Jump on the bandwagon – NMP Skip to main content

Jump on the bandwagon

National Mortgage Professional
Jan 30, 2006

Are we there yet?Steve Grantautomated underwriting, technological advances in closing loans When we were younger, many of us remember riding in the back of our parents' car wondering how long it was going to take to reach our final destination. We would ask anxiously, "Are we there yet?" and wait for the excitement to begin. The same has held true through the developmental stages of credit reporting technology. Up until only 15 years ago, many of you waited patiently through antiquated processes, writing reports by hand and waiting on documents sent by snail mail. Most of you have had dreams of a bright future when one day, the "hurry up and wait" syndrome would be a distant memory of childhood road trips and not of closing loans. Well, the good news is we are now, in fact, there, and the past 15 years have been quite a ride. Brokers can unbuckle their seatbelts and stretch their legs because the ride to the future is over. Reliable, fast and accurate services are now available. These advances allow for simplified reports, instantaneous recommendations on how to improve a potential borrower's credit score and integrated systems to pull related information, such as flood reports and insurance information. As a result, with loans closing in a shorter period of time and in a more efficient manner, you are operating at a higher rate than ever before. The start of the journey Before technological advancements, many brokers submitted handwritten applications using Form 1003. Brokers used secretaries with calligraphic skills in order to avoid sloppy applications that they thought might then be construed as a sloppy loan. Once the handwritten applications were submitted, a loan officer would analyze the information and pull the applicant's credit report. The application would then be submitted to a credit reporting agency for the credit investigation process. This process involved research through phone calls and written letters in order to obtain a clear picture of the consumer's credit. This information would then be sent to the lender for evaluation. Since credit scores were not used at this time, this process required an extensive examination of credit history on the part of the lender. Upon the receipt of a mailed credit report, lenders would create a loan strategy for the consumer based on line-by-line analysis and common sense lending practices. After careful consideration, the lender would meet with the borrower to discuss loan options. At this point, it would have been common for a week to pass since the initial application. Once the borrower and lender agreed on the terms, the appraisal was ordered at the same time as the title work, usually for same-day delivery. Many lenders hoped the title work would arrive before the appraisal was scheduled to find title defects that could cancel the loan, which might result in early cancellation of the appraisal. Title work would normally take two or three days, and the subsequent appraisal would be 10 to 20 days later. If the title was clear, the appraisal was given the green light. Twenty to 30 days into the loan process, the appraisal was returned and the number crunching began. This gave lenders a better picture of how the loan should be set up. Many times this process would change the loan completely. After a second meeting with a borrower, the loan was ready to be sent to the underwriter. After meticulous preparation due to stringent requirements, the loan set was compiled by hand. Underwriters physically reviewed every file and determined if the loan was denied, approved or approved with stipulations. Then the file was sent back to the loan officers who reviewed the document again and set the closing date with the title company and borrower. Documents would usually be typed in triplicate with carbon paper, which did not allow for any mistakes. Forty-five to 60 days following the start of the application, the file was ready to close. After closing, the loan packet was copied and sent via snail mail or courier to the investor. One to two weeks later, the broker would receive a check in the mail for the funded loan. The total time, from the beginning of the application to the closing and receipt of the check, was around two to three months. How far we've come In comparison, today's broker can literally get an approval and close a loan within days of application. The last quarter of the 20th century proved to have one of the largest technological booms in history. As personal computers and the Internet went mainstream, the digital revolution paved the way for further development of credit scoring-related products. Instant results and quick turnover are in high demand and brokers are now expecting nothing less than the highest level of efficiency. Due to technological advancements, the originating process is now completely different. Loan officers now have loan origination software readily available on laptops, PDAs and via the Internet. Applications can be filled out over the phone while the loan officer fills in Form 1003 on the computer. With the click of a button, he or she can order credit that will automatically generate title work, appraisals and flood reports. Twenty minutes later, the loan officer will electronically file this information into one of the automated underwriting systems (AUS). Once entered, the loan officer will receive pre-approved loan options he can discuss with the customer. The broker can then present these options to the borrower, and with a few more clicks of the mouse, the disclosure is auto-generated and you can order your appraisal. Two to three days later, the appraisal will arrive via e-mail, where the file can automatically be submitted to the AUS for final approval. Now, the total time from application to closing payment is approximately two to three weeks, in some cases much quicker. Technological demands Recent trends in credit reporting include wireless technology, Web site plug-ins and credit rescoring software. These advancements have combined speed and practicality to meet broker demands. Wireless technology, such as our PDAnalyzer, is allowing mortgage experts to expand upon the convenience of their offices and pull information off-site. You can now pre-qualify candidates for loans anytime, anywhere. This palm-sized office partner provides accurate information when it is most needed. Web site plug-ins are giving mortgage companies the chance to integrate all of their electronic systems. These plug-ins can be added to lenders' Web sites so those applying for mortgages online can get immediate results. After the mortgage application process is finished, the credit score is sent directly to a lender. The company can then make decisions faster based on the electronic application and the instant credit report. For example, one such plug-in we offer is ASPECT, which is an ASP plug-in for electronic credit data transmission. ASPECT is not only easy for the human eye to read, but it is also machine-readable and automates the loan process. It can be used with either an online loan application system or a customized system used within a company. Some plug-ins are not compatible with customized systems used internally. In the event a credit score is less than desirable, there is now software available that will analyze a consumer's credit report and make suggestions on where to make improvements so that the lender can close on the mortgage. For example, our ScoreWizard What If Simulator can accurately predict how a score will be affected by different actions using pre-existing lines of credit. For instance, one consumer had a collection item outstanding in the amount of $4,500. The consumer claimed the item was paid in full. Re-scoring this file to show a $0 balance on the collection item normally would raise the consumer's credit score. However, it actually dropped the score. In this case, the last activity on the account was 18 months prior and re-scoring the file to show a collection balance of $0 showed recent activity on the slow paying account, causing the scores to decline. It is difficult to predict how re-scoring will affect the consumers credit rating. Tools such as our ScoreWizard are able to accurately predict changes in a score because of access to the consumers recent credit activity. Crime prevention While technology makes brokers' responsibilities much easier, it also serves as a means to comply with credit laws. Government legislation is in place to prevent identity theft and fraud. As a result, you are forced to comply with federal regulations during the credit-reporting phase. The Fair and Accurate Credit Transactions (FACT) Act took effect in 2003. This act requires anyone who pulls a credit report to notify the consumer. It has become an additional service for credit reporting agencies like Credit Plus to offer. Once a credit report is requested, a disclosure is printed on the lender's letterhead, making it seem as if the report is being sent directly from the mortgage company. These notifications are not only in place to keep consumers aware of their own credit activity, but also to prevent fraud. If a consumer receives a credit report disclosure, but has not applied for anything requiring a credit report, immediate action can be taken to prevent identity theft, fraud and damage to the consumer's credit history. This can also prevent you from being liable due to negligence. If due process is followed, your company cannot be held accountable for fraudulent activity. According to the National Association of Mortgage Brokers" FACT Act scores study, it is illegal for a credit reporting agency to account for any activity resulting from an identity theft situation. However, if there is nothing indicating identity theft in a report, such as a fraud alert, there can be a detrimental impact on the consumer's chance to close on a loan. Total ID, Fraud Advisor, Appintell and Sysdome are all automated fraud detection products or companies that can deliver fraud information, either standing alone or along with credit reports. Freddie Mac's Home Value Calibrator is an automated valuation model designed to catch appraisal fraud and assign risk scores to an appraisal. Next destination The latest advancements in mortgage technology have allowed for online closings. Consumers can now close their loans online and everything can be done electronically - E-signatures through a signature pad, retinal or fingerprint scans, all of which can be attached to a personal computer, can provide necessary sign-offs for closings. The next step for technology is going to allow automated decisioning for loan officers. He or she will be able to enter the applicant's name, address, Social Security number and the automated decisioning software will evaluate income, debt-to-income, equity and loan-to-value ratio. This system will automatically generate one or two loan options for the borrower. On this path, technology could all but eliminate the need for loan officers, underwriters, closing agents and many other professionals associated with mortgage lending. For now, technology is serving a more reliable and economical function in the credit reporting process. More than ever before, you can rely on it to speed up the processes, comply with federal regulations and simplify mortgage closing. Steve Grant is president and CEO of Credit Plus Inc., based in Salisbury, Md. He may be reached at (800) 258-3488 or e-mail [email protected]
Published
Jan 30, 2006
Manufactured Housing: The New Affordable Alternative

While the housing market is grappling with widespread affordability and supply, manufactured homes are gaining ground as a new alternative. 

Industry News
Dec 03, 2021
Angel Oak Home Loans Opens 3 New Branches

Continues expansion in Western U.S. with new branches in California, Nevada & Utah.

Industry News
Dec 02, 2021
Open Mortgage Names New President

Joe Stephenson, formerly of American Advisors Group, to lead daily operations.

Industry News
Dec 01, 2021
Homepoint Expands Refinance Program Offerings

Now offers Freddie Mac’s new refinance option, Refi Possible, making it easier for many homeowners with a Freddie Mac-owned mortgage to reduce their interest rate.

Industry News
Nov 30, 2021
Non-QM Lender Deephaven Hires Business Development VP

Dallas-based Tim Fisher charged with growing Deephaven’s correspondent business In Texas and surrounding states

Industry News
Nov 30, 2021
Biden Reappoints Powell As Federal Reserve Chairman

A signal that The Fed will continue its policies as inflation surges and economic uncertainty spikes due to an emerging variant of the coronavirus. 

Industry News
Nov 29, 2021