Planning is key for any business, but for those in the mortgage space, being able to forecast accurately is especially important. We sat down with Ralph Armenta, vice president of sales and business development at Alight, to find out how dynamic, real-time scenario analysis improves decision making.
HousingWire: Why isn’t it enough for Independent Mortgage Bank (IMB) management teams to perform annual or semi-annual business planning and forecasting?
Ralph Armenta: Mortgage banking is not the sleepy cottage industry of yesterday. Mortgage banks have evolved into highly competitive, real-time, geographically dispersed businesses that require firm owners, CEOs, CFOs and sales leadership to keep a finger on the pulse of the enterprise 24/7 to capitalize on opportunities and mitigate losses. Some of the most successful and profitable IMB management teams run their businesses as a portfolio manager would — managing and calibrating daily (not several times a year) and running endless scenarios to evaluate potential financial outcomes.
Currently, though, even some of the most sophisticated mortgage banks still rely on spreadsheets and best guesses to evaluate options and make decisions, a cumbersome process based in outdated technology. Forecasting, under those conditions, is a time-consuming, laborious and ineffective process. We’re changing that.
HW: How does continuous forecasting with multiple scenarios improve the decision-making of mortgage executives?
RA: I am a long-distance runner and cyclist, so I liken continuous forecasting and comparing what-if scenarios to a rigorous, ongoing training regimen. Training is about establishing discipline and recognizing strengths and weaknesses—areas that need to improve in general, and areas that might need a slight turn of the dial.
By developing strong forecasting habits and regularly running multiple what-if scenarios, management is constantly fine-tuning the firm’s awareness cadence, promoting the importance of looking beyond the obvious.
The obvious never leads to calamity, it’s oftentimes the least-considered scenarios that can significantly adversely affect the enterprise or result in missed opportunity. I always begin my training months in advance and the most profitable IMBs approach forecasting and managing marketplace variables in the same way.
HW: Which areas need to be reviewed most regularly?
RA: There are three key financial metrics that essentially drive the health of any business, but are particularly important for independent mortgage bankers: cash flow, margin, and cost to originate and sell mortgage loans.
Projecting cash flow requirements — particularly long-term cash flow — is essential. And the more accurate these projections are (or become), the more efficient the IMB will be and the more reliable growth targets will be.
IMBs that constantly review and calibrate margins at the product level and at the branch and region levels will have a much better chance of adapting quickly in varying markets. And smoothing out margins will reduce the whipsaw effect in the PL.
HW: How can Alight help facilitate this dynamic planning?
RA: Over the past several years, the MBA has advocated the modernization of IMBs. This process has brought about the advent of technology supporting everything from accounting, trading and operations to documentation and compliance. Chief among the new entrants in the fintech space is Alight Mortgage Solutions.
Alight provides enterprise-class, cloud-based software that integrates with data already in place — G/L, LOS and data from capital markets providers — so that teams can perform unlimited what-if scenarios and immediately see the financial impact of decisions and sudden market changes on financials — balance sheet, PL and statement of cash flows — all in real time.
Every firm owner, CEO, CFO and senior executive that I know has a unique perspective on the mortgage market and his or her own business. Alight provides senior management a 360-degree view of the enterprise and can be accessed at any time from any computer or smart device, placing enterprise and branch metrics directly into the hands of the people running each part of the business.
With Alight, firm owners and management can optimize future performance by quickly and easily evaluating multiple possibilities and then choosing the best path forward. No one else is doing that.