What Do You Mean by Best Practices?

MBA (6/2/2008 ) Palaparty, Vijay
“Best practices,” and "back to basics," phrases that the real estate finance industry hears more about these days, have various perceptions and definitions.
“Best practices is a marketing term, said Jonathan Corr, chief strategy officer at Ellie Mae, Dublin, Calif. “Best practices according to whom? It’s a way to say a company has done something before and to take their word for it based on their experience and results. But is it evaluated from an outside perspective as to one practice versus another practice? No.”

"Best practices are policies, processes and procedures that result in above average performance for a particular function as compared to peers,” said Dan Cutaia, president of Fairway Independent Mortgage, Madison, Wis. “Best practices should be fungible. That is, they should plug into any company and provide improved results. They should not result in unintended consequences or result in poor performance in another area or function of the firm. For example, many technology solutions result in a reduction of operating costs in one area but increase IT costs in general without offering scale cost advantages on the operations side."

Dave Demster, president of the mortgage products division at ISGN, Bensalem, Pa., said best practices have to apply to a specific situation because it is a process. "It’s about determining what works best for a specific situation—almost the expert way to do it," he said. "It’s something you work at. It’s a process applied to a specific situation where you determine what works best and what you can do under certain circumstances.”

Brian Fitzpatrick, president of Lydian Technology Group and executive vice president of Lydian Data Services , Jacksonville, Fla., said the term best practices is overused in the way that many in the industry said they were “MISMO-compliant” when it was first launched.

“But best practices is not purely a marketing ploy,” Fitzpatrick said. “It’s delivering quality in a standard, repeatable way.” He said the next level of best practices is attaching a “good housekeeping seal” and incentivizing it. “That’s when you put teeth into the perspective—whether it's insured or guaranteed by a third party or whether some financial incentives are given by a third party. That’s when best practices really mean something because now you have parties coming to the table saying they will stand behind that and will actually give an incentive.”

“However, what people warrant against and guarantee are many times not best practices,” Demster said. “It’s their own practice and very often are not best practices.”

“There’s a level of transparency and accountability that is being forced upon many organizations because of what has happened in this industry,” Fitzpatrick said. “We take best practices very seriously. If somebody says best practices in their marketing materials, your next question should ask what that means to you. How does that benefit me? What does my company get out of it? How can I take that to my warehouse bank? How can I take that to my investor? Are they going to care about it? Best practices is a standard, repeatable process that brings value to a group of people. People have to agree on it and people have to be able to trade financial incentives in order for best practices to be meaningful.”

“Implementing practices to optimize benefits for both you and your client in such a way that it’s repeatable is not necessarily true for the industry,” Demster said. “I think that whether it even becomes a standard doesn’t also make it best practice."

“The bottom line is that best practices is an optimized, standard repeatable process,” Fitzpatrick said. “When you have something that is optimized, it is agreed upon within the economic circle and it provides benefit—substantial financial benefits to all parties. From a best practices perspective, to look at a process is to determine and optimize it from a stand point of efficiency, optimize from a stand point of a risk perspective and optimize from a stand point of working to integrate partners. That you can do things faster, better, cheaper and with less risk that ultimately provides value to all parties—that’s best practices. Lydian’s approach is that we look at it from a best practices perspective for every single implementation and every single customer.”

"Best practices truly means having standardized processes to achieve a quality result,” said Lisa Binkley, executive vice president of risk strategy and policy development at Rapid Reporting, Fort Worth, Texas. “Specifically in the mortgage industry, best practices must be taken to a broader spectrum to include processes that satisfy their customers as well as the consumer, and are transparent in both wholesale and retail channels. At the end of the day, all lenders try to incorporate due diligence processes or best practices that allow them to evaluate loans better and faster than the competition while achieving quality. Many best practices are reverting to old school principles such as the "CCCC" standard that evaluates collateral, credit, capacity and character to determine if the consumer has the ability to repay the loan.”

"Best practices could be described as the right information at the right time in the clearest fashion for the right decision, said A.W. Pickel III, president of Leader One Financial Corp., Overland Park, Kan. “As mortgage lenders, we don't always need the fastest response or the flashiest response, but what we do need is the right information in a way we can understand so that we can do the right thing for the borrower."

Fred Melgaard, executive vice president of DRI Management Systems, Newport Beach, Calif., said, "Best practices provide a template to do things right and do the right things so that one can maximize results while minimizing efforts and costs. The template is often constructed by looking across the industry to find the very best micro-processes and combining the very best into one overall process.”