Term Project

1. Introduction
   Recent growth trends in the construction industry in Türkiye, especially in Istanbul, have had parallel impact on other related business areas such as the banking sector. During the last six months, many financial institutions have been overloaded with applications for house loans and have a hard time processing these applications in a timely manner. Thanks to recently passed legislation known to public as "Mortgage Yasası", many banks are in a better position to streamline and standardize their mortgage financing processes and products. However, the mortgage-banking industry has just starting flourishing and significant effort is still needed to establish well-defined processes to serve customers better.
   The goal of this project is to analyze the process through which customers apply for mortgage and receive funding (or not!). Your team's task is to define the process (given the information provided in the next section), define relevant performance measures, and finally assess the feasibility of process implementation by performing a simulation study. Your team must submit a project report according to the guidelines specified in Section 4, and also present analysis results in class.
2. The Process
   Your team has been appointed as consultants to assist the Director of the recently established Mortgage Services Division of Opimbank, located in downtown Istanbul. Your first task is to analyze the mortgage application process. The process has been re-defined by the bank to handle the heavy volume of applications and also conform to the new mortgage legislation. Under the new structure, the entire work is handled in three stages.
   The mortgage application process works in detail as follows: first, a customer meets with a loan agent in a local branch of Opimbank, and completes an application form. The loan agent informs the customer about mortgage options; then collects some basic information (loan amount requested, monthly income and expenses, etc.) and performs some quick calculations to assess the initial eligibility of the customer for approval. If the initial assessment works out, the customer is requested to sign authorization that allows detailed credit check. After this step, the customer is asked to go home and wait until the credit check is completed and the customer is notified. This initial step takes 2 hours on average, and historical data suggests that \(25 \%\) of the applicants decide not to proceed any further than this stage.
   In the second stage, the application file is transferred to a loan processor in Opimbank headquarters. The loan processor performs detailed credit and background check, verification of employment, verification of available mortgage rates in Opimbank and other institutions, and finally an appraisal of the real estate property. This step can on average be completed in 8 hours per customer. If everything goes ok (about \(70 \%\) of the time), the loan processor notifies the loan agent, who then notifies the customer in writing the loan amount the customer is approved for and the available mortgage rates to choose from (such as fixed rate, variable rate, etc.). If there are problems with the credit and background check, the customer is requested to provide additional information and documents, which takes another 3 hours processing time of the loan processor. At the end of this step, the customer either accepts the mortgage offer and continues with the process, or the customer terminates his/her application.
   In the third stage, the customer is transferred to a closing agent, who takes care of the final signatures and paperwork, files the application with the authorities for transfer of deed), sets up loan accounts and scheduled payments in the financial information system, and finally handles the transfer of the money between the buyer and the seller. This last step takes a total of 10 hours on average, at the end of which the customer is the new legal owner of the property, subject to the printing and release of the property deed in the name of its new owner. At this step, \(10 \%\) of the applications on average may still be terminated by customers, due to financial difficulties or last minute changes of decision. For such customers, this step takes 5 hours on average.
3. The Task

Your team is asked to evaluate the efficiency of the entire process, by using the quantitative and qualitative techniques you learned in class. Specifically, answer the questions below. Make sure you justify your answers with relevant calculations.

3.1 Process Analysis ( 40 points):

- Develop a process flow chart of the mortgage application process. Identify bottlenecks, if any, and discuss why.

- What is the capacity of this process? In other words, how many applications can be processed per day, per week and per month? State your assumptions.

Identify relevant and measurable performance measures for the process. Specify target threshold values for these performance measures from customers' as well as business point of view. Justify your answers.

What resources (and how many) are needed to run this process efficiently?

- How can you improve the overall process? Be as creative as you can be.

- Does it make sense to charge a processing fee for each application? If so, what would it be? Justify your answers with calculations.

3.2 Simulation Analysis ( 60 points):

The process analysis you have completed in the previous part involves use of deterministic parameters such as constant processing times. In reality, most (if not all) parts of a process are subject to variability. In this part, you must explore this uncertainty dimension by means of a simulation analysis. Now assume that all task processing times are dynamic and they are approximated using the following probability distributions:

Table 1. Processing Time distributions

Table 2. Empirical distribution for Loan Processor - Extra processing time

- Develop an Excel-based simulation model for the overall process using the above information and the conventions and templates we have used in class. While developing the model, you may assume that there is infinite waiting line capacity between stages of the process. In other words, an application file processed at one stage can immediately be transferred to the next stage or to its waiting line.

Simulate your model with 100 customers. Assume that the first customer application is received at time 0 and the time between two successive arrivals thereafter is exponentially distributed with mean $=2.5$ hours. Use your simulation run to collect and report statistics on the performance measures you have identified in the previous part.

- Upper management has come up with a wonderful idea to expedite the mortgage application process: customers can now apply using their cell phones and citizenship ID numbers. How does this feature impact the overall process? If necessary, re-run your simulation model or re-calculate statistics, and report potential efficiency improvement.

Price: $19.46

Solution: The downloadable solution consists of 11 pages, 846 words and 4 charts.
Deliverable: Word Document