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:

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

List of Technical Innovation

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:

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.)

Cost savings, increased revenues, and productivity improvements

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