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].
