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Meet the 21st century mortgage transaction

National Mortgage Professional
Aug 24, 2005

Meet the 21st century mortgage transactionChristopher MullinsLOS, loan origination systems, mortgage technology A common saying used to describe the advancement of technology is, "The world has changed more in the last 50 years than it has in the last 2,000." Sometimes the numbers are different (20 and 200, 40 and 500), but the point is always the same. Things are changing … fast. That same saying is also often used when describing globalization. Globalization, as defined by author Thomas L. Friedman, is "the integration of capital, technology and information across national borders." Friedman also contends that the advancement of technology is the primary means by which capital and information are moved across these borders. Like the world we now live in, the mortgage industry is becoming "globalized" at an alarming rate. And, like our current system of globalization, advancement of technology is serving as the catalyst for change. Both are changing … fast. Though it can easily be said that the evolving mortgage industry is itself only a small part of globalization, it is, in fact, the world in which we live. It is a world where a lender's and a broker's loan origination system (LOS) were once miles (and days) apart. It is a world where information was once transmitted through fax machines and mail. It is a world where doing business once took weeks, not days. In fact, in today's "globalized" mortgage industry, information and capital are beamed back and forth through the Internet. Loans are closed more quickly than ever before. LOS programs, auto-decisioning engines and compliance interfaces are breaking language barriers and communicating with each other like never before. New philosophies and new technologies The events that led to this point in time are a result of both new philosophies and new technical capabilities. For decades, the focus within the mortgage industry has been "cheaper, better, faster." Mortgage technologists have worked tirelessly to develop the tools necessary to profit off of such technology. Software that was once licensed on-site is now available over the Internet. Loan applications can now be submitted over the Web. Vendors are integrating with other vendors, creating faster, better, cheaper ways of doing business. All of these changes, however, have only fueled the fire. Now, lenders and brokers are looking for "cheapest, best, fastest." The technologists are doing their best to oblige. Tools of the 21st century Some of the fastest growing areas in mortgage technology include: •Data mining—Age, sex, income, loan-to-value and average monthly mortgage payment are just a handful of the thousands of data points regarding millions of consumers at a mortgage lender's disposal. Additionally, the technology to manipulate and use that data is becoming much more efficient. The traditional method of generating leads through newspaper ads and networking can no longer compete with data that can be used to target borrowers in regions miles away who are much more likely to purchase a loan within a given period of time. •Process improvement—Process improvement is self-explanatory. Automated valuation models have in many cases replaced appraisals. Bundled services solutions can provide a borrower with flood, title and other necessary insurances without ever having to pick up the phone. Document imaging has eliminated the need to find storage space for 37 years worth of loan paperwork. •Integration—Historically, LOS programs, decisioning engines, pricing engines and the host of other automated tools used in closing a loan have come from a variety of different sources. For the longest time, these sources did not always play well with each other. Today, industry consolidation has left the technology providers that are not gobbled up by larger companies with an uphill battle for survival. With that in mind, mortgage technologists are continuously looking for ways to integrate with each other. This integration requires breaking the language barriers caused by independently created software products. •Workflow—Simply put, workflow is what makes everything come together. Previously, workflow was the greatest opportunity for inefficiency due to its reliance on humans. Today, workflow management software keeps underwriters and document preparers in line by notifying them when essential data are ready for processing. The payoff All of these enhancements have led to a new era in mortgage lending. It has happened so fast, some may not have even noticed yet. For those who have, the benefits are already being reaped: •Faster—Many will agree that the Internet changed technology forever. In turn, the Internet changed the mortgage industry forever. Loan data can be submitted to a lender in seconds from Alaska to Alabama. Loan decisions that once took weeks are now are being returned to borrowers in two or three days. •Cheaper—Reducing the cost of doing business is a top priority for virtually every lender in the world. Today, advanced lending systems are reducing the amount of paperwork used in closing a loan. Automated compliance systems are reducing the penalties lenders are paying for regulatory violations and the amount of staff necessary to avoid them. Less paperwork, less staff and less time equals a drastically reduced cost. •More efficient—In today's mortgage industry, a broker, working out of his or her home, can view the status of loan data submitted to the lender by uploading the information onto a personal digital assistant or cell phone. That data can be uploaded to the lender directly from the broker's LOS. That same data can then be input directly into the LOS from the broker's home computer. The challenges While many lenders and brokers are adapting and thriving in this ever-changing environment, others are failing. Some of the reasons some lenders and brokers are not surviving or will not survive include: • Old school philosophies vs. new technologies— Though the days of doing business with a smile and a handshake are not over, they have changed. Brokers who rely on networking within their local community for leads are running into borrowers who receive three pre-qualified offers a day through direct mail, e-mail or phone. Several of these offers are for much lower rates than what the broker has to offer. The rates are lower because the competition has embraced innovation, improved its workflow and processes to reduce cost, and is using data to effectively target loan prospects. • Failure to make the right investment— Investing in technology can be as disastrous as ignoring it. Small brokerages that devote more resources to workflow than marketing may suffer from a case of mixed priorities. They may also suffer from an aching bottom line. • Failure to stay nimble— Regardless of the direction technology moves in next, one thing is certain: It will get there soon. Lenders and brokers who invest outside of their means in technology may soon be obsolete as well. Into the future This is an exciting time for lenders and brokers. The industry is booming. Lenders of all sizes are competing on the same field. Technology is giving everyone access to the tools necessary to continue to profit and grow. Business is being conducted cheaper, better and faster than ever before. At that same time, lenders and brokers must proceed with caution. The rate of change continues to increase exponentially. As this industry continues to cross new boundaries, break new barriers and further integrate a once-disparate world, how lenders and brokers embrace this change will determine whether or not it progresses. Christopher Mullins is executive vice president of Orange, Calif.-based Master Financial Inc. He may be reached at (800) 244-8778 or e-mail [email protected]
Published
Aug 24, 2005
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