HR Block 2006 Annual Report Download - page 22

IMPROVING COST EFFICIENCY
While sustaining its focus on service, Option One is stepping up its efforts to improve cost
efficiency – increasingly important for economic success as the industry shifts away from
simply driving volume. Like superior service, cost efficiency is something Option One can
control. We can’t do much about the national economy, interest rates, or housing sales or
pricing, but we can and do continuously strive to become more efficient in our own processes,
systems and structure and to control both fixed and variable costs.
During the second half of fiscal 2006, Option One reduced staffing and other resources for
originating mortgage loans in line with an industrywide decline in origination volume. We
consolidated offices in a dozen metropolitan centers to improve productivity and trim costs
while maintaining our presence and service.
Option One is also streamlining processes through automation and new technologies, both
internally and in how customers work with us. Internal systems are freeing our account
executives from routine tasks, such as data entry, so they can better spend their time on
customer service. Automated underwriting technology in Option One and broker offices
has lifted our productivity by 25 percent. The technology also improves accuracy and
consistency and cuts turnaround time for brokers. Automated pre-qualification systems
now in place provide brokers more flexibility and choice in doing business with Option One.
OPPORTUNITIES FOR GROWTH
Service excellence attracts brokers and larger customers to Option One as their preferred
mortgage originator. We also excel in providing service to the families we’ve helped put
into their homes – from the routine processing of monthly payments and management of
escrow accounts, to helping people stay in their homes during difficult times by resolving
payment issues to avoid delinquency and foreclosure.
Option One retains mortgage servicing rights when the non-prime loans we originate are
packaged and sold or securitized. Mortgage servicing revenues rose more than 46 percent
in fiscal 2006, and the business has become an increasingly important contributor to profits.
For five straight years, we’ve earned the highest score for servicing quality from all three
independent rating agencies (Fitch, Moody’s and Standard & Poor’s). Other non-prime
lenders know this record of superior service, and that helps Option One win subservicing
BOB DUBRISH
President and Chief Executive Officer
Option One Mortgage
The changing dynamics of the non-prime
mortgage industry have created challenges
and opportunities for our business.
The housing market began to boom about
five years ago, supported by low interest
rates. As loan demand grew, many new
originators entered the market, rapidly
increasing capacity. In mid-2004, rates
began to rise and have continued upward,
slowing market growth and creating industry
overcapacity. Trying to keep origination
levels up, companies began to lower rates –
resulting in lower operating margins.
During the last year, the industry focus has
changed from aggressively seeking volume
to lowering costs and improving efficiencies.
At Option One, our associates are fully
engaged in two key objectives for fiscal
2007 – lowering our cost of origination and
maintaining excellent service.
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Our reputation for service to brokers and in servicing mortgages is a differentiator that
provides competitive advantages to us with real paybacks. Option One not only enjoys
stronger, longer-lasting relationships with its broker customers, but also receives a modestly
better price when its loans are sold in the financial market.