Mining Your Data into Gold: Keys to Building Strategy

Written By: Paul Bates, Senior Technology Consultant & Heather Papows, Senior Loan Servicing & Secondary Market Consultant

Lenders have at their disposal an almost immeasurable amount of data. As a standard, we are forced to develop policies, processes, and procedures for securely acquiring, storing and transmitting all of this data, but one key area always seems to lag – how do you use this data to your advantage? It can be a challenge to train your mind to take this last step – or to find the time to – but once you do, the value of that output will far outweigh the cost of getting to it.

Typically, lenders start collecting data with the initial customer contact by completing the Loan Application- which contains up to 236 data points. Data continues to accrue as the loan works its way through the process- as documentation is analyzed, additional data points are created and tracked (DTI ratios, details on the collateral, etc). When the loan is locked, you’re gathering more insight to market trends, borrower habits, and even internal tendencies, like what time of day locks are typically executed, how many overnight price protection locks have resulted in a below-par lock price, etc. You may be aware on a one-by-one basis, but it may surprise you to aggregate the data together and see the bigger picture.

Beyond the origination process, think about the amount of data that is stored on your core servicing platform- this data uniquely carries not only the static data from the time of origination, but also can be a source of current and evolving information - both on your borrower directly, and on your internal actions. If you’re hesitant to market a fixed rate product- take a look at your average life of loan broken down by product – you may find that the 30 year fixed rates on average don’t stay on the books as long as you fear. You may also want to aggregate data on late charge waivers or investor payoff interest variances- it may be advantageous to keep an eye on lost income, and what you’re missing out on may be a surprise.

All of these data sources, whether used individual or collectively, provide keen insights that can be used to drive effective strategies. So how do you then take this data and turn it into actionable information that can be used to revise or create strategies for your institution?

Step 1. What is the Question?

Creating actionable information starts with a business question. Give careful thought to what you want to know about. Questions can vary in detail and complexity. This is the time to be creative. How has my average time to close a loan changed with volume decreases? What are the employment/industry concentrations of my borrowers that could be used to better serve potential customers? What are the trends in pricing and underwriting exceptions that I should be aware of when developing our next product description? Think beyond what you already know.

Step 2: Define your Audience.

Knowing your audience will help determine the level of detail needed, depending on the Question. As a general rule of thumb, the level of detail decreases as the information moves from the Board and Senior Management level down to the line staff. Visual displays of information, such as dashboards and charts, are much more effective for the Board and Senior Management. Granular information, such as exception reports with loan level detail, are better suited to line management, for example.

Step 3: Determine your data source(s) and how to extract what you need for information.

Once you’ve developed your thoughts around what you want to know, and how you plan to present it, you’ll want to think about where to best obtain the information, and who has the skillset to gather, analyze, and extract the output. This is typically the biggest hurdle for many- as it takes experience and knowledge on best practices for accessing this data. To some more complex questions, you may find it necessary to combine data from multiple sources. It’s important in this step to preserve the accuracy of the data you extract- if you don’t have a subject matter expert on how to best obtain what you need, you may find yourself analyzing inaccurate information which will lead you down an unwanted path.

Step 4: Analyze your Information.

Now that you have your information aggregated together, it’s time to use it. This is where a change of mindset and a fresh perspective can really make the difference. The first step is pulling all of that data into summaries, totals, or descriptive charts. But the second and most important step is actually doing something with it. You can produce the same report monthly for a Board package, or annually for HMDA reporting, but if you don’t look at what it’s trying to tell you, and take action based on the story it depicts, then you’ve lost the value of that information. Think about how a regulator would look at your actions; if you can see that a product only serves one demographic group but you never took the next step to redesign or remarket it towards others, then you are more likely to be penalized. But if you can demonstrate that you analyzed, re-adjusted, and still came out with the same results, the scrutiny will likely be lower.

Step 5: Develop or redesign strategies.

Taking all of the information you’ve gathered, getting it into the right hands, and allowing that person to take action based on it, is the key to success in this process. The data you collect and use today can shape the decisions that someone makes tomorrow. So preserve the accuracy of the input. Develop a process for extracting it and putting it to use. And most importantly, never stop asking questions.

For more information on how SCA can assist with transforming the way you operate and develop your go-forward strategies – starting with the basic pieces of information you collect, store, and access, please contact Bill Dolan, Director, at WDolan@scapartnering.com or by phone at (617) 694-2617.