggest process improvement opportunities can be hiding in plain sight. That’s what happened in this real-world case study.

The bank in question enjoys a powerful presence in the southern U.S. The areas of concern were their mortgage servicing operations and default management. While this bank services more than 2 million mortgages across 48 states, they sought to employ lean principles to rapidly improve mortgage operational efficiency and manage growth, especially in the southeast—their largest market.

Enter The Lab. We were called in by a senior management team at the bank, spearheaded by their Director of Mortgage Servicing Operations, as well as their CEO of Mortgages and Bank COO. The assignment they handed us was sizable. It spanned 3,000 employees. It sought simultaneous process improvement, organization redesign, and productivity gains to achieve an aggressive cost-cutting target via lean mortgage transformation. Among the areas in the spotlight were:

  • Mortgage servicing operations, including post-closing/MERS, loan administration, cashiering, and reporting to both investors and credit bureaus.
  • Mortgage default management, including collections, loss mitigation, pre-foreclosure and foreclosure procedures, and bankruptcy and REO.

In just six weeks, The Lab used its lean banking improvement templates to identify more than 300 activity-level mortgage transformation improvements—none of which required new technology! This analysis phase of our work revealed five key insights for areas where lean principles were to be implemented:

  1. 1. Lean banking implementation requires connected mortgage operations processes

In its efforts to respond to market and regulatory requirements, this bank had developed an ad-hoc, highly-manual, uncoordinated response to risk issues and backlogs. The resulting disconnect and redundancies were painful. Working with the bank, we identified more than 1,400 costly, activity-level sub-routines: hand-offs, revalidations, corrections, and reviews. And guess what? Many of these either overlapped other areas, or were simply unnecessary. After lean transformation and process standardization, 70 percent of this effort was eliminated or preempted.

Learn more about standardization in this short video:

Find out more about standardization, including definition, limits, and examples in this detailed article: CLICK HERE

  1. 2. Lean principles in banking: Prudent measurement can clarify results

In hindsight, what this bank took for granted seems incredible: each month, senior management would spend an entire day reviewing more than 6,000 metrics. Talk about information overload. And most of these were presented in mind-numbing, complex, arcanely-labeled spreadsheets.

Not only did this glut of data waste their time; it also obscured key trends. And despite the massive number of mortgage operations metrics, many key metrics of productivity were either buried in the minutiae, used inconsistently, or not at all. Thus the team was unable to see which areas were actually efficient.

  1. 3. Quality management: A prerequisite for lean banking transformation and mortgage operational efficiency

Most teams were unaware of the costly error rates that permeated their operations. But they should have been. That’s because these sometimes reached an appalling 40 percent. What’s worse, most of these errors were only uncovered after they were reviewed by downstream groups, outside of mortgage operations. And talk about redundancy: Compliance and accuracy were monitored by not one, but five different compliance and risk groups—in addition to investor and internal-department reviews, as well as those pesky downstream groups.

If you’re looking to create a lean banking enterprise, this wasn’t the way to do it. Hopefully, seeing where this bank made its missteps can help you with your own efforts in streamlining mortgage operations.

  1. 4. Lean banking management requires accurate capacity planning

This bank had created productivity measurements tools to plan capacity for each area within the organization. That’s the good news. The bad news is that almost none of the areas used them. Maybe that wasn’t as bad as it seems, because the process models were outdated, relying on incorrect assumptions.

We helped the client install accurate banking capacity planning models based on The Lab’s Activity Cube. In some areas, the new models revealed individual employee productivity variance of 7x. It was a sobering revelation for management. And The Lab helped make certain that it was reduced to less than 1x within two months.

  1. 5. Lean banking transformation demands effective management routines

In order to truly achieve lean banking principles in banking, management must be focused and efficient. Unfortunately, that’s not what The Lab discovered here. Instead of actually running the business, managers spent more than half of their time preparing for meetings, sitting in meetings, or “fighting fires.” In other words, their “management routines” were routinely unproductive and needed process streamlining.

The managers were also poorly-armed to perform productive management routines. They lacked concise and useful reports. No data existed to manage individual employee performance and productivity. This made it impossible to quantify and identify best practices. Not surprisingly, they conducted no staff-management events to identify training issues or increase productivity.

Click here to find out more about how bank managers can use business intelligence tools to make use of their data and manage tasks & employees in real time!

A lean and happy ending after mortgage process improvement implementation

After our initial Analysis and Design Phase, The Lab led an organization-wide lean banking transformation effort encompassing business process improvement, implementation of lean work standards, and management reporting improvement. The end results were stunning:

  • Service levels reached top quartile, competitive levels.
  • Error rates dropped by half.
  • Operating cost plunged more than 20 percent.
  • Annual operating savings reached $25 million.

By the way, the entire engagement self-funded in just five months. And by month 12, payback on the investment in The Lab reached a factor of 7.5x.

If you’re looking to apply lean methodology in banking or mortgage operations in 2021, look no further than The Lab. We’ve helped scores of banks with lean operations and lean implementation plans, all without any new technology. Learn more about our unique self-funding engagement model, and irresistible money-back guarantee, right here.

For 2021: We have updated our bank client offering. Much of these findings and implementation results can be reviewed in the 3-part-series of “Big Rocks for Banks” below. Find out how to strategically lower costs, increase operating leverage, improve customer experience, and automate what previously wasn’t automatable in your bank.

Find them all here:





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