Addressing the Impact of Process Risk in Commercial Mortgage

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BLOG VIEW: Commercial mortgage lending represents a more than $2 trillion industry in the U.S. – and as the economy continues to improve, entrepreneurs and developers are expected to continue to invest in commercial real estate.

While this creates opportunity for commercial mortgage lenders to grow their loan portfolios, many are finding that their loan origination and processing departments are due for an overhaul.

Traditional lending processes tend to be convoluted, paper intensive and prone to human error, which is not conducive to growth. Today, the influx of new CRE applications – paired with increased market competition from non-traditional lenders, fintechs and other financial institutions – is putting a strain on mortgage lenders from both an operational and process risk standpoint. If left unaddressed, this process risk can lead to a material loss in revenue due to inefficiency and inaccuracy.

The Consequences of Unaddressed Process Risk

Because commercial mortgage loans require increased levels of documentation to remain compliant, this often triggers inefficient loan origination processes that require multiple, redundant steps, creating opportunities for incorrect data to be entered.

Pair this with the increased number of CRE loan applications that the market is currently seeing and it fosters an environment conducive to fraud through doctored accounting statements, tax documents, personal guarantee financial summaries and other elements.

Taking a concerted approach to automating traditional paper-based processes from the submission standpoint and then incorporating paperless processing capabilities from front-office through back-office, represents a meaningful first step to solving the process risk problem.

In simplest terms, this functionality helps lenders standardize processes to better manage operational risks.

Developing a process-driven workflow that is in line with a lender’s unique business rules eliminates inconsistencies and and increases staff efficiency.

Further efficiencies can be gained through the implementation of a borrower-lender portal that enables convenient, direct access to in-process documentation of loan status.

Adoption of a more automated approach also enables actionable management insight of the entire loan portfolio, including broader, aggregated views of multiple portfolios across a lender’s single branch, network of branches, or an entire region.

Based on this information, managers can better monitor loan compliance and performance; see comparative data between financial centers; track employee performance across the organization; and ensure adherence to credit policies by systematically enforcing them and monitoring scheduled renewals and reviews.

By leveraging automation lenders can eliminate the need to manually “touch twice” with regard to documentation collection and data integrity, thus helping to improve revenue streams and reduce overhead.

In addition, developing a more borrower-focused methodology allows personnel to direct their time and attention toward the key areas of credit analysis and deal processing, ultimately supporting a better competitive position in the market.

When done correctly, it brings together the best of an institution’s technology and human capital to grow a stronger commercial mortgage portfolio.

Steve Nippak is vice president of business development for ARGO Data Resource Corp.

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