Business process and system management

Business Process and System Management

Vincent

Home loan in the United States is now done in a very simple manner and some organizations now even have stated on the Internet that most of the paperwork can be done on the Internet.

The importance of paperwork is gradually giving way to communication via the Internet, and any organization which keeps on doing business in the classical way is bound to come to grief later.

First national Bank of St. Louis was seen in the Internet, but that bank did not seem to have the archaic system that has been described here. The housing loans in United States are of two types. The first type is the mortgage loan that is used for the original part of buying the house. The second loan is for the repayment of loans concerned with housing or for any other purpose. This is subsidized by the Federal Reserve. In turn there are 14 designated banks which operate these loans from the reserve into different states. These banks in turn have banks which give the housing loans to the customers. The banks which give loans to the customers are supported by the banks designated by the banks which are appointed by the reserve for the state.

One of the banks which do the refinancing for housing loans is Third Federal. The bank was established in 1938. It prides itself on being an equal opportunities lender operating in the states of Ohio, Kentucky and Florida. The bank specifically mentions that it has the main objective of helping people to achieve their aim of home ownership and financial security. The loan itself is called by them as a home equity product. The calculation of the possible loan is relatively simple. The first factor to be considered is the value of the house and the balance of the loan. Let us say that the value of the house is $200,000 and the balance of the mortgage balance on it is $60,000 then the equity held by the owner in the house would be $140,000. This is the value used for any refinancing exercise. (Partnering with Third Federal)

This equity can be used by the owner for the purpose of short-term goals like getting a new kitchen done, buying a new car, etc. It may also be used for paying off other debts that have been incurred at high rates of interest as this type of loan has low rates of interest, sometimes allows interest only payments and permits the deduction of the interest from the tax that is payable. Another use of this is payment for the education of the children in college. This has doubled from he costs in 1980s. There are different types of loans that are available in this area and it is important to read the detailed conditions. The failure to repay the interest or loan in time could lead to a situation where the house could be lost by the owner. In the area of this refinance, there are two types of loans that are available - home equity lines of credit and home equity loans. (Partnering with Third Federal) They type of loans that are being referred to in the case of First National Bank here are the home equity loans.

One of the main advantages of this loan is that the interest which is paid for availing the loan can be deducting from the tax payments. The details of the effect can be advised by tax consultants for the person. Normally these loans are not used for day-to-day expenses. It is possible to have two different loans based on the house - one being the original mortgage at the time of purchase of the house and the second on the equity loan taken on the house. These loans do not have to be with the same lender. These loans operate like an auto loan using the total home equity as collateral. The bank gives the money at one time and the interest is charged on the full amount from the date of receipt till the complete repayment of the debt. The term of the loan is variable, but is for a maximum of 15 years or 180 installments. The loan is limited to between 80 and 85% of the home equity which has been described earlier. Other institutions permit even higher loans up to 100% of the home equity, but at a higher rate of interest. A few lenders provide even loans of more than 100% and up to 125% of the appraised value of the house. The costs of this loan will be even higher. The interest on loans above the 100% of the appraised value is not tax deductible. (Partnering with Third Federal)

The calculation of the interest is complex and requires the use of financial calculators. At a rough rate, it can be said that every $10,000 of home equity loan, for 15 years at 8.00% rate of interest will have a monthly charge of $95.58 per month. If the loan is repaid in 10 years the payment will be higher at $121.33. These loans are often used for the purpose of improvement of the home, in which case the value of the house goes up. The average spending per year by an American on his home for improvement is $3,796. The costs associated with starting a home equity account are for the credit bureau report for the individual, the appraisal for the valuation of the house, the determination of the title, the evaluation of the likelihood of flood damage, the mortgage filing and mortgage and other taxes. These are often paid by the financial institution on behalf of the client. Then these will be considered when the loan is sanctioned. If a fee for this is charged, then that also has to be considered. Some institutions also charge a fee for holding and maintaining the home loan account. This is normally from $25 to $100. When the loan is closed in advance of the scheduled period, a fee is charged from $150 to $350. If the credit rating of the client is not good, then extra charges may be made. There are also charges for late payment which is normally around 5% of the payment amount. (Partnering with Third Federal)

The operation of the First National Bank that is in our example is almost similar to the operation of The Third Federal as has been discussed above. In the case of First National at St. Louis, they require only a form to be filled in first, and that can be done on the Internet. Here the potential customer is asked to just fill up a simple form with the following details purpose of the loan, the state in which the loan is required, the city in which the property exists, the county, the amount of loan required, value of the home and the assumptions that have been made for the calculation of al the details. In St. Louis, they have patented this technology and hey say that this is all the information they require. The first step in the case of First National as referred to here require a form to be filled up before the loan agent etc. during a personal visit. Can this not be simplified by sending the form in a printed form if not on the Internet?

This would remove one of the complaints about personal visits to some extent. The information given in this can be stored in a physical or computer file by our First National if they are still averse to computers. The use of computers will simplify the procedure by taking off the application from the Internet, and reduce the necessity of employing people to store all these details in physical files, typing them out etc. It will also save a lot of time. Once this form is received, it may be checked prima facie for the contents. If more details are required, the potential customer may be sent a letter asking him for the same. He can reply to it at his leisure. Then the satisfaction of the first executive of the company can be achieved. If any further authorizations from the client are required, the necessary forms can be sent to him for him to sign and return. By communicating through the computer or letters, the exchange of information can be done at a much less stressful level, and personal visits can be avoided. The use of computers can make the entire process much cheaper also.

Then the entire file, physical or computer can be sent to the processor. Most of the details have already been done for him He has to get the confirmations of the details from the outside agencies. This is an investment from the bank on the customer, and is normally paid for by the bank. Thus there is no problem in proceeding on the same. The problems only come when the client is found to have made false statements. In this case, he should be taken off from the main stream of clients with good credit rating. The client's with bad credit rating will be charged a different rate of interest and have to be looked at more carefully. Some experts among the credit appraisers may be designated for this purpose. This will speed up the processing of the client's with good rating and also not lead to complaints for delays from them. For the client's with bad credit rating, there are likely to be difficulties in terms of servicing, and they will not be able to jump from bank to bank, as all the banks will not be extending loans to them. At present all the clients are together, and this is the problem as we are not really able to find out the reasons for delay. The shifting of clients with bad credit histories can be done at any time, but has to be done to protect the interests of the bank.

When questions about truthfulness come in, the questions have to be sorted out before the progress of the application further. This may be sorted out directly by the appraiser instead of the application going back and forth to the credit person. This would help the customer to clearly know what the bank is talking about and would also let the appraiser know the position of the client. It is better that the matter is sorted out directly. If the dealing has been done through the computer in some cases it may be sorted out through an e-mail if it is possible that the matter is a case of misunderstanding. If it is not possible to use e-mail, then a letter has to be sent asking for the answer and one has to wait for the reply. It is also possible to tell the client at this stage that his application has been held up because of this discrepancy, and will get delayed. If it is confirmed that there are some shortcomings from the client's side, then the interest rate will definitely rise. This also can be directly informed to the client - again through letters or e-mail. After the sorting out by the appraiser, the file can be sent to the credit section with due approval and fixation of interest rates. The approval and the interest rates have now been sent to the client, and the copy received by the client service person. In the case of booth computers and physical letters this is a relatively simple process.

Then the client has to come and sign the necessary papers. The next question is of dealing with the client's attorney. This is a process which is only leading to delays. The necessary inspections and certifications can be obtained at the same time as the other matters have been dealt with by the appraiser. The costs if they are to be recovered from the client can be done, and the attorney can be asked to do it if it has to be done by him. The client has to be ready to pay some processing fees if he wants to get the loan. If this process is left to be done later, then it can only lead to avoidable delays. This section should be definitely shortened in procedure. Other methods are also possible and this can be reviewed by the management in the operations side. The fees, payoff amounts and payment schedules can also be reviewed directly by the approval authorities with the client's attorney and the other people involved. In certain cases, the bank also will have its own policies and these have to be observed strictly for the grant of the loan.

In the normal practice of business, the client service people are judge on the basis of the business they can collect for the bank and the approval section individuals will be evaluated based on the success in terms of the return on investment they have earned for the company. Any procedure which involves a lot of discussion between these two groups will lead to delays, as the two individuals involved will be working with different objectives. One will try to ensure that the loan is guaranteed and the other will try to ensure that the returns from the loan are adequate. To solve these conflicts, the bank should fix the interest rates that it will charge its clients. If the principles are fixed, then these can even be printed out and given to the different people who are involved to reduce the conflicts. In the case of computerized information, the necessary files can be updated regularly and as and when required.

The other details of working that are given are essentially operational details and should be handled by a bank easily. The repayment of the previous loan can be directly related to the approval of the new loan and the receipt of the signed documents from the client. This is easily related to the issue of the loan to the client. As a practice, the two checks to the client and his previous creditor can be made simultaneously. The total amount to be paid will be related to the loan sanctioned, and that will also be related to the installments charged. This makes it fairly easy to cross check. When a file is kept for the client, the physical or the computer file can be referred to for determining the correctness of the figures.

This is again showing up the necessity of maintaining the file. In the physical form, the movement of the file will lead to security questions and delays. That is the reason why a computer file will be preferred. Even the full file need not be moved around, but only the required essentials can be moved in a document. Nowadays it is fairly easy to design secure documents which can be viewed by a lot of people, but the entries in the document can be made only by certain selected people with codes that are known only to them. This sort of a method can be thought of. If it has to be a physical document, then the signatures of the executives will take the place of certification and the storage of Xerox copies will have to take the place of records at the different levels. The bank certainly has a department for systems and they can be given the responsibility of setting up a suitable system. Anyway, the present system is not suited to speeding up the operations and suitable systems have to be adopted.

It is clearly seen that the re-engineered system cannot meet the demands on the system put by the clients. Having an excess of buyers is thought to be the dream of all marketing persons, and the bank is getting it without much effort. This is certainly a good reflection on the marketing capabilities of the organization. The failure of the systems department is in preparing a system to convert this potential demand into sales and the resultant profits. This is also reflected in the questions that are being raised by the comments received. The first complaint was from an existing customer regarding he two months extra delay that he had to face. This is almost unpardonable as most of the related information for him was already with the company. The sanctioning of the additional loan was only a question of updating the existing information. This also should have happened almost automatically except for the revaluation of the property and the certification from a possible other bank which was holding the original mortgage on the property. Both these activities are fairly easy to obtain. His credit history and other relevant data are already with the bank.