Abstract
This report is about the production & organization management case study of Gold Coast Savings Bank, a refinancing organization. Statistics indicate that the number of home refinancing loan applications has increased tremendously this year, and so there is a need for the company to ensure that the loan application and processing process are efficient and effective. At the same time, such a process should also take the least amount of time. Unfortunately, there have been a lot of complaints by customers at this lending bank that their loan application process is slow, and that the bank requires the customers to fill a lot of paperwork in the loan application process.
An assessment of the current refinancing process flow is evaluated. Further, the current problems that seem to have plagued this bank are also assessed. The report then provides a redesigned refinancing process. This new process seeks to reduce cost-adding steps of the company, augment the value-adding steps of the organization’s activities, and at the same time also increase the satisfaction of customers.
Introduction
This year, the number of applicants for home refinancing has tremendously increased at Gold Coats Saving Bank. As such, the management at the lending bank is also overwhelmed by this large number of loan applicants. Currently, the bank has instituted five steps that a customer who wishes to apply for a loan has to go through. Nevertheless, this process has been faulted by many customers, on grounds, it is both slow and ends up costing clients more than they would, had they gone to another lending bank. The bank has also been accused of subjecting the customers to a lot of paperwork, instead of embracing information technology, such as calling customers to clarify, as opposed to writing.
From such a perspective, this report intends to show the discrepancies that exist in the current refinancing process at Gold Coast Saving Bank. At the same time, the report also wishes to redesign this process, to come up with a new one that shall aid in the reduction of the cost-adding steps of the current process, a reinforcement of its value-adding steps, and seeing to it that the satisfaction of the customers is increased.
Analysis of the current situation
The numbers of request by customers for home loan refinancing have increased tremendously at Gold Coast Savings Bank. In a bid to handle this rapid rise in customer requests, the bank has deemed it necessary to divide the home loan refinancing process into five separate categories. For each one of the categories, an independent department has been created to handle the affairs of such a category. The beginning of the loan refinancing process is having a customer fill in a loan application form (Schmitz 2005). Once this has been done, the loan officer receives it, and then he/she has to discuss with the customers the options that are there to facilitate loan approval.
At the same time, the loan officer is required to use the data from the customer for purposes of carrying out a quick calculation that shall determine whether or not a customer will qualify to be awarded the loan (Hayre 2001). Once the loan officer is satisfied that the numbers are workable, the customer is obliged to sign a few other papers. These are meant to enable a credit check of such a customer. In the meantime, the customer has to wait for the exercise to be completed and get the necessary feedback from the loan officer.
From here, the file to a customer is given to a loan processor. Such an officer of the bank has the authority to call for a credit check of a loan applicant. This is in addition to proof for an award for mortgage or other loans to such a customer by other financial institutions. If a loan processing officer encounters problems in such a process, a loan officer has to advise a loan processing officer on the way forward.
In case of a discrepancy between, on the one hand, items appearing on the credit report and the other hand, those to be found on the application form, the loan officer requires that the applicant of the loan explain the reason behind such a discrepancy, often in writing (Reed 2008). Once the explanation offered is accepted the explanation letter gets attached to the loan application file of a customer, and the loan processing officer shall then send it back to the loan officer, if not to the office of the loan manager.
This is meant to issue final approval. It is at this point that the loan applicant is issued a loan approval letter, with a request that he/she contact a closing officer. This is to arrange for a date to close the loan application process. In addition, this meeting is also meant to add an interest rate on the loan awarded, only if this had not been done.
The customer is then requested to give to the loan officer his/her lawyer’s name, so that he/she may forward to the bank the loan packet. Also, it is the responsibility of the lawyer to organize for the search of a title, a termite inspection, insurance procedures, and a survey, in addition to ensuring that the loan approval closing papers are in order (Gardiner 2006). At this point, both the closing officer and the lawyer have to liaise, for purposes of verifying fees, the amount for payout, and also the loan payment schedules.
The bank’s loan-serving specialist is required to see to it that if at all a customer had any pending loans, these are first offset, to facilitate a proposed setting up of the new one (Krajewski et al 2007). Following a successful closing of the lion processing, it is also the duty of the loan-payment specialist to the bank to handle the issuing payment books. In other words, it is their responsibility to establish mortgage fee automatic withdrawal, in addition to computing the actual payments that a customer shall be required to pay up., monthly. Moreover, the bank’s loan-payment specialist is also charged with the responsibility of assessing mortgage payments that are paid late.
Old process flow chart
- Customer completes a loan application
- Loan officer asks for a credit check, loan/mortgage verification, property appraisal, employment verification
- Approval
- Closing officer formalizes loan packets with customer’s lawyer
- Closing
Problems that have faced Gold Coast Savings Bank
Even with the increased volume of home loan refinancing applications, Gold Coast Savings Bank is nevertheless faced with several problems, as the complaints from its customers indicate. To start with, the bank is characterized by longer periods of loan processing, starting with a loan officer, then a loan processing officer, a closing officer, and finally, the bank’s loan-payment specialist. While it is justifiable that each one of the roles played by these officers of the bank is quite critical, nevertheless, it is possible to reduce the time taken to process a loan, by utilizing information technology (Gardiner 2006).
Another problem that appears to face the bank in terms of the loan processing process is a poor reconciliation of the various officers and the related tasks. For example, a customer has complained of a delay in making her mortgage payments while in actual fact, the bank makes an automatic withdrawal of the specified mortgage repayment amounts through a cheque payment system. Then there is also the issue of too much paperwork, as exhibited by the writings and mails that are often sent to customers. The easier option would be for the bank to make calls to the customers. It is not only cheaper but also faster and therefore, more convenient to both the bank and the customer (Lee 2002). Then there is the issue of unnecessary appraisal of customers’ property, in addition to constant rescheduling of activities.
It is during the loan application step that a lender will require to assemble “a comprehensive package of documents” (Hayre 2001) to assist him/her in assessing if a given borrower has qualified to be considered for mortgage credit. Statistics show that borrowers whose salary is based on commission, along with those that are self-employed, will usually be characterized by “a history of credit problems” (Hayre 2001). Usually, a normal process of loan approval entails carrying out a credit check background on the loan applicant. By reviewing the payment history of an applicant, the lender wishes to assess if the customer qualifies for the loan that they had applied for.
The process also facilitates the lender obtaining the customer’s credit report. Qualification for a loan is an index of a customer’s capacity to offset an awarded loan. The bank has to assess the financial assets and income of a customer, their bank statements, and tax returns as well. On the other hand, the credit report helps the lending bank to evaluate an applicant’s liabilities (James 1995; Reed 2008).
This is important, for these could, later on, stand in the way of a customer’s attempt to offset a loan. The computation of a qualifying ratio helps a lending bank to assess the amount of mortgage debt that a client makes on monthly basis, relative to income. This is important, because if a customer is already servicing another mortgage, and the qualifying ratio is already unfavorable, he/she may have problems repaying a new loan, thus defaulting.
Appraisal of property is for purposes of evaluating the worth of a customer’s loan security. An evaluation must be done periodically, to adjust for appreciation and depreciation of the assets that a customer may have provided as security to the loan. The settlement process enables the lending bank to ascertain that indeed, the customer has a claim to a property title they may have submitted to the bank as collateral, from a legal perspective (Reed 2008). It is at this time that a lending bank can complete procedures that relate to mortgage payments. Closing completion involves an offsetting of a current loan that is held by a customer, as well as disbursement of new funds.
New Process flow
- Marketing activity (by lending bank to the customer)
- Online pre/screening/prequalification of the customer by the lending bank
- Online filling of the loan application form
- the lending bank shall request for accredit report, funds verification, employment verification, request for an appraisal, order title report review, facilitate the assembly of submissions
- underwriting (lender credits the loan package, the title, and appraisal report, then review, and finally, remove the loan application)
- Customer is alerted of the loan approval (or disapproval) via e-mail and a text message.
- closing
- funding
According to porter (1996), operations technology consists of materials, process, material handling, material tools, and packaging. One way through which Gold Coast Savings Bank could eliminate or reduce its cost-adding steps in the refinancing process is by outsourcing some of the corporation’s value chain activities. Before such an activity could be outsourced, however, it is important to assess if the suppliers to whom an organization wishes to outsource the service performs these services better and in a more cost-effective manner than currently is the case. In addition, it is important to assess whether or not the activity that is being outsourced constitutes the core competencies of the firm in question.
These are the competencies that ensure that a company enjoys a differentiation of its products, or cost advantage, relative to the competitors. For example, the customer service department, in the case of Gold Coast, may be regarded as a core competency of the bank since it is in the service industry, where customer satisfaction is crucial. This report proposes that Gold Coast Savings Bank adopts an underwriting system that is automated for purposes of reviewing a loan application. This way, the underwriting decision is obtained in a matter of seconds (Davis & Heineke 2003). Such a decision shall entail all the vital requirements to enable the closing of a customer’s loan.
The automated system also facilitates the documentation of the personal information of a loan applicant with his/her property (Reed 2008). Instead of having the customer call a loan processor for scheduling a day for closing the refinancing deal, this should be the responsibility of the loan processor at the lending bank, who should also contact a title company or a lawyer regarding the same. This way, efficiency improves, and customer satisfaction may also be enhanced. It is also the submission of this report that the title work and appraisal of a customer’s property be completed within less than a week. Such work should immediately be mailed to a loan processor so that he/she may review it.
Furthermore, the loan package of a customer, upon compilation, should ideally be delivered to an underwriter electronically, as opposed to physically. This way, the review process should be hastened (Bettley et al 2005). It is important to note that underwriting is not a core activity of a firm, and so that this service may very well be outsourced by the lending bank. Outsourcing of the service may lead to a reduction in the operating costs of a firm. Furthermore, outsourcing to a competent underwriter means that they will do a good job in the shortest time possible, thereby hastening the loan approval process. Again, the transfer of the customer’s file from an underwriter to the closing officer should be automated, for purposes of reducing the time taken to process the loan.
Conclusion
The process of refinancing for a home mortgage can be tedious and costly not only to the lending bank but also to the customers. If at all the lending banks are not able to customize a process that suits the needs of their customers, then the customers will have no choice but to seek this service from other lending banks. It is from such a perspective, therefore, that this report seeks to address the refinancing process of Gold Coast Savings Bank.
By evaluating the loan refinancing procedure that the bank has adopted, what emerges is that the whole process is both tedious and time-consuming (Krajewski et al 2007). From such a perspective, this report has proposed a redesigned process that will increase the satisfaction of lending bank’s customers, while at the same time also reducing the cot-adding steps, through outsourcing of some non-core activities of the bank.
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