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Morgage Approval Time Study

Case Study: Mortgage Approval Time Study
Read the following case study:

A major financial services company wishes to better understand its mortgage approval process. In particular, the company is interested in learning about the effects of good versus fair credit history, the size of the mortgage (less than $500,000 versus greater than $500,000), and the region of the United States (western versus eastern) on the time it takes to get a mortgage approved. The database of mortgages approved in the last year is accessed, and a random sample of five approved mortgages is chosen for each of the eight combinations of the three variables. The data are shown in the table.

Mortgage Approval Time Study
Credit History Mortgage Size Region Approval Times (days) Approval Times (days) Approval Times (days) Approval Times (days) Approval Times (days)
Good <$500,000 Western 59 50 64 62 47
Fair <$500,000 Western 81 58 69 65 74
Good >$500,000 Western 38 52 58 60 65
Fair >$500,000 Western 146 159 133 143 129
Good <$500,000 Eastern 28 26 38 41 21
Fair <$500,000 Eastern 42 53 40 50 64
Good >$500,000 Eastern 49 31 49 42 38
Fair >$500,000 Eastern 106 115 126 118 138
First, conduct an analysis using the following steps:

Use the data shown in the table to conduct a design of experiment (DOE) in Microsoft Excel to determine the nature and magnitude of the effects of the three variables on mortgage approval times. Identify the key drivers of this process.
Determine the graphical display tool (Interaction Effects Chart, Scatter Chart, et cetera) that you would use to present the results of the DOE you conducted in Question 1. Provide a rationale for your response.
Assess the data sampling method:
Determine if the sample size is sufficient.
Identify circumstances under which would it have been appropriate to select a larger sample. Determine whether a sample of five mortgages is adequate to access the relative magnitudes of the effects of the variables.
Recommend a sample size for future study and discuss what analysis can be made with a larger sample size. (Hint: Look back at Chapters 2, 3, 5, and 6 for discussion of sampling.)
Provide other variable responses that might be of interest to measure and study. (Hint: If you were getting a mortgage or a loan, what are the two most important measures of the process you would have to go through?)
Propose one overall recommendation to the financial services company based on the DOE that could help reduce mortgage approval times.
Use Basic Search: Strayer University Online Library to identify at least two quality references to support your discussion. Note: Wikipedia and other websites do not qualify as academic resources.

Other Papers> ANOVA and Statistics regression

Sample Solution

Mortgage Approval Time Study

  1. Use the data shown in the table to conduct a design of experiment (DOE) in Microsoft Excel in order determine the nature and magnitude of the effects of the three variables on mortgage approval times. What are the key drivers of this process?
a) Enter the High and Low levels for factor A, B and C.
Factor Name Factor Letter Low Setting High Setting
History H 45 90
Size S 6 10
Region R 11 16
b) Run each of the 8 combinations in a random manner in the Run Order Column
c) Collect at least one output estimate for each of the 8 runs
d) Have the bar graph reviews identify the interactions that has the greatest effect.
e) If the an interaction effect too large, then use the interaction plots to determine the best settings that will optimize the output.
f) Detailed calculations can be displayed by clicking on the radio button for any factor or interaction (Condra, 2001).

 

 

 

 

Run Order History Size Region AxB AxC BxC AxBxC Trial 1 Trial 2 Trial 3 Trial 4 Avg
1 6 45 6 11 1 1 1 -1 50 64 62 47 55.75
2 8 45 6 16 1 -1 -1 1 58 69 65 74 66.5
3 1 45 10 11 -1 1 -1 1 52 58 60 65 58.75
4 4 45 10 16 -1 -1 1 -1 159 133 143 129 141
5 2 90 6 11 -1 -1 1 1 26 38 41 21 31.5
6 5 90 6 16 -1 1 -1 -1 53 40 50 64 51.75
7 3 90 10 11 1 -1 -1 -1 31 49 42 38 40
8 7 90 10 16 1 1 1 1 115 126 118 138 124.25

 

  1. Determine the graphical display tool (e.g., Interaction Effects Chart, Scatter Chart, etc.) that you would use to present the results of the DOE that you conducted in Question 1. Provide a rationale for your response.

Graph: Main Effects and Interaction

 

A x B Interaction
B LO B HI
A LO 1 55.75 58.75
2 66.5 141
Avg 61.125 99.875
A HI 1 31.5 40
2 51.75 124.25
Avg 41.625 82.125

 

 

  1. Assess the data sampling method. Our sample contained only five mortgages per combination. Under what circumstances would it have been appropriate to select a larger sample? Is a sample of five mortgages adequate to access the relative magnitudes of the effects of the variables? What sample size would you recommend? What could you learn from a larger sample size? (Hint: Look back at chapter 2, 3, 5, and 6 for discussion of sampling.)

The sample in our case only had five mortgages for every combination. In every research of experiment, a sample size is a critical consideration. It is appropriate to use larger sample sizes especially where accuracy is required (Blaikie, 2018). Larger samples give more accurate results, it helps in identification of outliers that could make the data skewed in a smaller sample and gives a very small margin of error.

A sample of five mortgages, in my opinion, is not adequate to assess the level of the effects of the three variables. To get better results, more reliable and valid, it is appropriate to use more samples.

I would recommend a sample size of at least 100. 100 sample size would go a long mile in helping to identify any data that is out of range, gives a more reliable and believable representation of the entire population.

  1. Provide other variable responses that might be of interest to measure and study. (Hint: If you were getting a mortgage or a loan, what are the two and most important measures of the process you would have to go through?)

If I were getting a mortgage, the two most important estimates of the process that I would go through include credit history and mortgage size.

Credit scores refers to the borrower’s reliability to the financial institutions and can define how costly or how easy, it is for them to obtain a mortgage. When determining a borrower’s ability to repay a mortgage, the financial institution looks at the score, and the borrowers with ‘good’ scores or ‘excellent’ credit are favored more because they are assumed to have the ability to save thousands of dollars every month (Condra, 2001). The ones with lower credit scores and are ranked as ‘poor’ do not have the discipline to save and work towards repaying their loans.

The second factor I would consider is the size of the loan or mortgage. The smaller loans, say, loans less than $500,000 do not take much time to approve because low am8nt of loans leads to lower down payments. The bigger loans on the other hand denotes higher risks, and the bank wants to do thorough and more checks to ensure the millions of loans being borrowed are properly secured.

  1. Propose one overall recommendation to the financial services company, based on the DOE, that could help reduce mortgage approval times.

The region of the US to obtain a mortgage approval is eastern region where mortgage takes reduced time to obtain approval, based on the design of experiment (Keane, 2003).

It is recommendable that the financial institutions go with a high credit score, reduced loan amount and pick the eastern region of America since it is the best combination to obtain a mortgage approval in a shorter time.

References

Keane, A. J. (2003). Wing optimization using design of experiment, response surface, and data fusion methods. Journal of Aircraft40(4), 741-750.

Condra, L. (2001). Reliability improvement with design of experiment. Crc Press.

Blaikie, N. (2018). Confounding issues related to determining sample size in qualitative research. International Journal of Social Research Methodology21(5), 635-641.