Community Empower Network America will face a critical shortage of affordable housing in this decade — or a potential housing crisis — without concerted action to ensure that the supply of housing keeps up with expected strong growth in demand. The problem represents a $1.2 trillion dollar short fall in supply which affects three of America’s largest industries; the U.S. government, the residential construction industry and the mortgage banking industry. As many communities grapple with the need to provide adequate affordable housing, they also are bound by growth controls that limit local housing expansion and drive up housing costs. A massive reduction in federal monetary support for housing has exacerbated the problem. The result? Two-thirds of America’s top-sixty housing markets predict housing shortages and higher prices where the average-priced home is no longer affordable to the working class family. Beneath this macro-economic peril lie untapped resources that, if properly channeled, promise to slow the advance of this problem. Yet, these resources are highly fragmented, local in scope, under-capitalized and have little systemic controls to create a significant scale to solve the problem. These resources consist of local municipalities, community development charities, faith-based housing initiatives, residential home builders, title companies, credit bureaus, appraisers, real estate agencies and lenders that must provide for the underserved communities. Competition among the supply chain providers is intense and inherently local in scope. Therefore, little information is exchanged among the market makers and resources are typically directed towards wealthier communities where stronger profit margins prevail. Banks and mortgage lenders, for example, are less likely to be represented in wealth-constrained areas. Consequently, the “last mile” concept limits consumer access to financial services -- stopping them at the neighborhood’s border -- and thus, consumers remain underserved. This single problem is responsible for billions of promised dollars in federal loan guarantees from the U.S. government never actually reaching targeted neighborhoods. Addressing these gaps involves trade-offs, yet targeting the appropriate strategy for particular markets and populations must be supported by the wholesale re-evaluation of the business processes that can efficiently deliver home stocks and qualified buyers in a scale that can begin to solve one of our nation’s largest housing issues. Therefore CE’s plan required a technological approach to: Rethink and redesign how the affordable housing industry creates results in homeownership Invent new technologies that could prepare and educate homeowners over a long period of time Connect every entity in the supply chain so they could collaborate on a single home project Develop key performance indicators to measure success interactively Involve everyone in the chain with shared goals Create a nationally scalable entity with appropriate infrastructure Involve national lenders, builders, trade associations, government and housing related non-profit agencies to promote use of the network Business Innovation – how the system works The CE system spans large groups of enterprises necessary for affordable housing production ; the mortgage process, the home building process and the home loan credit qualification process. Each process involves many unique entities or organizations. For example, the CE credit qualification network currently has many independent counseling businesses that perform home loan counseling for consumers. As consumers qualify for mortgages they may be presented to any number of mortgage companies who sell thousands of loan products from prime to sub-prime loans. And, as they qualify, homebuilders become involved in completing the process. Homebuilders are almost always local because local knowledge of building codes, appraisal preparation, title work and building customs require local professionals. A consumer is first introduced to Community Empower through a variety of referral sources where a participating CE counselor conducts a 20-minute home loan credit interview. This is the first pre-qualifying step in the home ownership process. These interviews can be originated locally at a CE counseling center or from a central call center and subsequently distributed to a remote CE counselor. The integration of advanced workflow technology and voice-over-internet protocol (VOIP) telephony allows the central call center to “flow” the work to distributed counselors anywhere on the network while maintaining call and data records which measure the key performance indicators of the business. The business process determines the call load balance and the geographical distribution of clients. Some organizations on the network have dozens of counselors; others may be “soccer moms” working from their home. Workflow and telephony integration enables CE to control service standards while maintaining privacy of consumer data and ownership of the consumer throughout the process. Some consumers immediately qualify for a mortgage and are moved along to a lender based on CE’s underwriting filters. These filters determine the lender based on their loan product requirements and make an electronically controlled introduction via a workflow and messaging service. Other consumers will not qualify to advance to a lender immediately. Instead, with the consumer’s permission, they remain in a monthly credit counseling program where each month a web service polls the consumer’s credit file from a credit bureau and records positive and negative behavior in a database. A business logic decision engine takes this periodically updated information and calculates specific financial advice for the consumer. For example, they may be instructed to pay $244 on a credit card account or to pay a past due balance on another. A work plan is produced illustrating for the consumer the numerical credit score improvement benefit of taking such an action. Additionally, the consumer is re-graded for loan quality and scanned against a database of possible loans for qualification. If a consumer is deemed pre-qualified a workflow process generates a commitment document on behalf of the lender specifying the loan amount and conditions on which the loan will be based. Once this commitment is obtained the builder is handed control of the consumer. Each CE home is produced by a franchised builder. The franchise builder produces custom homes by order. A business process controls the construction process where contractors use work queues for job assignments. Milestone reporting from the building process and milestone reporting from mortgage loan processing keep the loan and building businesses coordinated and their managers informed about priorities.Key Motivations behind installing this workflow system The key motivation supporting the development of an extra-enterprise network platform was simple. If CE could coordinate, or control, its value chain in local markets it could capture the scale necessary to leverage large numbers of deserving consumers into homeownership. Additionally, if CE could be the low cost provider its chances of long-term success increased significantly. To accomplish this many business innovations would have to occur across an industry not accustomed to change. The overall business innovations and its impact resulting from the new system CE’s mission is to build centrally located affordable homes in existing neighborhoods. When we say “affordable” we mean the type of homes specially designed for working families – they are our policemen, firemen, teachers, nurses or bank tellers. The franchisees that build our homes are owners of their own business. They participate in the CE network of business relationships that enable these homes to be pre-sold with qualified credit buyers who flow from the Community Empower home-counseling network. Since the franchisee does not have to build ‘spec homes’, profit margins increase. The CE home-counseling network operates in 25 markets with over 750 locations where consumers interface with 3,200 trained professional housing counselors. Additionally, there are seven CE channels of distribution that assist consumers with home ownership issues. They are major homebuilders, mortgage lenders, community development charities, faith-based operations, associations and trade organizations, the military and corporations providing housing benefits to their workforce. List of Business Innovations First mover in EAI for affordable housing industry using advanced technologies to drive costs down and volumes up. In the first 60 weeks of production the company extended the mortgage finance process into underserved neighborhoods covering over 24 markets thereby lowering the cost of processing workforce and minority loans and shifting the cost and the customer relationship away from the bank and into the hands of a neighborhood loan counselor. This innovation could change forever how large lenders process emerging market consumers. Used technology to create meaningful collaboration between entities serving the affordable housing industry. Developed a web-based distance learning system to dramatically reduce training costs and time spent getting each new counseling organization up-to-speed. Developed a web-based credit/loan technology that provides an actionable monthly work plan for improving consumer credit scores. The system runs 10,000 algorithmic calculations and simulates which consumer budget actions will likely best position them for a loan. Created an overall business logic engine that positions a consumer along the shortest route to loan approval. Workflow processes control consumer groups and moves them to specialists for assistance. Harnessed 175 independent community development businesses, charities and housing counselors into a central, workflow driven enterprise. Each CE network participant can now handle 500 clients (versus 25 prior to implementation) by using workflow workqueues, web services for requesting bureau and loan requirement information. Built 16 back office services, controlled by workflow and credit improvement business rules, to resolve consumer credit issues with creditors. A web service is invoked and a business process creates written communication with creditors to negotiate debt reduction or resolution of derogatory accounts. Reduced the cycle time of building a home from 120 days to 40. Workflow processes cross organizations so the builder and the mortgage processes are coordinated. For example, as an appraisal is ordered the builder is notified when they will arrive on the job site. Developed all-electronic billing thereby sharply reducing billing costs. When a consumer is processed the counselor receives all billing via email. A link in the email invokes a web service that allows for credit card or check draft payments, review of statements and transaction histories or inquiries. Integrated network participants with 3COM telephony systems using VOIP. Consumers may call a 1-800 number. The integration of advanced workflow technology and voice-over-internet protocol (VOIP) telephony allows the central call center to “flow” the work to distributed counselors anywhere on the network while maintaining call and data records which measure the key performance indicators of the business. The business process determines the call load balance and the geographical distribution of clientswherewith the consumer’s permission, their credit file is pulled and analyzed. Next, the technology allows the consumer’sfiles and data to be routed automatically among qualified outside partner organizations. The central call center transfers a call anywhere in the partner network as the data file is being electronically transferred to their control (similar to an air traffic control center moving control of an aircraft to the next center along its journey). Direct Dial (DID) allows network counselors to receive direct calls where time and activity are tracked. Exceptions, outages or service standards deficiencies trigger other ‘manage-by-exception’ escalation workflows. List of Technical Innovation Enterprise Automation Integration EAI, process integrated home counseling network with home building franchisees and mortgage company using business process automation and workflow technologies, advance web services, and messaging. XML transactions connect web services to credit reporting agencies to business logic engines. Third party software integration for: A third-party accounting package, Quickbooks Premier, is integrated across the enterprises for central CE accounting or distributed to individual entities for remote accounting. General ledger transactions are passed throughout the network to the proper accounting entity. Payments are made by merchant accounts between entities with either credit card or electronic check payments. Settlement of invoices, credit memos and funds transfer are executed via email to secure web service facilities. Invoices and statements are sent via email. Calyx Point for loan origination software moves data from CE counseling system to new originations, sets up file processing requirements and tracks the loan process via workflow and work queues to distribute work. . NET services provide work papers and creditor correspondence delivered in Microsoft Word, thus saving hundred of hours processing letters. Web Services Consumer requests their credit file from a bureau through the CE Network. Bureau sends an encrypted file via web service where it is converted to XML and loaded into credit score engine. XML transactions sent to merchant accounts for electronic funds transactions. B2B workflow and business process integration Telephony workflow 3COM VOIP integration with business process automation. Call center routes data and phone call simultaneously to anywhere within the collaboration network. Telephony tracks time and costs, contact and invokes workflow process if service standards fall below normal. Integrated Enterprise Interfaces Single screen interface views of data from loans to home construction so user can see entire picture across the enterprise network. Other Technological Innovation Fully automatic invoking of the Soldier’ s and Sailors Act SSCRA. All documentation and creditor communication created in less than three seconds allowing us to process active duty soldiers and airmen more rapidly. The overall technical innovations and its impact to resulting from the new system Of great importance was CE’s ability to extend the reach of the mortgage pre-qualification process and place it closer to the customer. Metaphorically, consumers in underserved markets are on one shore and the mortgage with the promised federal dollars is on the other. Without banks or lenders close to the customer the process is hard to bridge. This meant that CE had to recruit the available resources in the community and train them on the principles of home-counseling and mortgage finance. Among the core entities chosen as candidates were community development entities (CDCs) and faith-based organizations (FBOs). Using the CE network they process consumers and place them with our franchise homebuilder company. CE had to develop a way to process large numbers of potential homebuyers in these areas. First, a mortgage credit evaluation process was designed and implemented via the web that allows CDCs and FBOs to process potential homebuyers during homebuyer education classes and consultations. Homeowners in urban, low-to-moderate income and minority are constrained by: A lack of information about how to buy a home and qualify for a mortgage, By poor credit histories or the lack of any meaningful credit, By their lack of initial equity for a down-payment, and By their inability to find an affordable home of adequate quality in a desirable location. Unless new homebuyers are well prepared and supported, no sophisticated development and financial strategy is likely to be successful. Conventional resources, such as mortgage banks and efficient production builders, have either little incentives or systemic resources to fill this gap. Non-profit housing agencies have even fewer resources and rely heavily on dwindling grant appropriations and are forced to focus on families in the lowest socio-economic categories. Finally, the government – local, state and federal – cannot manage its fragmented and often competing programs to keep pace with the widening affordable housing gap. Of equal importance was CE’s ability to be the low cost provider. Building a quality home and selling it for thirty percent below the area median price is a challenge. And, because material costs are the same regardless of home location, the principal source to reduce cost is by only building homes that are pre-sold. This eliminates months of carrying costs for a model home or a ‘spec home’,interim financing costs and losses due to vandalism. If homes are pre-sold, and close quickly with a qualified buyer, then costs drop dramatically. CE found it could lower the cost of home construction by reducing the construction time for a home. A comparable home might take 120 days to construct and sell. However, the amount of time required to construct a CE home had to be approximately 40 days, weather permitting – one third the industry average. System users and their jobs now compared to workflow changes and improvements Users of the system varied significantly but none used workflow, web services or automation of any type. Managing job and business was predominately a “management by walking around” method. Business metrics and key performance indicators were loose or non-existent. Today, most system users are power users of work queues and manage results by volumetric key performance indicators. They are process-centric in their thinking which is continually bringing down costs and increasing performance. The biggest HURDLES overcome in management, business and technology The largest hurdle for the program was integrating an industry that wasn’t accustomed to change. Entities were suffering from low productivity, and funds disappearing from federal sources. Few had resources to scale. Today, with the CE Network, new partnerships are being formed from “integrated pods” where individual entities form alliances to provide better leverage on resources and scalability. This has provided access to new entries in the affordable housing game plan such as major corporations providing housing for their employees who are comfortable with the management controls this modern system provide. The new system configuration (number and type of software, servers, scanners printers, storage devices, etc.) Microsoft .NET platform using ASPX active server Web services use XML Internet Server farm processes 100,000 transactions per hour Microsoft SQL Server 2000 database Calyx Point loan origination software integration Dell PowerEdge Server hardware 3COM NBX VOIP communications platform Quickbooks Premier Enterprise Microsoft Office Windows 2003 Server Cost savings, increased revenues, and productivity improvements Achieved a 40% recovery of previously credit-denied consumers (home loans). Per-Counselor capacity grew from 25 clients to over 500 clients per counselor by the development of workflow work queues and focusing on exceptions. Savings of $2,000 a month in long-distance phone charges as well as $600 per month by eliminating 12 analog phone lines through implementation and integration of 3COM communications platform with 200 DID numbers. Average loan pre-qualification costs dropped from $200 to $24. Processing time fell from a minimum of 2 hours to an average of 20 minutes. Developed a web-based distance learning system to dramatically reduce training costs and time spent getting each new counseling site up-to-speed. Each trainer saved $15,750 per year. Reduced home construction time from 120 days to 40 days saving $5,000 per housing unit. Eliminated the real estate agent in transaction saving $6,000 per home. Competitive advantages gained and how CE moved competitive goal posts for our industry CE is the first mover and consolidator for the many players in the affordable housing industry. CE opened 175 counseling locations in its first, full production year. We expect to open 1,000 centers in the next 3 years making CE one of the largest loan origination entities in the country. Affordable housing production is fragmented and undercapitalized with vast shortages in output. CE expects to process one million consumers per year and produce 10,000 home units in ten years though our franchise network. We expect to produce $200 million in new home mortgages per year. Immediate and long-term plans to sustain competitive advantage There are three factors that make up our strategic competitive advantage; the size of our network, the scalability of our systems and processes and our ability to maintain a leadership role in being the low-cost provider. Our processes and technology will ensure we are the low-cost provider, which will ensure our market leadership into the future. 1Franklin D. Raines, Chairman and Chief Executive Officer of Fannie Mae