Operate a mortgage company like a factory

The current financial services industry crisis is attributed in large part to the mortgage industry debacle. The mortgage industry initially saw a rise in home values and therefore a rise in mortgage originations. This occurred during a period that witnessed a decline in short-term interest rates and a decline in inflation rates. Many households, including those previously lacking access to credit, found they could borrow money to finance homes. To meet the growing demand, mortgage companies developed creative loan products and were lax in their application of the underwriting guidelines. When mortgage rates, especially those with the creative products, adjusted upward, home values fell and foreclosures increased. Originators, eager to maintain their origination volumes, became even more lax with their underwriting guidelines. With a dwindling customer base of borrowers and a risk-averse environment, the market declined to the point where too few buyers were chasing too few bad products (goods). From an economic perspective, the mortgage industry can be characterized as market disequilibrium. In the current market environment, borrowers have less disposable income, investors are risk averse, and regulatory bodies are devising more policies that will lead to higher operating costs for the industry. It is imperative for mortgage companies to insulate themselves from market vicissitudes and identify innovative processes and cost efficiencies that will lead to a sustained growth pattern during cyclical market expansion and contraction periods. This paper applies the concepts from the manufacturing industry to transform and derive new cost efficiency innovations for the mortgage industry to operate more like a ‘factory.’