Hilltop’s primary services in this area are as follows:
Performance Analysis (PerforMetrics©)
Operating your company at the highest level of efficiency and effectiveness will reduce costs, enhance the customer’s experience and provide employees with more satisfaction – all equating to being more competitive. Hilltop understands the importance of efficiency and its various benefits which is why we have developed a sophisticated tool, PerforMetrics© that assesses our Client’s operating and financial metrics and provides the insight as to where our Client should begin to change/improve its business.
Our competitive differentiators in this area are –
- We have the leading benchmarking consultant in the industry who designed KPMG’s MorPro and MorServ (that date back to the early 1980s and has continued to specialize in this area since then). Our founder, Jeff Oliver has done this for 40 years – he understands the industry and the operational/ financial metrics that should be focused upon. Jeff and the benchmarking team have been using and improving PerforMetrics© to become a powerful tool to improve the business process and reduce costs (especially the cost of regulatory compliance).
- While process improvement methodology (i.e. re-engineering) is not unique to any one consulting firm (often similar between firms), our BPI/BPR teams are powered by very senior, highly experienced industry veterans. They have “been there and done that” first hand.
Hilltop’s Performance Analysis and Process Improvement consultants use the following basic steps to achieve enhanced efficiency and reduced costs for our clients. The steps are as follows:
- identify the Client’s weaknesses and/or opportunities to be a leading performer by having our highly experienced process improvement (BPI) consultants perform an in-depth assessment as follows:
- inquiry of Management and line operations personnel as to their perspectives and recommendations,
- observations of the organization’s structure, communications, actions and specific accomplishments,
- performing a comprehensive analysis of the Company’s policies,
- analyzing and testing processes to determine purpose and effectiveness,
- identifying the controls and analyzing their effectiveness (is there duplication, too much risk management, “overkill” in executing, monitoring and retesting controls,
- assessing technology organization, communications between the business and tech teams, applications and versions being used,
- assessing use of any workflow analyses and technology to automate the processes,
- discussing opportunities to enhance technology with the client’s vendors,
- assessing the use of Business Intelligence and Data Management.
- measure the operating metrics (PerforMetrics©),
- measure the costs and revenues for the business (PerforMetrics©),
- calculate the cost of regulatory compliance and address whether compliance can be achieved with less effort and people (more technology and exception reporting),
- prioritize the Client’s opportunities for improved efficiency and lower costs (target areas),
- assess the Client’s willingness and ability to “make changes”,
- propose the scope of Hilltop’s BPI program,
- identify the “future state” for each prioritized target area that is in scope,
- identify the operating and financial metrics that should be possible if the future state is achieved,
- identify the “gaps” between the “future state and current state”,
- plan for the changes and solutions needed to eliminate the “gaps”,
- execute the BPI implementation,
- reperform the PerforMetrics© analysis to determine if the target metrics have been achieved and begin the next set of target area analysis and BPI efforts.
PerforMetrics© is Hilltop’s tool to identify the operating metrics, financial metrics including key profit drivers and the Client’s dependencies in achieving such. The metrics can be used to identify specific business units, products, delivery channels, operational areas, customer relationships, technology applications, etc. that need change as they do not meet leading performer levels of performance.
PerforMetrics© can also be used to analyze more detailed aspects of our Client’s business. An example may include where Hilltop analyzed the cost of servicing a non-performing loan, the amount of escrow and foreclosure advances that are typical, the recovery rate of such advances in insurance or investor claims, identifying the overall claims recovery rate, the cost of REO management, the loss per loan for various resolutions (foreclosures, deed in lieu, short sales, rate and term modification, principal reduction or any other forbearance structure). Another example is using the tool to analyze detailed aspects of the loan origination business.
PerforMetrics© primary difference from other benchmarking tools is that it captures operating metrics and analyzes such to identify the correlation to the cost and other financial metrics. So, if we know that the costs are for a given function are equal or lower than average and we also assess the direct operating metrics that affect that business function, we can determine what operational processes need to change in order to reduce costs and be more competitive. For example, in the default servicing area, we can assessed the efficiency measured by cases handled per default servicing FTE, the timeline to complete each type of default resolution, number of calls made, number of physical visits (common on large commercial or multifamily loans), number of “cures” i.e. the success of reinstatement, the number of actions completed on time (within regulatory requirements), the success rate of modification, the number of attempts made with the borrower to modify, etc. If the operating metrics are better than average, PerforMetrics© can project what range the company’s cost of default servicing should be.
PerforMetrics© also helps our clients with answering these types of questions:
- Market share and volume strategies – will increasing volume improve profitability?
- Customer strategy – are your biggest customers profitable? Which customers are profitable relationships? Is it profitable to have a national or regional customer base? Cross sale penetration?
- Distribution strategy – retail, on-line, purchase business – what makes the most sense for your company given its current performance?
- Operational platform strategy – operating structure design, centralized –v- decentralized, geographic location, etc.
- Technology strategy – are current technologies effective? Have they been maximized? Are there new technology investments that are needed and what is the priority?
- Growth strategy – organic or acquisition? Which way is best? Does an acquisition help or hurt the company’s performance?
- Pricing strategy – are products and services being priced to market or to make money?
- Disposition or down-sizing strategy – informing you of the who, what, where and how should your company execute such strategy
Based on our PerforMetrics© and BPI assessments, Hilltop has identified automating process workflows will increase efficiency, lower costs, decrease the impact of market changes in business volume and it enables a “triaging capability” (or prioritization of what needs to be done first).
Simply put, PerforMetrics© and our BPI efforts have helped our clients to do the following:
- increase profitability through cost reductions or cost avoidance (reduce need for cost increases when volume increases significantly),
- eliminate unnecessary “hand-offs”,
- streamline existing processes,
- reduce the number of times any person in the process “touches the loan”,
- increase flexibility of processes to handle new business & products,
- eliminate reports that do not help manage the business and reduce the size of such reports,
- eliminate controls processes that do not enhance compliance i.e. reducing the “check the checker” syndrome,
- reduce Management and overhead costs,
- eliminate “buying the newest technology” while at the same time ensuring that the Company uses the right technology version and “add-ons”.
Hilltop’s BPI consulting can also be utilized to enhance the ongoing client monitoring of its business and identifying when/how/what changes need to be made. Our clients learn from the PerforMetrics© and BPI methodology to also address operational challenges such as operating or process backlogs, customer service problems, merging operations, changing from decentralized to centralized processing to closing, implementing new technology, etc.
The Hilltop Companies’ business process analyses are intended typically to achieve a target state different from your current operations. The objectives of achieving the target state can include, but not be limited to:
- Improve competitive position in the market with lower cost delivery,
- Ability to attract more customers with lower priced services,
- Enhanced controls in one or more of the operating units,
- Improved operating efficiency,
- Eliminate unnecessary processes and “hand-offs”
- Accommodate reductions in force,
- Improve customer service and response times,
- Responsiveness to market movements,
- Ability to automate processes through workflow automation
- Position the company for forthcoming market change and increase flexibility of processes to handle new business & products
- Eliminate reports that do not help manage the business
- Eliminate “checking the checker” processes
- Assess management and overhead cost structure
- Other reasons that generally improve the company’s operations and profit margins.
As part of our business process analyses, we also will often assess people and technology. In our experience, most companies have core capabilities but also have areas of operations that either need significant change and investment or be considered as a candidate for outsourcing such functions. We can assist in the methodology to identify your company’s strengths and weaknesses and determine what the solution alternatives are in the short and long term. We are often drawn into the vendor selection processes if outsourcing or new technology is being considered.
Loan Origination Consulting Services
Hilltop’s industry focus on financial services allows us to attract experienced consultants and industry participants in the lending business. Our credit and lending process teams are integrated to be able to provide our clients with operational, financial, technology applications and control perspectives. The following is a summary of some of our Credit/Loan and Lending process services:
- critiquing the credit policies and lending processes that support such,
- assessing loan origination process for all loan types including commercial/industrial, commercial/real estate, multifamily, residential, consumer, credit cards, leases or any other loan types,
- loan origination – loan officer responsibilities, processes used and compensation policies,
- loan processor responsibilities and processes used,
- loan underwriter responsibilities, processes, use of automated underwriting technology,
- performing loan reviews (credit worthiness, documentation, examiner preparation, etc.) for Commercial, SBA, CRE, Multifamily, Residential, Consumer and other credit types,
- assessing the completeness and accuracy of underwriting to determine whether credit policy and investor compliance (for Rep & Warranty purposes) were met,
- loan closing responsibilities and processes used,
- loan post-closing and investor delivery responsibilities and processes used,
- performing loan portfolio analytics and credit risk assessments for the overall loan portfolio and specific loan types to identify credit and other risks,
- identifying backlogs or process “hold ups” and quantifying impact of such,
- calculating and assessing the operational performance of the loan production area (operational and financial metrics) to enhance efficiency, increase transaction/process speeds, customer satisfaction, eliminating process duplication, increasing automation and use of eMortgages, more effective use of technology, etc.,
- assessing the use of the Loan Origination System and any workflow applications to identify inefficiencies, outdated technology, high levels of control risks, PII compliance, cyber security issues, etc.,
- calculating the cost of Regulation for originating a loan,
- identifying ways to increase profitability in specific areas, and
- making specific lending process improvements that were identified by PerforMetrics©.
Our consultants don’t need training on how a loan is originated and we work every day on identifying new leading practices that may be effective for our clients.
Secondary Marketing & Loan Sale Consulting Services
Hilltop has both performed consulting services for Secondary Marketing and “sat in the seat” of a Secondary Marketing employee for some of the largest companies in the mortgage business. A summary of the services that have been performed include:
- Policy analysis to sync such to Management’s or the Parent company’s risk appetite,
- Inquiries to determine whether the people understand the policies,
- Process analyses to determine if the procedures adhere to the policies,
- Assess whether the policies and procedures comply with regulatory (where applicable) and investor requirements for selling loans,
- Test the loans delivered to investors for compliance with their respective requirements,
- Assess the pipeline reporting capabilities including the accuracy and completeness of the information,
- Assess the gains/losses that have occurred and determine if the amounts could have changed if certain actions were taken,
- Assess the need and execution of hedges against “lock risks”,
- Determine the appropriate accounting for the hedges, locks and repurchase/indemnification risks,
- Assess delivery times, investor payments, rejected delivery submissions or changes made or additional investor requirements as a result of shipping issues,
- Assessed the pricing process and the ability for loan officers to set their own prices and risk inconsistencies/HMDA/Fair Lending issues,
- Any other risk related issue that Secondary Marketing has dealt with.
Hilltop knows the risks, has seen many scenarios of how to mitigate such risks and has helped many of our clients streamline the processes while increasing market efficiency.
MBS, CMBS, ABS Securitization Consulting Services
Our senior team members have been involved in the asset backed and mortgage backed securitization business over the past 30+ years. We have worked with issuers, securities dealers, trustees, servicers (regular, special, and master servicers), investors, guarantors, etc. We understand this highly complex business, its risks, its operational issues, and the accounting for such. We can assist your company if you are involved in or need help with any of the following activities:
- Design, implement and/or test the policies, procedures, technology, people skills required for securitization and/or delivery to various investors (i.e. Fannie and Freddie both have their own seller/servicer guides or the large banks have their compliance requirements),
- Help with understanding and planning the issuance of Ginnie Mae MBS (Ginnie Mae has compliance requirements for an issuer and servicer),
- Review of the Offering document to assess accuracy and completeness of disclosures,
- Understanding the additional elements of compliance for issuers,
- Perform deal due diligence on the underlying assets, the data validation, determining or validating the disclosures, etc.,
- Perform deal cash flow modeling (financial engineering of the “waterfall” for each tranche of the securitization transaction), identifying assumptions, assess and compare results to the issuer, Trustee and/or guarantor (involves comparing/contrasting to other third party models),
- Assessing compliance with the Pooling & Servicing Agreement (PSA),
- Assessing compliance with the Trust and other legal documents used in the transaction,
- Perform an “indication of value” for loans, asset or mortgage backed securities (residual and/or individual securitization tranches), financial instruments,
- Identify and remediate any asset servicing issues – with any of the servicing functions – regular servicer, special servicer, master servicer,
- Perform servicer compliance reviews (for PSA, investors, Trustee and regulatory requirements)
- Perform Document Custodian compliance reviews,
- Perform Reg AB compliance review,
- Assess Reg AB disclosures and loan level information,
- Perform special issuer reviews on behalf of investors, guarantors, insurers,
- Recalculate Special Servicer Incentive Compensation, where applicable,
- Calculate quarterly or semi-annual Trustee payments,
- Perform review of Trustee’s function,
- Perform stress testing of deal – assumptions, cashflows, potential losses of value for various tranches,
- Perform other specific document, data, process or functional assessments related to a securitization transaction.
Our senior management expects that the future of the securitization market will see new expanded demands upon both issuers and servicers, notwithstanding the Trustees, to provide more loan level data, more risk analysis, portfolio performance updates and overall risk ratings of the quality of the underlying assets. Our senior team understands the impact on issuers, servicers, dealers, rating agencies, trustees, etc. and can assist with these challenges when they arise.
Loan Servicing Consulting Services
The loan servicing business can be quite complex given the different types of loans that are serviced, the loans’ payment performance, customer interaction (SPOC abilities), technology deployed, and the regulatory compliance requirements. Further, assets that have been securitized often have a set of Security requirements contained in the Pooling and Servicing Agreement (PSA). The PSA can also be very complex given requirements for special servicers to be involved, “trigger events” to be identified and monitored, and monitoring/reporting of the Security’s financial performance. Issues that arise for loan servicers that Hilltop and its teams have addressed include but are not limited to the following:
- call center has issues with SPOC implementation, outbound call effectiveness, multiple calls from the same borrower (especially those not delinquent), poor dial choices and too heavy a reliance on phones versus the internet (emails and texts),
- escrow management issues with year-end reconciliation and adjustments to T&I payments, tax service or insurance outsourcers not providing what servicer needs,
- collections and early loss mitigation efforts being performed for borrowers that the borrower’s payment characteristics are consistent and do not require early intervention,
- servicing compliance functions being overstaffed, not properly trained, not sufficiently familiar with the regulatory or investor requirements,
- servicers are not keeping up with transaction volume and reconciliation of investor accounts, training is inadequate, poor default and modification reporting, etc.,
- default servicing functions not properly staffed, training is lacking, systems are not using the current capabilities of many loan servicing software firms,
- suffered negative financial impacts due to a change in the underlying types of loans being serviced such as new FHA business or addition of subprime loans,
- focus exclusively on metrics such as Loans serviced per FTE or Cost per Loan serviced has created mismatches where increasing risks were not met with increasing personnel with experience in dealing with such risks,
- believing that loan servicing has unlimited scalability has major risks,
- integrating mortgage and other consumer loan servicing together without considering the people, process, training and technology impacts,
- regulations/requirements by investor or regulator for new loans being serviced or new states that business is done in – all create new risks,
- weak compliance efforts including not building operational processes for loan modifications that specifically address CFPB and State regulations.
- asset recovery functions are weak in the following areas:
- repurchase or indemnification defense
- accounting for losses and claims made to insurers and/or investors for P&I advances, escrow advances, foreclosure advances, waived fees, etc.
- Foreclosure claim maximization
- REO asset management and sale
As noted in the above, operational efficiency and cost reduction is a major focus of our servicing expert teams. Most loan servicers do not have the breadth and depth of experienced resources who also have multiple disciplines (finance, operations, compliance, technology, fraud, etc.). But Hilltop does – we combine our servicing operations, investor knowledge, securitization, accounting and finance, and technology experience to bring integrated solutions to our loan servicing clients in each of the areas noted below:
- onboarding loans efficiently and accurately,
- identifying and monitoring the overall credit and other risks in the servicing portfolio by investor, loan type, location serviced, state, etc.,
- customer interface relative to implementing SPOC efficiently and analyzing “root causes” for the number of borrower contacts (all types),
- investor reporting and cashiering is easy to lose control given the volume of transactions and is one of the major fraud risks (not reconciling properly various clearing accounts),
- default activities especially involving all of the alternative activities to foreclosure are very challenging and high risk from a compliance perspective,
- making insurance or investor claims and/or dealing with “compensatory fees” (which are really GSE penalties on the servicer) is often a difficult area,
QC (quality control) or Compliance efforts that should monitor compliance with Company policies for servicing, investor requirements, Federal and State regulations, etc. has become a major endeavor for most servicers and the challenge today is how to maintain compliance and quality while reducing the cost of such.