Overview: EasyLoan Company offers mortgages for new/existing homes. EasyLoan is a mortgage broker; thus, they do not actually provide the funds or service the loans after closing. Rather, they align customers with larger financial lending institutions (such as banks). A mortgage broker, similar to a travel agent, is affiliated with numerous lending institutions and thus offers potential customers a variety of loan program options to find the best deal. Mortgage brokers negotiate independently with large lending institutions and thus may provide a customer a better deal with a particular bank than if the customer contacted the bank directly.
The lowering of interest rates and rising debt of many consumers over the past several years have resulted in tremendous growth in the mortgage market. EasyLoan now has significantly more competitors and is trying to improve their operational efficiency and revenue.
EasyLoan generates revenue through fees for their services. Three general fee classifications are the (1) Process and Administration Fee, (2) Loan Origination Fee, and (3) Yield Spread Premium (YSP). The process and administration fee is mandatory for each loan. The loan origination fee, set by the loan officer (LO), varies for each customer based on perceived difficulty of obtaining the loan, borrower’s credit history, competition with other mortgage brokers for a particular customer, and other miscellaneous factors. The other fee category is the yield spread premium (YSP). The YSP represents a commission for EasyLoan from the primary financial lending institution for obtaining the customer. The loan origination and YSP fees combine to form the Loan Commission Fee.
YSP is calculated based on the number of points multiplied by the loan amount where one point represents 1% of the loan amount. The points for a loan are determined by the number of basis points. Lending institutions typically pay between 50 and 300 basis points (0.5% to 3%) for a loan. The actual number of basis points varies based on the interest rate charged, type of loan, loan amount, and other miscellaneous factors.
As EasyLoan Company continues to face increasing competition, they have hired a Six Sigma Green Belt to evaluate their performance and identify opportunities for improvement. Three metrics they wish to analyze are:
1. Loan Commission Fee per loan (based on the loan origination fee and YSP),
2. % of Signed Application Customer Turn-Downs (customers that sign an application to complete a loan, but later decide not to complete the contract).
3. Time to complete loans (Signed Application Start to Final End Funding Date).
In an initial analysis, EasyLoan has provided the following information/data:
1. Loan Commission Fee Input Data
 Loan Amount
 Borrower (credit score)
 Appraised Value (Estimated Value of Property)
 Interest Rate
 Lending Institution
 Month of Loan Closing
 Loan Officer
 Loan Category (conforming, non-conforming, jumbo, FHA)
2. Signed Application Customer Turn-Downs (CTD) Survey Results
 Customer Turn-Down (CTD) Reasons Identified by Lost Customers on Follow-Up Surveys (Ranked by Frequency of Occurrence):
1. Closing costs too high
2. Selling home rather than refinance
3. Change in marital status
4. Change in job status
5. Loan not saving enough money
6. Lost interest in getting loan
7. Interest rate too high
8. Miscellaneous
3. Loan Processing Time
 Loan preparation time
 Internal processing /appraisal time
 Underwriting time (items to close the loan such as a verification of employment, flood insurance, etc.)
 Clear conditions time
 Closing time
 Funding time
4. Key Business Indicator Targets and Historical Performance Data:
 Goal < 10% loans less than $1500 and < 1% less than $700
 Less than $700.Turn-downs. Goal ~ less than 10% Signed Application Turn-Downs
 Current Performance: 20% Signed Application Turn-Downs
 Loan Processing Time. Goal ~ process conforming loans on average of 30 days with no loans to exceed 40 days.
5. Mortgage Process Steps:
 Appraisal – obtaining the value of a property by independent, licensed third party
 Internal Processing – activities required to prepare a loan for submittal to a third party lending institution (i.e., an underwriter)
 Underwriting – evaluation of loan application by lending institution to determine whether to provide the loan.
 Clear conditions – resolution of required loan application discrepancies / omissions required by the Lending Institution Underwriter necessary to approve the loan. (Examples: need updated
bank statement, need updated credit report, need verification of employment, need bankruptcy papers, need divorce decree, etc.)
 Closing – preparation of closing documents, ending when the borrower signs the required documentation to accept the conditions of the loan.
 Funding Date – day the loan proceeds are disbursed (e.g., payoff of prior loan.) Note: if loan is an owner occupied refinance, the borrower has the right to rescission, which provides 3 days to cancel a loan contract after signing at closing.
As a Lean Six Sigma practitioner, please answer the following questions:
1. Identify the team members that you would want to participate in this effort and what fundamental knowledge they should bring to the process.
2. Develop the project charter for EasyLoan Company.
3. Identify your customers and their expectations.
4. Develop flowchart (or process map, etc.) for the entire EasyLoan process.
5. Develop a SIPOC diagram for EasyLoan mortgage process.
6. Identify potential output values to analyze.
7. Use the 5 Why’s technique to define the scope of the problem then identify some potential causes for the problem(s) faced by the company.
8. Based on the information you identified in Define phase (above), develop a cause and effect diagram to help address the long processing time associated with EasyLoan loan processing criteria.
9. Develop a current state value stream map (VSM) for loan processing.
10. What is the cycle time for loan processing?
11. In internal process preparation, if operators work 8 hours/day (30 min lunch break applies) and there are 3 operators, calculate the Takt time if the process required finishing 15 application preparations/day. Comment on the process performance compared to Takt time.
12. Based on your analysis in Part 11, if in one day the loan applicants which need internal process preparation were 25, then how many resources are needed in order to avoid application inventory in the system?
13. In your effort to analyze the customer turndown issue, please refer to the data provided (i.e., CTD Survey results) and develop a Pareto chart for frequencies, cumulative frequencies and relative frequencies for the defect categories of loan turndowns. What is the most common turndown reason based on the chart? How would you apply the 80-20 rule in this case? Also, what other actions you can make to learn more information about the most common reason (e.g., is it possible to create more Pareto charts form the survey data)? Please be specific and clearly show and explain your work.
14. While you were reviewing the historical performance data you wanted to know where the company stands from its goal to have < 10% loans less than $1500 commission fee and < 1% less than $700 commission fee. Refer to the data (loan commission data) and develop descriptive statistics based on three loan categories (Conventional, FHA, and Jumbo). Calculate the percentages of commission fees for those three categories? Which category should you focus on according to the data?
15. In order to measure accuracy, repeatability and reproducibility between mortgage appraisers, a sample of 20 properties was appraised by two appraisers: the properties range between $50K and $500K. The appraised values are shown in the table below. Is there any correlation between the two appraised values from the two different appraisers? Draw scatter plot diagram, determine correlation coefficient, and comment on the results.
16. Is there a significant difference between the appraised values? Clearly state and justify your assumptions.
17. Based on the information and analysis you performed what improvement suggestions would you provide to EasyLoan management to improve their process.
18. Improve the loan processing process and document the improved process (future state) with a process flowchart or workflow diagram. Document the future state using VSM.