Job Cuts, Faster Processing to Fuel WaMu Turnaround

The banking behemoth announced plans to cut mortgage processing times and use different methods to more accurately measure its performance.

At its annual Investors Day meeting in New York Tuesday, mortgage banking president Craig Chapman outlined the company’s agenda to implement such improvements.

WaMu has been in a whirlwind of changes since reaching record mortgage volume of about $128 billion in the third quarter a year ago. Chapman pointed out that at that time, the thrift forecasted volume that turned out to be off by 50%. In the recent third quarter, WaMu reported production of nearly $59 billion.

The chain reaction ensuing a rising rate environment included a huge fallout in refinance activity, which affected WaMu’s overall mortgage volume and earnings, and lead to massive layoffs. Chapman said that since the third quarter a year ago, the mortgage banking staff has been reduced by the equivalent of nearly 9,000 full-time employees, including contractors and temps.

And, this quarter, WaMu will reduce staff by another 1,800 to 2,000 employees, of which 1,600 of those already took place as of the end of October, the executive said.

Many job reductions resulted and will result from WaMu’s strategy of exiting home loan centers in markets where it does not have a strong retail banking presence. Chapman said that by the end of this year it will have cut 100 home loan fulfillment centers and have consolidated servicing sites from nine to four, that, along with other consolidations, will result in annual run rate savings of $250 million to $300 million.

In addition to these cost-reduction efforts, WaMu said it is working on making its mortgage process faster.

“Opportunities to address fixed costs slated for next year, include increased use of automated decisioning, continued system consolidation and further consolidation of back room operations,” Chapman said.

The median cycle time it takes WaMu to deliver mortgage loans is 32 days, but it has a span of outcomes that range from 13 days up to 87 days, Chapman said, and “that’s where the customer service opportunity lies, driving certainty of process execution and less variation of outcomes to the customer. This business is all about velocity, the speed of moving loans through the pipeline.”

WaMu estimates it can benefit between $15 million to $20 million annually for each day of improvement in its loan cycle closing time.

Since last September, the mortgage giant’s cycle time has improved by 40% and its span has narrowed 30%, the executive said. He did not disclose, however, details of the actual average time WaMu takes to close a residential loan.

“We believe that there are comparability issues with disclosing that as people make definitions for both those indicators, and, secondly, at this time we’re not disclosing that,” Chapman said.

“In 2005, we will be rolling out automated decisioning for underwriting and automated valuation for our appraisal process — the two most time-consuming parts of our underwriting process,” Chapman said about the multifamily business. “With these improvements we expect to reduce our turn time another 30%.

“The improvements in productivity and streamlined processes we built in multifamily are being leveraged in our mortgage banking business as well,” added.

While Chapman did not disclose further details of how WaMu plans to reduce closing time in residential loans, he said measuring cycle and span times will provide a more forward looking picture of the lender’s operational performance and capture quality of service aspects that are not included in traditional measurement methods used by mortgage companies.

Although valuable, the traditional methods have the drawbacks of being financially focused and based on past results as they analyze costs to originate and service, and two related measurements of productivity, which are loans originated and loans serviced per full-time employee, according to Chapman.