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To the Swiftest Go the Spoils: Case Studies in Retail Loan Origination

Retail consumer lending is now more important than ever in retail banks’ growth strategy, due to current mortgage market turmoil. A new report, “To the Swiftest Go the Spoils: Case Studies in Retail Loan Origination” from Celent, a Boston-based financial research and consulting firm, profiles two financial institutions that have successfully restructured the way they originate retail loans to make the process faster, less costly, and more scalable.

Key findings of the report include:

• The real estate sector of the retail consumer lending market had been growing since 2002 at a compound annual growth rate of 13% in the United States, with total outstanding debt attributable to home mortgages and home equity lines of credit reaching US$10.1 trillion as of Q2 2007. This rate slowed considerably to a 4% growth rate from Q4 2006 to Q2 2007.

• Other consumer debt is at US$2.4 trillion and increasing at a rate of 4%. As a large and growing part of retail banks, many financial institutions have thought about how to make the process more efficient.

• The extent to which automation can be applied to loans dramatically reduces the cost of processing those loans. While an automated loan costs only about US$15 to process, a manually decisioned loan costs US$75 to $125 to process.

• Formerly Boeing Employees Credit Union, BECU increased the number of applications per employee by nearly 70%, enabling the bank to grow their lending business without hiring and training an army of new people. BECU has also achieved asset growth of 18% to 20% per year and loan volume growth of 27% per year.