Conventional lending covers a wide swath of the residential mortgage industry, as it includes both fixed-rate and adjustable-rate mortgages, conforming and non-conforming loans and nearly everything else that isn’t guaranteed by the U.S. government. As such, it has long dominated the residential mortgage market, but even more so since the housing crisis and subsequent tightening of credit standards.
This past July, conventional loans accounted for 65 percent of the mortgages originated1, according to the Ellie Mae Origination Insight Report. And no wonder, as conventional loans had the highest closing rate at 72.1 percent. These numbers are reflected in the often narrow offerings of today’s wholesale lenders. These lenders dictate strict guidelines and requirements for their conventional loans, and show little interest in investigating the realities of more complex loan scenarios.
But as more and more brokers and originators jockey for the perfect conventional loans, they may be overlooking the borrowers—and lenders—that can help them close more loans. With some larger banks leaving the wholesale space, mortgage brokers have the opportunity to expand their business with new lenders that can manage more complex conventional financing beyond the typical loan scenario.
Conventional does not equal simple
Mortgage brokers recognize a good loan prospect when they see one: A borrower with great credit, a 20 percent downpayment and a steady job with a good income. For a mortgage broker with this borrower, finding a conventional loan is just a matter of securing the best rate for their customer. But not all borrowers meet these criteria. Many have a more complex credit history or a less traditional source of income. For these borrowers, mortgage brokers may have a harder time finding a lender that will provide financing.
Some wholesale lenders don’t want the additional time and effort it takes to underwrite more complicated financing scenarios, such as:
►A self-employed borrower with good/great credit and cash on hand for purchase
►A borrower with income from child-support payments
►A borrower with income that isn’t great, but who has a lot of assets
►A borrower seeking the lowest possible monthly payment for the first few years of the mortgage
►A borrower needing a mortgage on a partially completed home
►A borrower seeking a cash-out refinance after the home was listed for sale, but then taken off the market
►A self-employed borrower looking to refinance, with equity in the home
All of these scenarios are conventional loans. But they may require more attention from a conventional lender.
A closer look
If you consider just the first scenario of a self-employed borrower, it doesn’t seem like it should be a stretch for conventional lenders. Good credit, good down payment, good to go, right? Not necessarily. According to Fannie Mae’s underwriting factors and documentation for self-employed borrowers2, a lot more information is required, as well as more documentation. Following Fannie Mae’s guidelines, these factors should be analyzed for a self-employed borrower:
►Business location and nature
►Product or service demand for the business’s focus
►Financial strength of the business
►The income potential of the business: that is, whether the business can keep generating and distributing sufficient income so the borrower can meet the mortgage commitment
Some lenders see the need for this kind of in-depth analysis and shy away, making it difficult for mortgage brokers to secure the financing their client needs. But financing is possible if the borrower, broker and lender are willing to take the extra time to procure the necessary documentation. Required documentation would include in this scenario, two years’ of federal income tax returns (both business and personal), written analysis of the borrower’s personal income and business income and potentially a business cash-flow analysis, if the borrower intends to use business funds for the downpayment or closing costs.
If you look at the next scenario—a borrower with income from child-support payments—it, too, doesn’t seem that complicated, as it’s just income from another source. But it requires extra documentation as well, which many lenders don’t like because of the extra work, and potentially extra risk, it entails. Conventional lenders and the government actually have similar standards on verifying income from alimony or child support, and they include3:
►Documentation that the child support and/or alimony income will continue for at least three years after the mortgage application date; must be an official legal document
►Documentation of at least six months of regular payments being made to the borrower
►Review of the payment history to determine if it is suitable as a stable qualifying income
Some lenders may be concerned about the eligibility of this borrower because many couples may have “informal” agreements as to child-support payments, which means they are not a stable source of income. In addition, how much of the borrower’s income is represented by the child-support or alimony payments is another factor. For many lenders, if the payments comprise more than 30 percent of the borrower’s qualifying income, additional documentation is required, often including documentation of a full year of complete, on-time payments. All this does not mean, however, that this borrower is not a good candidate for a conventional loan—although that is how some lender’s guidelines interpret this situation.
Just by looking at these two possible scenarios, it’s apparent that not all conventional lending is created equal. There is a wide variety of borrowers out there, and their needs may not be met by the typical conventional guidelines of many wholesale lenders. Luckily, some lenders do understand how to operate beyond straightforward conventional lending scenarios.
Finding the right lender
Mortgage brokers often work with an array of lenders—some who work exclusively with U.S. Department of Veterans Affairs (VA) loans, or construction loans or some that only do conventional lending. Partnering with a lender can be a complicated process, but mortgage brokers who want to serve the most clients—from straightforward purchase loans to more complicated cash-out refinances—should seek lenders that have the same objective.
When lenders list the types of loans products they offer, brokers should take the time to make sure they fully understand just what lenders mean by their lists. If a lender provides Federal Housing Administration (FHA), VA and conventional loans, examine their underwriting guidelines to see if they follow the broader guidelines of the government, or Fannie Mae or Freddie Mac or if they instead place additional requirements on their borrowers. Talk with other brokers who have worked with a particular lender to determine if they have a rigid set of requirements or if they look at the entirety of loan scenarios. Consider talking with someone at the lending institution, especially if you have a particular scenario in mind. By taking these steps, you can find a lender that meets your needs and the needs of your clients.
Mortgage brokers should partner with lenders that offer conventional lending that provides financing for a wide variety of borrowers, not just one small subset. Conventional lending ranges from the everyday, uncomplicated borrower to those with more challenging financing constraints. Look for a wholesale lender eager to work with you and your clients to secure them a mortgage, whether they are self-employed, a borrower with child-support income or some other variation that may require more time and documentation.
For many lenders, any loan that doesn't fit into their rigid criteria is rejected out of hand, but mortgage brokers know there are many potential borrowers out there who are conventional loan prospects, even if they are more complex from a financing standpoint. There are financing options available to mortgage brokers working with these clients, but brokers must be willing to put in the work to discover the lenders that take on these challenges by offering a wide variety of loan products and services to provide financing for not entirely traditional borrowers.
Rey Maninang is senior vice president and national sales director of Carrington Mortgage Services LLC’s Wholesale Mortgage Lending Division. Under Rey’s leadership, Carrington’s Wholesale Division has increased volume production by over 100 percent within a two-year period, and successfully launched several strategic initiatives resulting in consistent profit increases.
This article originally appeared in the September 2016 print edition of National Mortgage Professional Magazine.
The mortgage lending environment has changed dramatically since the introduction of the Dodd-Frank Wall Street Reform and the Consumer Protection Act in 2010. Add in “Know Before You Owe” (also known as TRID) to the mix and you have a compliance department’s worst nightmare. With these changes, financial institutions have found themselves struggling to build or maintain in-house mortgage operations while managing to comply with all of the new regulations. Many financial institutions are still considering other options that increase income, reduce expenses, and improve their value offerings.
Inlanta Mortgage, headquartered in Wisconsin—a state that has always been heavily concentrated with community banks and credit unions—recognized an opportunity to partner with institutions to support their mortgage origination departments with their platform and started growing their business as a third-party originator (TPO) three years ago.
We saw a need in the industry and wanted to help support the small- to mid-sized banks within our communities. Through a TPO program, local banks are able to outsource their loans for disclosures, processing, underwriting and funding, while they maintain the relationship and “face” to the depository customer. The bank or credit union still originates the loan and keeps the relationship with their customers by acting as the point of contact and advisor through the entire transaction. However, they do not need a staff of processors, underwriters, and closers, which dramatically reduces the bank’s expense structure and keeps their costs low.
Through this partnering, it provides a great opportunity for independent mortgage bankers to expand their business, leverage off their existing platform, and bring in additional fundings that may not have been considered in the past. Consumers can benefit as they are able to continue working with their local bank in which they hold a current relationship. Consumers also benefit as the bank and the mortgage company are now working together to serve their communities that they previously may have competed in. It is truly beneficial for all parties involved.
Before growth as a TPO can begin, you must ensure that all of the appropriate systems and processes are in place to support the new business. Some items of business to consider include: Do you have an LOS system to handle the separate business? Can you support third-party origination online and host the bank’s online loan application. You will need to have dedicated employees throughout your organization who will focus on TPO, such as internal account management and processing support. The business development side of the TPO channel can be slow since the parties were previously competitors, but once you build trust and credibility, the relationship makes complete sense.
There are numerous benefits to your partners by participating in your TPO program. As mentioned before, one major benefit is lower cost of origination for the bank. A TPO program allows local banks and credit unions to leverage the systems and processes of a leader in mortgage origination, without the significant staffing costs. The TPO will prepare and distribute all mortgage loan disclosures to all loan applicants on behalf of the TPO partner. This will not only reduce compliance risk but also relieve the financial institution from employing resources to perform these tasks. In addition, the TPO program offers processing services through a dedicated team of processors who are well-versed in all programs and able to process the file from start to finish. Eliminating the need to staff a processing department or by removing this task from the bank loan officers’ current duties allows the loan officers to focus on securing more sales and serving the depository customer. Underwriting responsibilities are also handled, which lessens the burden of the partner’s need to employ another department.
A TPO program also reduces compliance risk for the bank. The cost of mortgage origination in the area of compliance has dramatically increased with all of the new rules instituted by Dodd-Frank and enforced by the Consumer Financial Protection Bureau (CFPB) over the last few years. If a lending institution is not originating a high volume of mortgage loans, the cost of staffing a compliance department can readily erode the revenue realized through mortgage origination and distract the compliance department from other areas of the bank’s compliance demands. The new regulations can carry stiff penalties for errors in the mortgage process which could cripple a bank’s assets. This leaves the TPO partner free to service its depositor’s needs in-house while adding a profitable mortgage revenue stream.
Having an expanded product offering is an attractive benefit for banks and credit unions that currently have a limited product offering available by working only with one of the government-sponsored enterprises (GSEs). Many banks and credit unions are quite adept at originating conventional mortgage loans to their client base; however, they may have only worked with Fannie Mae or Freddie Mac exclusively. Inlanta’s TPO program has had success in expanding our TPO clients’ mortgage product offerings to include FHA, USDA, and VA mortgage loan programs. As a government lender and one of the top community-based lending institutions in the state of Wisconsin, our TPO program allows clients to leverage our expertise to capture business that they would otherwise be turning away. The cost of turning away the government mortgage business is huge as many government loan programs assist first-time homebuyers or possible credit challenged customers. These customers are not to be confused with those of the sub-prime days as most do have certain credit thresholds that must be met. Some of these programs also allow clients to carry slightly higher debt loads. These clients represent the future depositors of the bank and credit union. By assisting them with their first mortgage, it provides the opportunity to start a relationship with a client that could last a lifetime.
Finally, this adds an additional stream of fee income. One of the first questions one may hear regarding a TPO relationship is how the compensation is structured. Per RESPA requirements, a bank or credit union must choose from a list of services that they will provide, along with taking the initial application, which will allow for compliant compensation under the agreement. This compensation must be based on total volume, just as it is with LO compensation under Dodd-Frank compensation rules. An additional benefit of these new partnerships is that independent mortgage bankers are pure mortgage enterprises and therefore do not present the threat to the bank or credit union of competing for the depository relationship. They’re not trying to lure seasoned deposit customers away.
The changes that came about as a result of the financial crisis have certainly been challenging for many financial institutions, but one of the benefits has been new partnerships where each party can focus on their specific area of expertise and continue to provide enhanced products and services to the communities they serve. Previous competitors can come together in a mutually benefiting relationship where all parties win: Our customers, our businesses, and our communities.
Nicholas DelTorto is president and CEO of Inlanta Mortgage Inc. Nick's experience of more than 30 years in proven sales, marketing and operations leadership allows him to help guide Inlanta in an industry that since the financial crisis has faced serious challenges and difficulties. He is past president of the WMBA (Wisconsin Mortgage Bankers Association) and is immediate past co-chair of the national MBA’s Independent Mortgage Bankers Committee.
This article originally appeared in the September 2016 print edition of National Mortgage Professional Magazine.
For brokers looking to make the transition into mortgage banking, the timing couldn’t be better. Depository lenders are increasingly giving up market share to non-bank mortgage lenders, and with the current rate environment, non-bank lenders are able to offer borrowers extremely competitive rates. What’s more, advances in digital origination technology are poised to reduce the cost to originate, which eases the start-up capital requirements needed to make the leap.
These cost savings are significant, as one of the biggest challenges to making the broker-to-banker transition is establishing the necessary net worth to qualify for licensing and a decent warehouse line of credit. With access to the right technology, and the right correspondent partner, brokers can make this transition more easily than ever.
For years, the mortgage industry has waited with cautious trepidation for the eMortgage to become a reality. Technology and regulation have finally caught up with the industry’s vision, but many are still reluctant to take the leap.
Part of this reluctance stems from the perception that investors and/or warehouse banks do not allow eClosings or won’t purchase an eMortgage. This is false. There are numerous investors that have established guidelines for eClosing and eMortgages, and two of the biggest mortgage investors in the country, a.k.a. Fannie Mae and Freddie Mac, have been pushing lenders for years to adopt eMortgage strategies.
On the warehouse side, most banks have been reluctant to adopt an eWarehouse strategy because the efficiencies inherent in the eMortgage process would reduce the amount of time loans sat on the warehouse line before being purchased, thus cutting into the bank’s revenue from interest and fees. In recent months, several forward-thinking warehouse banks like FirstFunding and Merchants Bank of Indiana, have overcome this reluctance and are poised to provide funding for and purchase loans closed via eClosing and eNotes.
Though the industry hasn’t fully dived into the complete eMortgage, it also hasn’t been totally reluctant to adopt digital origination strategies either. According to the 2015 Xerox Path to Paperless Survey, nearly 80 percent of survey respondents indicated they were utilizing eDelivery to send disclosures and other documents to borrowers. In addition, almost 75 percent said they had implemented paperless origination and underwriting processes, and just over 70 percent are incorporating eAcknowledgement and eSignatures with eDelivery of disclosures. More than 60 percent of respondents are delivering closing documents to their settlement agents electronically, and more than half are eDelivering closed loan files to investors.
These numbers aren’t that surprising as many lenders have adopted these strategies in order to comply with the TILA-RESPA Integrated Disclosure (TRID) timing requirements, and data from the survey backs that assumption up, as 92 percent of respondents said they expect to see an increase in their use of eDelivery because of TRID. However, there’s a very clear point in the process where digital origination strategies drop off.
Based on the survey, only five percent are utilizing eDelivery with eSignatures at the closing table (i.e., eClosing), and just four percent are executing a complete eMortgage where the promissory note is being signed electronically (i.e., eNote). For brokers making the transition to mortgage banking, this presents a significant opportunity to differentiate themselves in the market while also gaining much-needed efficiency.
Expense management is a critical concern for emerging mortgage bankers. Start-up costs and overhead can quickly eat into available capital, which can have a negative impact on overall net worth and impede the ability to increase production. Using the full complement of digital origination strategies (eDelivery, eSignatures, eClosings and eNotes) eliminates many of the “sunk costs” inherent in the traditional closing process, such as shipping and labor expenses for the sole purpose of organizing and delivering documents to the investor. This frees up capital that can be invested in more mission-critical areas like quality control, underwriting and compliance.
Speaking of compliance, this is another area that can torpedo an emerging mortgage banker. Anytime you are a beginner at something, having the time to self-correct can mean the difference between success and failure. When a correspondent lender can submit their loan file information to the investor electronically, that gives the investor more time to review the loan pre-funding, and should errors be found, the lender then has time to address the errors before reaching the closing table and potentially having the investor reject the loan.
Furthermore, most eSignature platforms have built-in quality control mechanisms to ensure every document is signed where and how it should be, and with eClosings, all closing documentation is stored electronically, thus jettisoning several menial post-closing tasks that can have significant implications for compliance.
If expenses and compliance represent two of the three legs emerging mortgage bankers need in order to succeed, managing relationships with investors and warehouse banks is unequivocally the third. Metrics such as loan quality, pull-through rates and days on the warehouse line must be continuously managed to ensure small issues don’t become larger problems that negatively impact these critical relationships.
As previously mentioned, digital origination technology can have a demonstrable impact on loan quality, but, it can also aid in pull-through and warehouse line management. Most warehouse banks will start off with a best-efforts engagement with emerging mortgage bankers, as not every broker is able to make a successful transition into mortgage banking.
As the emerging mortgage banker is able to achieve high pull-through rates and demonstrate consistent loan quality, they will garner better pricing, though those incentives are going to be capped. Digital origination strategies aid in achieving a high pull-through rate by creating a lean, fully optimized origination environment that supports quick turn times and eliminates the errors associated with manual, paper-based lending.
Of the two kinds of warehouse relationships, mandatory delivery is the far more profitable of the two for the mortgage banker. The major deciding factor in transitioning from best-efforts to a mandatory delivery engagement is the emerging mortgage banker’s ability to demonstrate operational efficiency, sound fiscal management and foundational understanding of mortgage origination–all of which can occur much more easily when digital origination strategies are used.
Once the type of engagement has been established, the emerging mortgage banker must turn its attention to managing the warehouse pipeline. What digital origination strategies can offer in this regard is the ability to dramatically decrease the number of days loans sit on the warehouse line between closing and purchase. Not only does this save money in the form of reduced interest and fees, but it also enables the emerging mortgage banker to do more with less.
For example, an emerging mortgage banker with $250,000 in net worth could secure a warehouse line worth roughly $3.75 million. Because most loans sit on a warehouse line for around 20 days due to the inefficiencies of the current origination process, the banker has to be conservative with how much of the line is used at any given time. By leveraging digital origination strategies, including eNotes, this same mortgage banker could achieve the same volume using a warehouse line one-fifth the size (i.e. $750,000) because of the potential to reduce that turn time from weeks to a day or two.
To put it another way, that mortgage banker could originate five times the volume without needing an increase in their line of credit. That kind of efficiency and success is what establishes a productive relationship with investors and the warehouse provider and enables emerging mortgage bankers to rise up the ranks to achieve full-fledged mortgage banker.
While the mortgage bankers have been hesitant to adopt eMortgage strategies, they are not pessimistic about the future of the eMortgage in mortgage banking. In the Xerox survey mentioned earlier, more than half of all respondents said they believe eMortgages will account for at least half of all loan production within four years, which is a nearly 55 percent increase over responses to that question in 2014.
Clearly, the industry sees the value in digital origination, even if it hasn’t implemented it in full force. For the forward-thinking, aspirational-minded mortgage broker, now is the time to make the digital leap into mortgage banking.
Jeff Bode is owner and CEO of Addison, Texas-based lender Mid America Mortgage Inc., which operates in the retail, wholesale and correspondent lending channels. Jeff can be reached by e-mail at Jeff.Bode@MidAmericaMortgage.com.
This article originally appeared in the September 2016 print edition of National Mortgage Professional Magazine.
The CFPB’s Home Mortgage Disclosure Act (HMDA) changes mandate that new or modified data points be collected during the residential mortgage loan origination process, and require more frequent reporting than many lenders have had to do in the past. As with most major initiatives, the new requirements will certainly produce significant process impacts for lenders, borrowers and external vendors, along with a number of risks that are associated with the implementation phase.
While the exact nature of those risks will vary from institution to institution, there are four broad categories that are impacted by the expanded HMDA requirements, with dependencies and risks in each category as follows:
I. Expanded data capture related to applicants
In this category, important changes to loan applications will be required to accommodate the 48 data points that must be captured, including 25 newly created points; 12 points that were modified from their previous form, and those that continue to be required, without changes.
One key area of change is the reporting of ethnicity and race into more granular categories that are better aligned with the disaggregated categories utilized by the U.S. Census Bureau. For example, identifiers such as Hispanic or Latino that have been used in the past will be disaggregated into groups such as Mexican, Puerto Rican, Cuban, etc. This will allow federal agencies to take a deeper look into the way these various groups are served by the mortgage industry.
In addition, the updated HMDA data capture points will include the age of applicants to evaluate how the industry is serving the country’s distinct age groups, such as Millennials, Baby Boomers and others. Debt-to-income information for the applicant, as well as the results from Automated Underwriting Systems, will also be reported.
II. Data related to the property
The current loan application form asks for Property Type, but going forward, Method of Construction will replace the Property Type description, and the number of units associated with the property will also be collected. Other required information includes the value of the property that is used to secure the loan.
III. Data related to loan features
All loans that are ‘dwelling secured’—including home equity lines of credit for the first time—will be reported on beginning Jan. 1, 2018. Other elements that will be reported include loan terms; costs such as points and fees or origination charges; discounts, credits, and introductory rate periods, non-amortizing features of the loan, and so on.
IV. Universal loan identifiers for each loan
Each loan will be associated with its own Universal Loan Identifier (ULI) on or after Jan. 1, 2018, for covered transactions. The ULI consists of the lender parent company’s LEI, which is obtained from a Web site, plus 23 characters which are unique to the transaction and a two-character check digit.
The ULI will be associated with a loan from cradle (initial application) to grave (final disposition of the loan), as well as through subsequent HMDA reporting events such as loan purchases. This means the ULI for a loan must always be in the system of record.
The primary unknowns
Some of the data requirements associated with the new Uniform Residential Loan Application (URLA) /Fannie Mae Form 1003, such as the collection of Race, Ethnicity and Sex, cannot be collected before Jan. 1, 2018. However, while the URLA has already been redesigned to accept this information, the GSEs have said that lenders will not be required to start using the updated applications by Jan. 1, 2018, though lenders may do so if they so choose. More information on the deadline by which lenders must switch over to the new URLA will come at some future point.
Regardless of whether or not lenders use their current forms or the newly redesigned forms, the expanded HMDA data elements must still be captured and reported as of Jan. 1, 2018. If systems and processes are not ready by then, alternative measures must be identified and planned for to accommodate the expanded HMDA data collection on day one. For example, lenders may need to create and implement an Addendum form to accompany the loan application in order to capture the required government monitoring information on time. And of course, technology vendors will be working closely with document providers and the GSEs to help ensure that everything that CAN be ready IS ready by Jan. 1, 2018. Nonetheless, if an addendum document is needed in order for lenders to deliver the expanded/modified HMDA information on time, the data files will have to be slightly different to accommodate the different decision engines used by the GSEs. This means that lenders must be prepared to produce two data files—one for Fannie Mae and another for Freddie Mac—to send along with the GSE-specific loan application.
In addition to these considerations, each lender, technology partner and document provider will likely need to be prepared for a range of other impacts as well. For example, lenders with a loan origination system that is used by their internal loan officers must have a user interface (UI) in order to utilize that system. The lender may also have an internal point-of-sale system that is independent of their fulfillment system—requiring a second UI.
Another important impact is the requirement to report HMDA data in an electronic format starting in 2018. This means that origination systems must be able to generate the Loan Application Register and submit it to the Web-based submission tool currently being developed by the CFPB. And we’re just scratching the surface in terms of the many wide and deep layers of impact across nearly every operational category.
Leveraging the lessons of TRID
The implementation challenges and risks associated with collecting and publishing all the data associated with HMDA are clearly very significant. However, because the timing of HMDA follows closely on the heels of TRID, we can leverage some of the relevant lessons learned from the TRID implementation t, as follows:
►Collaboration is vital across the industry, particularly between lenders and their technology and document providers. Seek out change management best practices and look for opportunities to confer with colleagues and subject-matter experts.
►Ensure that the impacts of implementing the expanded HMDA data collection requirements are fully understood, both at the organizational level, as well as beyond the organization to the wider group of stakeholders—including customers, business partners, vendors and regulators.
►Even when all the pieces of the puzzle are still unknown, move as far forward as you can with what you do know. Conduct a thorough impact assessment, develop a well-formulated implementation plan, and of course, work through the contingencies associated with a variety of scenarios for areas that are still uncertain.
As we learned with TRID, even the best readiness plans don’t always go as intended, especially in an environment where change can occur very quickly, and for a variety of reasons. We also saw—once again—how interconnected the industry is, and how powerful that can be when we work in tandem toward the same goals.
The new HMDA requirements will enable a great deal of important analysis and deliver insightful feedback on how well the industry serves its many unique and varied customers. While the distance between today and the future state—currently set for Jan. 1, 2018—is likely to see some twists and turns, at the end of the day the industry will certainly rise to this latest challenge.
Richard Gagliano is managing director, product development for Black Knight Origination Technologies. Rich is responsible for overseeing the product roadmap, requirements and delivery of existing and new technologies within the Empower and LendingSpace suites. With more than 20 years of experience in the financial services industry, he brings a wide range of lending product experience to this division.
With just two strategic modifications to their processes, wholesale lenders have the potential to unlock a vast new market opportunity. The key lies in strategic abandonment and innovation: Lenders must leave behind processes that hold them back and adopt systems that challenge the status quo, all while working in a space restricted by regulations that are often vague and difficult to manage.
The mortgage industry, like many others, is experiencing fast growth and big profits, but with increased growth comes greater competition. To get ahead, lenders must strengthen their relationships with brokers and beat large financial institutions at their own game. By implementing validated loans and compliance automation, lenders can eliminate barriers to success, improve their business functionality and take a greater hold on the housing market than ever before.
Identify the problems
Facing wholesale lenders today are several issues that can limit success or even render them obsolete in this constantly-changing market. Working with processes that leave them at risk for fraud, managing compliance with government regulations, and competing in a quickly-growing field are challenges that, while daunting, can be overcome.
The basic foundation of any relationship, especially one rooted in finance, is trust. And while the need for “truth in lending” is now federally-mandated for consumers, honesty and trust between wholesale lenders and brokers is equally important. The fallout from the sub-prime mortgage crisis cast a dark shadow that has been difficult to relieve. Also problematic is the long-term responsibility wholesale lenders alone must shoulder, as the broker’s liability for a the validity of a mortgage ends when his commission is paid. Lenders need a system to protect them from fraudulent applications and data breaches that harm both their bottom line and their partnerships.
Consumers have long-maligned the mortgage process as lengthy and confusing, which prompted enacting of the TILA-RESPA Integrated Disclosure Rule (TRID). While TRID aspired to improve transparency and clarity for homebuyers and ensure a better understanding of the law for those in the mortgage industry, it created challenges for brokers and lenders. With strict delivery and accuracy requirements for loan estimation and closing disclosure, the process now allows very little room for deviation. Brokers shopping around for the best deal for their clients understand the importance of speed in meeting government regulations – trading documents back and forth is no longer an option. Efficiency is paramount.
Right now in the mortgage industry, the number of key players is increasing steadily. Today, there are more homebuyers, more real estate agents, more brokers and more lenders. With the focus now on customer experience, lenders must provide a fast, simple, painless mortgage process to edge out the competition. The better they meet customer expectations, the more their business grows. Increasing efficiency through automation is imperative.
As a whole, the mortgage industry lags behind other fields when it comes to technology adoption. Even with digital signatures and cloud-based storage, there are several steps along the way that involve human interaction—documents are printed and scanned, financial data is retrieved by manual request, and the potential for human error is high. Restructuring the process to include validated loans and compliance automation not only alleviates many issues plaguing lenders, but provides opportunities to tap into a larger portion of the market.
Why validated loans? Because the process can be automated without human interference, a validated loan reduces the risk of fraud, enables transparency in the process between brokers and lenders and simplifies the loan process for all involved. The information presented in a validated loan is digitally accessible outside of the documents and is less likely to be compromised. It reassures the lender the application is accurate and facilitates trust in the partnership.
On their part, brokers want clarity and efficiency in their interactions with lenders. With application requirements varying from lender to lender, providing brokers with a system that clearly defines and automatically manages those requirements makes for a smoother process without time-consuming back-and-forth exchanges. It’s helpful to lenders, too, because loans validated to their own product matrix are easier to underwrite.
When it comes to managing federal regulations, including TRID, implementing compliance automation means big improvements for wholesale lenders. Requirements change over time, but platforms built to update automatically ensure lenders are always current and protects them from unintentional infractions. Compliance automation saves money, eliminating the need for large, costly teams to manually oversee the process.
In the past, many brokers preferred to handle loan estimation and closing disclosures themselves, citing a desire to control where the loan is placed. After the mortgage crisis, however, many brokers now concede responsibility for compliance to the lenders. Today, lenders who utilize automated compliance systems are often preferred–because TRID sets such strict deadlines, time is of the essence. The faster a lender can process loan documents and stay in compliance, the happier the customer is with the broker and the greater the chance for repeat business.
Beyond a better business model
Adopting a platform that accomplishes both loan validation and compliance automation solutions can be a game-changer for wholesale lenders. The right system can reduce fraud, develop an efficient process based on the lender’s specific requirements, and manage adherence to federal regulations, all leading to reinforced relationships with brokers. Lenders will be able to improve the consumer experience, as well, which has taken second-billing to compliance before automated systems were readily available.
It can also make lenders far more competitive with major financial institutions, who typically have technology in place long before smaller entities can afford it. As the price of software continues to go down, and the added value increases exponentially, going digital is no longer out of reach. Compared to big banks, wholesale lenders are smaller and more agile, making them better able to adapt to market trends. As such, wholesale lenders are primed to take more of the market share than ever before.
Jorge Sauri is an entrepreneur, CEO and founder of LendSmart, a unified point-of-sale platform. With more than 20 years of experience in the finance industry, Jorge has an excellent track record of building successful businesses. He can be reached by phone at (512) 637-9751.
Question: As a result of an internal audit, we just found out about two reverse occupancies. It turns out that our investors were already aware of this happening and were about to send us repurchase requests. We received the repurchase requests and it seems we have no way out but to do the repurchases. What could we have done to prevent this from happening in the first place?
To some extent, this situation can be avoided. However, when it comes to mortgage fraud, nothing is foolproof. A “reverse occupancy” occurs where a borrower buys a home as an investment property and lists rent proceeds as income in order to qualify for the mortgage, but instead of renting the home the borrower occupies the home as a primary residence.
Typically, these schemes have certain markers. Here are the most salient:
►Subject properties are sold as investment properties;
►Purchasers are first time home buyers with minimal or no established credit;
►Purchasers have low income but significant liquid assets that are authenticated by bank statements;
►Purchasers make large down payments;
►The appraisal has a comparable rent schedule (to show expected rental income from the subject property);
►Purchasers present “rent free” letters stating they are not paying rent to live in their primary residence.
►Ethnic commonality among the purchasers and other parties to the transaction; and
►Transactions occurring in a specific geographic location.
Just because one or more of these are present in a mortgage loan transaction does not necessarily mean that the transaction is a reverse occupancy scheme.
If the financial institution is going to prevent this type of mortgage fraud, the best approach is to ensure prudent origination, processing, and underwriting practices, with an emphasis on “Red Flags” that may occur in the loan documents. For instance, closely reviewing liquid assets as compared to income and the source of qualifying income can identify a potential reverse occupancy scheme. I would further recommend that training be given not only to the operations staff but also to loan officers. In our training on Identity Theft Prevention and Anti-Money Laundering–such training being statutorily required of financial institutions–we discuss many Red Flags.
Ultimately, if this kind of mortgage fraud is to be prevented, the following initiatives would be advisable:
►Periodically conduct vendor compliance procedures of third-party originators
►Train, Train, and Train, either through in-source or out-source
►Establish a “Zero Tolerance” policy for preventing mortgage fraud
►Share information through sales and operations meetings
►Report all suspicious activity through established channels
►Perform a quarterly audit of loan transactions of investment properties
►Ensure that quality control does audits for investment property transactions
Jonathan Foxx is managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. If you would like to contact him, please e-mail Compliance@LendersComplianceGroup.com.
Great leadership is often the deciding factor in whether an organization achieves extraordinary success or miserable failure. But all too often when we think of leadership, we hold too narrow a definition of what we mean. We may know the CEOs of several organizations. We may know the head coaches of our favorite sports teams. We may know the presidents, prime ministers and other world leaders in many countries. But, do we know the CFO or COO of those same organizations? Do we know the organization's vice president of sales? And what about sports teams—do we know the assistant coaches, offensive coaches and defensive coaches? We know the world leaders, but do we know their support staff—the ministers of the various departments that organize their respective countries?
While the single leader at the top of large businesses, sports franchises, and countries may have name recognition, most of them will tell you how largely they depend on the people working with them to manage their respective enterprises. Great leadership does indeed make the difference, but that doesn't just mean the leader at the top—it means the entire leadership team. If your organization is going to flourish, you need solid leadership positioned in every department. In this article, I would like to discuss some tips for building an unstoppable leadership team.
Keep it small
When you get too many people with strong opinions trying to move in the same direction, it can get messy. Your core leadership team should be small enough to allow everyone a voice and yet still permit you to be nimble in your decision-making. If you're in an hour-long meeting and everyone doesn't get a chance to talk, you've probably got too many people on your leadership team.
Give them autonomy
Leaders cannot truly lead unless they are allowed to make their own decisions for their teams. If you are at the top of your organization and you are trying to build a strong leadership team, you should give each leader the flexibility to run his or her own department. If they are worthy of the position they're in, they'll know their teams far better than you do. Empower them to make decisions for their own teams, and you'll get much better results.
Maintain shared values and goals
You don't want to micromanage your leadership team—you want to empower them to execute in the way that they think best for their departments. That's where autonomy comes in. That being said, there is a face of leadership in which you do want to control the behavior of your leadership team--and that is in how well they adhere to your mission. How they go about fulfilling the mission is one thing but, if you don't have every member of your team united under the same vision, your team will be pulled in each and every direction. You've got to make sure each member of your leadership team is striving for the same thing. You've got to have shared values you are striving to keep and goals you are striving to reach.
Foster an environment of trust
It really doesn't matter how competent your leaders are as individuals; if they don't trust each other, they will not be able to function as a team. Now, there are a few components to this. First, there's accountability. You have to make sure each member of your team has the competence and willingness to live up to his or her expectations. If any single member of your leadership team cannot be relied upon to get the job done, the entire team will suffer. So, your leadership team first and foremost must be dependable. The second component of trust is vulnerability. Basically, this means that the members of your leadership must be comfortable with one another. When leaders on a team put up walls, important information does not get communicated, factions form, and misunderstandings abound. You have to have a team that is open and honest in communication. The leaders on your team must be willing to get "naked," to strip away all of their defenses and reveal themselves for who they really are. Unless this happens, you cannot really have authentic trust.
In some business circles, meetings are considered to be the great enemies of productivity. They are considered bureaucratic formalities that waste time that could be better spent getting things done. When you're talking about work, the thinking goes, you aren't actually working. This may be true in certain contexts but, when it comes to your leadership team, meeting as often as possible is absolutely essential. In a way, this all goes back to trust. It's fairly common knowledge that the more time you spend with people, the more you come to trust them. If the members of your leadership team only spend time in their own departments and never meet with other leaders, how can they really begin to trust one another? Another important reasons that leaders should continually meet together, though, is inter-departmental communication. Misunderstandings are all too easy in the workplace. If your leadership team seldom gets together to discuss what's going on in the business, how are the supposed to know what's going on in each department? Meeting together on a regular basis gives the team members the opportunity to understand the business from one another's perspective.
Share resources and insights
It's important that the members of your leadership team view themselves more collaboratively than they do competitively. When they see one another as threats, they will conceal information from each other. Then, because each department is doing its own work in isolation, you end up duplicating a lot of expenses and procedures. When the members of your team see themselves as an actual team, though, they will share resources and insights with one another. When this happens, you will find redundancies in your organization that you can eliminate and your organization will be made better off all around. The members of your team must be of the mindset that if it's better for the organization, then it's better for them as well.
One final thing to call attention to is the importance of placing committed individuals on your leadership team. You want to have people in place who have demonstrated a long-term dedication to your organization and its values. Otherwise, you will constantly find yourself having to retrain people and backfill the implementation of strategic objectives. When you can, promote from within. People who have worked in your organization for years not only know your organization well, but they have also demonstrated loyalty and you can trust that they will likely stick around. If you must hire for your leadership team from outside your organization, try to seek out candidates who have been with their previous employers for a reasonable length of time. Leadership is all about the long game; you need people on your team who can stick it out.
There are many other important factors in building a strong leadership team, but this should be a good start. The important thing is to remember that there really is no such thing as the "self-made man" (or woman). Every leader relies on others to support their success. As a leader, you are only as good as those with whom you surround yourself. Build a great leadership team, and you will truly be unstoppable.
David Lykken, a 43-year veteran of the mortgage industry, is president of Transformational Mortgage Solutions (TMS), a management consulting firm that provides transformative business strategies to owners and “C-Level” executives via consulting, executive coaching and various communications strategies. He is a frequent guest on FOX Business News and hosts his own weekly podcast called “Lykken on Lending” heard Monday’s at 1:00 p.m. ET at LykkenOnLending.com. David’s phone number is (512) 759-0999 and his e-mail is David@TMS-Advisors.com.
Compliance requirements have reached new heights in recent years, impacting virtually everyone involved in mortgage lending regardless of job function/responsibility. As a result, effective compliance training has become an ever increasing challenge to the various stakeholders in the industry. This article addresses some of those challenges in an effort to provide guidance for those tasked with compliance training of existing experienced staff as well as new staff entering the profession or taking on new roles of responsibility.
In this article, we will examine the effectiveness of live classroom versus online education programs and the most effective training methodologies for new employees.
Having been an educator for more than 30 years, I can certainly attest to the advantages to the live classroom experience where the class facilitator/instructor can receive immediate visual feedback from the class participants as to the effectiveness of the presentation content and delivery methods.
In that same time period, I have also been on the other side—as a classroom participant in hundreds of live classroom courses and was able to provide some of that immediate feedback to the instructor.
I have also taken numerous online and synchronous courses and as a certified distance education instructor I developed a seven hour online course in 2014 that was approved by the International Distance Education Certification Center (IDECC), the internationally-recognized agency for distance education instructor and course approvals.
There are advantages to both educational venues which we will now begin to explore.
As you prepare to develop your educational program some of the factors to consider are:
1. Will the audience be on campus or remote, or a combination of both?
2. How large is the audience you are attempting to reach?
3. Is the subject matter conducive to live classroom or online presentation or both?
4. Do you have skilled trainers or will you be using subject matter expert (SME) / staff?
5. Will the training materials be submitted for CE approval? Involve completion certificates?
6. What is the length of the training session?
Consideration #1: Will the audience be on campus, or remote, or a combination of both?
Live classroom training: If the training will be on campus in a live classroom setting, what classroom facilities are available?
►Will class room style seating be available?
►Does the room have Internet access for Web-based content during the class?
►What audio/video equipment will be needed and available?
►Will there be any handout materials that will need to be printed in advance?
►Will they be provided by the instructor/facilitator?
Instructor(s)/facilitator(s): Local or will travel/lodging arrangements be needed?
►It is possible to include remote participants under certain circumstances: Provide the training materials in advance and/or have phone conference capabilities so they can listen in and follow along with the training materials from remote locations.
Off-campus facilities: If the training will be live classroom, but take place in an off-campus facility, many of the same questions noted above will be applicable, particularly the classroom setup, audio/video equipment availability and cost, and phone conference capability if any of the attendees will be participating from remote locations. Classroom style is the most preferred vs. seating in the round for those participating in the class room setting.
Online training: In today’s high-tech and globally mobile world on-line education offers the most flexible training options for employers and employees. If the training is to be conducted online, there are numerous options available including:
►Pre-recorded videos that attendees can access independently on their own schedule which can include proprietary training content developed internally as well as take advantage of a broad range of recorded training videos accessible on Web sites such as the Consumer Financial Protection Bureau (CFPB), Fannie Mae, Freddie Mac and the U.S. Department of Housing & Urban Development (HUD).
►Live Webinars can be presented in several formats, including less expensive teleconferencing options than webinar links. By providing the attendees with a PDF copy of the presentation materials ahead of time, the presenter can then direct everyone on the conference line as they progress through the materials, versus live screen-sharing. This also reduces technical hardware/software issues some of the attendees might experience attempting to link to a webinar versus dialing into a conference line.
►If interactive video conferencing is the preferred method, there are several free or low-cost Web conferencing providers, including FreeConference, Join.me, AnyMeeting, Speek, Google Hangouts, and GoToMeeting just to name a few.
Consideration #2: How large of an audience will you be attempting to reach?
If the training is via live classroom setting, will the classroom accommodate everyone in one session or will you have to split the training into multiple sessions. If multiple sessions are required, can they be achieved in the same day? If not, that impacts the facilities availability, even for on-campus training where multiple departments utilize the same training room, travel arrangements for any out-of-area instructors, etc.
Case-in-point … every two years, I have been conducting a seven-hour compliance training class for one of our client’s underwriters and appraisers. The attendance size is so large we have to split the training into two separate days. This definitely creates numerous logistics issues which we will cover in the answer to question 6.
Consideration #3: Is the subject matter conducive to live classroom, an online presentation or both?
Most educational content can be effectively delivered via either medium, especially with the recent technological advancements in Internet-based communication hardware and software. It is also dependent upon whether the compliance training subject matter is required to be taught in a class room setting or if online training is acceptable. It therefore becomes a decision based upon resource allocation, proximity, complexity of content relative to the experience and skillset of the participants and regulatory or enterprise requirement.
Consideration #4: Will the training be conducted by skilled trainers, subject matter experts (SME)s or internal staff?
The answer is heavily dependent upon the complexity of the training content, the size of the enterprise the training is designed for and staff resources. This article is really speaking to the companies and enterprises who do not have skilled trainers on staff. Fortunately, the industry has an abundance of SMEs who can share their knowledge and expertise as it relates to the numerous provisions within Dodd-Frank, TRID, or virtually any compliance subject we deal with. A good SME resource is the Collateral Risk Network, with membership covering every facet of the industry.
Consideration #5: Will the training materials be submitted for CE approval?
What sort of completion certificates (if any) or recording method will be required to demonstrate completion of the training? Many of the attendees will be involved in various certification programs that require a certain number of continuing education course hours to be completed for each certification renewal cycle. If this applies to your group, then identifying the submission requirements and gaining CE credit approval can add significant value to the training.
Consideration #6: What is the length of the training session?
The length of the training session can have a significant impact on department staff coverage, logistics of attendees if conducting a live classroom training, whether the length of time covering the materials is sufficient to qualify for continuing education credit to the respective certification agencies, etc. As mentioned earlier, if being conducted by guest lecturers or trainers, travel and possible lodging arrangements will need to be coordinated with the training dates. Obviously recorded online videos offer the most flexibility for the training experience, but do present challenges regarding the level of participation by the attendees who might be tempted to multi-task during the training session. This is less likely to occur in employer-sponsored training than an industry-related training for mandatory certification renewal. The second preferred option is to conduct a live Webinar, but this will require participation at a specific date/time for everyone attending. Fortunately, sophisticated software does exist today that can monitor remote attendees level of participation during the session if that is a concern of those developing and/or conducting the training.
In this article, we discussed the fact that compliance requirements have reached new heights and as a result, increasing the need for effective compliance training which has become an ever increasing challenge to the various stakeholders in the industry. This article addressed some of those challenges taking into consideration numerous variables relating to live classroom presentations, recorded online videos as well as live online presentations including some resources for free or low-cost online applications intended to assist both large well-capitalized enterprises, as well as small low-budget companies struggling with ensuring their staff have sufficient compliance training.
Greg Stephens, SRA, MNAA, CDEI is chief appraiser and senior vice president of Compliance for Metro-West Appraisal Company. Greg also serves as chair of Government and Legislative Affairs for the National Appraisal Congress; vice chair of the Government Affairs Council for Collateral Risk Network; and is a member of the Government Relations Committee for the National Association of Appraisers.
When I was approached about writing an article from the “Millennial” perspective explaining my thoughts on the mortgage industry, buying a house, taking out loans, etc., my response was, “What thoughts?”
As shocking (and quite honestly, shameful) as it may seem, I believe this—let’s call it, the Millennial Mindset—is common among all individuals in the 18- to 30-year-old range. So what exactly is this Millennial Mindset? Well, drawing from my personal experience and the collective experiences of those around me, I would define it as a frame-of-mind cultivated by notions of immediate gratification, as perpetuated by our fast-paced, high-tech American society.
I am certain that some of you Baby-Boomers have watched your beautiful, innocent, bike-riding children evolve into tech-mongering teens (notice that I say “watched” because I can bet that most of you have not yet managed to shatter the barrier between you and your kids—I am referring to the thin glass of their iPhone screens—leaving you to sit by hopelessly and watch, rather than engage. But don’t worry, they will come around … when their Pokémon Go crashes and they have nothing else to do besides sit and chat with Ole Pop).
All joking aside, “breaking through” is a difficult feat and you are most certainly not to blame … and honestly, neither are we. With societal pressures to get our BA (Masters, Ph.D.), land a lucrative career and a lifelong partner, on top of recent technological advancements: Instagram, Tinder, Facebook, Snapchat, etc., there is simply no chance of getting us to expend our energy upon something that will not affect us RIGHT NOW. How can we look at the bigger picture when the world around us is demanding that we look at a two-inch by five-inch inch screen? My theory is, the instant gratification that our cellphones and laptops provide have conditioned our brains to operate in short-term timespans.
Now, I am a 21-year-old UCLA student currently gunning for two BA’s—one in communications and the other in Italian—while simultaneously holding down the fort at the UCLA Extension Writers’ Program, managing several organizations on campus, and doing freelance writing projects on the side. I have also been fortunate enough to grow up in an incredible household with loving, supportive, and communicative parents and an older brother whom I have watched deal with the ups and downs of adulthood—more often than not surfing the waves of the mortgage industry, trying to stay above water. On paper, one would say I have been supplied with the proper tools and experiences to approach my future with confidence, stability, and patience. However, despite my efforts (and theirs), I still find myself overdosing on Starbucks, In-N-Out and shoes, consequently rummaging through my pockets and old birthday cards at the end of the month, searching for spare change to make rent for my overpriced, LA apartment. No matter how responsible, well-rounded or prepared I consider myself, when it comes to matters of saving and investment—I am simply hopeless.
The truth is, the only matters of loans and investment that we Millennials are concerned with, are those pertaining to our college educations. Regardless of how quickly we would like to jump into our futures … there is still that looming, dark presence clouding any sense of hope (aka college debt). If one were to ask us about alleviating the stress of future prospects, I can guarantee the first thing on our list is not buying a house, it is escaping that seemingly perpetual doom. However, what we tend to forget is: Just because we are completely consumed by this struggle, it does not mean all other struggles are at a standstill waiting patiently until we get safely situated in the saddle. In fact, they are currently snowballing alongside us and if we do not address them now, the black hole of adulthood will swallow us whole. With that said, I can assure you that most of us would rather wait until we are in the middle of that black hole, moneyless and homeless, to address it—at which point we will come banging down the doors of the nearest mortgage company, begging the loan officer for help.
Now this is one method, but it is certainly not the most efficient or healthiest regarding long-term goals. Gradual investment is practically a foreign concept to the Millennial generation, as we need to learn to walk before we can run and embrace the necessary baby steps toward that white picket fence (or if you are like me, toward that 1960s post-modern home). This is where you come in.
As I said, we will come running when the times comes, but you can do more than sit around hoping that the doors we bang down happen to be those of your mortgage group. It is all about planting the initial seed. Be it an Instagram ad, or a workshop on our college campuses, you have to convince us that mortgage loans are easy, simple, accessible … and that you are different from the thousands of other companies inundating our inboxes with complex advertisements. Quite honestly, I could not care less about advertisements reading, “Do you need help lowering your annual percentage rate?” or “Are you looking to take out an adjustable-rate mortgage loan?” That might as well be written in a Slavic language. I would much sooner respond to something that said: “Scared sh#@less about the day you are going to buy a house?” or “Sinking in college debt, and trying to evade further homeowner debt? Even, We bet you never thought about the day you’re going to buy a house until you read this ad … fear not: XYZ Mortgage Group is here to save the day.” Obviously, these taglines are a little rough around the edges, but you get the point.
As silly as it sounds, what would resonate with me is something that does not criticize me for being clueless. In fact, I would like to be reassured that there is a team out there that is going to cater to my lack of knowledge and ease me into the mortgage process. At the same time, I do not want to spend hours learning the ins and outs of the mortgage industry. I do not have time for a five-course meal. I want a nice, super food protein shake that I can sip on my way to class.
Given the two features of the Millennial Mindset that I have discussed: Short-term thinking and technological adeptness, these are the two methods I suggest for breaking through:
Reshaping your approach
Given that Millennials operate on different wavelengths than say, middle-aged, middle-class Americans, it is necessary to form a youth-friendly program that simply and efficiently educates new home-hunters on the process of acquiring and qualifying for loans and taking out a mortgage. Such a program might work best in the form of small two-hour workshops or free consultations that give us a basic idea of what we are getting ourselves into. The key here is basic. This does not mean speaking to us like you would your life-long clients or colleagues. You must remember that most of the people you are dealing with will have no prior knowledge of the industry. Essentially, XYZ Mortgage Group needs to be the Carl Sagan that explains quantum physics and astronomy (mortgage matters) to the layman. Once we bite, then you can reel us in with more in-depth knowledge and personalized advice.
Another key component of “reshaping” your approach is your aesthetic. As I have stated previously, this is a tech-generation—which means a generation constantly exposed to the glamorous high-life via Instagram and Tumblr. Consequently, we are attracted to pretty, shiny things—not things that look academic. I am not advocating a total departure from your pre-existing marketing strategy, just an additional, slightly adapted branch. If you develop specific programs that target the Millennial audience, your publicity and marketing should also fit the bill. Personally, I would aim toward simple, sleek and contemporary—no Times New Roman. I would also consider hiring a photographer or freelance filmmaker who could whip up a series of photographs and a short video featuring hip, young adults embarking on their mortgage journey.
Planting the seed
As I said before, we most likely will not approach you until we are in the thick of our struggle. With that said, have you ever heard of priming? It is a psychological term referring to an implicit memory effect in which exposure to a stimulus influences a response to a later stimulus. In other words, if you plant the seed early on, the first time we hear the term “APR” in our newfound house-hunting mental state, XYZ Mortgage Group will be the first resource we seek out.
So how exactly do you go about planting this seed?
►Avenue A: Contact places like UCLA’s Bruin Resource Center which offers a variety of services to UCLA students and alumni, running the gamut from Career Help to Housing Support. You can relay the information regarding your program to these centers, leave a little swag at the front door, as well as a schedule for those upcoming two-hour workshops, and before you know it, by forming a relationship with these collegiate resource centers, you have formed a relationship with us college students. If our university has trust in you, why shouldn’t we?
►Avenue B: While not every Millennial is fortunate enough to have the input of their parents, many of us are, and although it seems as though we repel the involvement of our elders in an effort to cultivate our angst-ridden and rebellious image…if we are lazy and clueless, we will more often than not heed our parents advice (even if we’re 30, we’re actually 30-going-on-16). Therefore, I would recommend establishing some sort of parent/child program in which you inform your current, full-fledged adult clients of your new program: “By the way, you mentioned you have an 18-year-old daughter. I just wanted to let you know about our Millennial Mortgage Prep program …” and get them to pass along the information—perhaps you even hold a joint consultation.
►Avenue C: Last, but certainly not least, Instagram ads. It might seem specific, but I guarantee it is worth a shot. Everyone, and I mean everyone, has an Instagram. And fortunately for you, the CEOs recently decided to feature advertisements that show up in everyone’s feed. This means that when your precious Millennials are scrolling through the posts of the day, they might stop to watch a 30-second video of a cute, young couple sitting in their old Volkswagen Van with a piggy bank, counting change brainstorming ways to consolidate their finances (a cool new song plays in the background). At the end, the girl jumps into his arms and they spin around revealing their adorable, newly purchased home, at which point the following tagline flashes across the screen: “XYZ Mortgage Group … Making the impossible, possible.”
At the end of the day, it is important that you take my advice with a grain of salt. As I said before, I am a clueless college student—what do I know? With that said, I think that shifting your approach to cater to exactly that—the clueless college student—will get you one step closer to transforming our Millennial Mindset into a Millennial Mortgage Mindset.
Amanda Lucido is a student at the University of California, Los Angeles (UCLA) where she works as an editor and contributor for several literary and art publications, as well as a part-time assistant at the UCLA Extension Writers’ Program. She is the daughter of Paul Lucido, national marketing director at Paramount Residential Mortgage Group (PRMG).
Regulatory mandates are increasing and it doesn’t appear that the climate will change soon. This is both good and bad news. The good news is that many regulations exist to protect the borrower, and others to protect the broader United States financial system. Also, a rapid move to standards in policy, process and data will create significant efficiencies in the market over time.
Many lenders and service providers, however, view the new regulatory and associated standards as a burden. They have a short-term view, which, frankly, is easy to understand. For years, they have faced increasing costs, and the new regulations just add to the financial burden. Even though the industry will eventually settle into a standard set of processes and data, it is hard to imagine because it will require significant investment in training, education and certification. The real challenge to the industry, then, is to expand the short-term view into the future and work to understand and leverage the benefits of standardization. It won’t be a simple snap of the fingers, though. The key will be to strategically move along with the industry to a standards-based model, both internally and with all counterparties.
Just 10 years ago many of the mortgage processes were manual or used technologies that automated core functions, such as loan application, underwriting and core servicing. Moving data and documents through the origination and closing processes required uploads and downloads, faxes and e-mails. Making matters worse, most of the technology providers used proprietary data sets internally, making it difficult to integrate with other off-the-shelf products.
The move to standardization started when the Federal Housing Finance Agency (FHFA)—along with the government-sponsored enterprises (GSEs) and the Mortgage Industry Standards Maintenance Organization (MISMO)—began standardizing the data required to transact business by launching what is now known as the Uniform Mortgage Data Program. Most lenders understand this by the resulting acronyms of Uniform Loan Delivery Dataset (ULDD), Uniform Loan Application Dataset (ULAD), Uniform Closing Dataset (UCD) and so on, yet MISMO remains a mystery to many.
The Consumer Financial Protection Bureau (CFPB) joined the movement by focusing on standards that arose from the Home Affordable Modification Program (HAMP), ensuring borrower care based on those timelines and information requirements. CFPB then announced TILA-RESPA Integrated Disclosure (TRID) Rule or “Know Before You Owe,” which standardized both the processes and forms required to originate and close a loan. Most recently, the CFPB announced a new standard for Home Mortgage Disclosure Act (HMDA) reporting. Again, MISMO was instrumental, working closely with the CFPB, to ensure that data required for both TRID and HMDA leveraged standards when possible.
We expect an ongoing increase in process, regulation and data standards, with some to be announced this calendar year. What many industry participants don’t realize is that many government entities in the mortgage and lending community (not just the FHFA and CFPB) meet regularly for the sole purpose of working towards a standards-based approach with specific regard to MISMO.
MISMO is a complex topic for most business professionals. The data standard involves technology like XML and is represented in a schema of thousands of data elements covering the life of the loan and all portions of the process. For business people, it might as well be Greek. Truth be told, MISMO can also be a challenge for technical professionals, who must expand into deep knowledge of the mortgage business. So why is MISMO so widely used? It is now being adopted across the industry because it was carefully created by industry experts over time and has been battle tested by the GSEs and others. Quite simply, MISMO standards work.
MISMO as an organization has launched two separate certifications: One for software products and one for individual data professionals. Software companies can have their products certified as MISMO-compliant based on a series of questions and answers in an application, by reference or through a third-party review. Individuals can receive the Certified MISMO Standards Professional (CMSP) designation through a combination of education and participation. MISMO offers a full suite of supporting training and education that ranges from hands-on participation in open work groups, to classroom sessions and virtual courses. With these certifications, MISMO adds value to the industry indirectly by providing training and certification, and directly by identifying people and software products that are “MISMO Compliant.”
The CMSP certification process was smartly written to include participation as 25 percent of the total certification points requirement. This encourages active work group participation with extra points for taking leadership roles in work groups and/or serving as work group representative to another work group. Attending more work groups provides exposure to different parts of the model, rounding out an individual’s knowledge and expertise. Also, the time allotment for attending and participating in these work groups is a very feasible couple of hours per month.
At Actualize Consulting, our Mortgage and Fixed Income Practice focuses exclusively on the lending space, with specific attention to mortgage and mortgage-backed securities. We feel that it is critical to stay abreast of MISMO with company and individual involvement.
For our employees, we have established a certification tracking process with checkpoints and regular progress check-in meetings. This group mentality provides support and encouragement while discussing individual lessons learned from each step of the process. To reinforce the importance of this certification, we have added it to each employee’s goals, which also ensures our clients can trust our consultants as experts in all aspects of MISMO. Also, several of our employees teach the classes, so current and future clients can experience our people and their knowledge and expertise in action.
We are exposed to many lenders and technology providers in the work we do in the mortgage data space. Many of our engagements involve testing for UMDP data set compliance or helping lenders become MISMO-compliant. We find that companies involved in MISMO are way ahead of the curve.
Software certification is a formal evaluation process completed to ensure that a software package meets identified functionality, expectations and/or standards. In today’s competitive environment, having one or more third parties provide accreditation to a software package is the best way to give credibility that the application resolves the identified need.
In order to demonstrate how a software certification can add value to your organization, let us look at a real-life example. Recently in the mortgage industry, CFPB introduced TRID. Also, Freddie Mac and Fannie Mae have been working jointly to develop various data specifications under the UMDP that define the data delivery rules for the mortgage industry. These data specifications follow the data models maintained by MISMO. These changes have created a significant need, as mortgage industry participants will be required to deliver data, that follows the MISMO data standards, to Fannie Mae and Freddie Mac, while complying with the TRID regulation.
To assist the mortgage industry in fulfilling this need, our example company produces new software that creates data that precisely follows the rules established in the UMDP data specifications. How can this company give credibility to its new software package? That’s right, software certification! Let’s look at the options.
MISMO offers a certification for software that complies with all MISMO standards, while Fannie Mae and Freddie Mac offer an endorsement for software packages that are fully compliant with the given UMDP data specification. Our example company submits its software package to MISMO, Freddie Mac, and Fannie May for evaluation, and receives favorable assessments from each submission. Now our example company has a MISMO certified software application that is also endorsed by Freddie Mac and Fannie Mae, adding significant industry standing to this newly developed software package.
Though software certifications have been in the industry for many years, it may be a new idea to realize just how powerful they can be. Software certifications add credibility and acknowledgement of the scope of a company’s industry mastery. Also, companies that have software certifications are more easily integrated with Freddie Mac and Fannie Mae for UMDP than companies without. If it were exclusively your decision, who would you call for assistance with UMDP data delivery: a company endorsed by Fannie Mae and Freddie Mac with a MISMO certification, or one without?
So, if you are an executive with a lending institution or a service provider ask yourself the following questions:
►Is our company participating in MISMO?
►Should I have some of my staff receive an individual CMSP certification?
►Are the people we hire to help us with MISMO integration certified?
►Are the software products that are critical to my company MISMO compliant?
Given where the industry is moving, it makes sense to get involved and have at least some focus on MISMO. Depending on bandwidth and other priorities, this shift may be difficult, but it will become critical for your company to be able to transact business using industry standards, specifically MISMO. CFPB will leverage standards and it is safe to assume that they will measure compliance with the processes and data reflected in MISMO.
The industry isn’t going back to the olden days when it was okay to jam data into forms and clean things up at closing. The industry is moving ahead and standards are paving the way. Make sure you are not left behind!
James Adams (left) is a manager at Actualize Consulting with 15-plus years of project management experience in information technology and financial services. He may be reached by e-mail at JAdams@ActualizeConsulting.com. Geran Combs (right) is a senior manager at Actualize Consulting with 21 years of experience in the Financial Services industry, including more than 16 years of data management experience. He may be reached by e-mail at GCombs@ActualizeConsulting.com.
This article originally appeared in the August 2016 print edition of National Mortgage Professional Magazine.