Shifting the doc prep paradigmPaul Anselmopaper-based processes, automated underwriting, DOS-based technology
Despite discussions of electronic mortgages that have been going
on for more than a decade, mortgages are still one of the most
paper-intensive parts of the financial services industry.
While many parts of the mortgage process have gone from
paper-based processes to ones that are handled via
electronics--like underwriting--there are still enormous amounts of
paper required. Underwriting paper files are still required to be
submitted to lenders for purchase the majority of the time. Very
few are allowing the submission of faxed or imaged copies, which is
now largely automated. Other parts of the process are still largely
paper-based or use inefficient, jury-rigged electronic systems that
attempt to automate processes that were never intended to be part
of a comprehensive electronic system.
The inefficiencies and additional costs of these systems in
terms of time and resources are unacceptable in today's competitive
market environment. Between 2003 and 2005, being a mortgage lender
was all but a license to print money, especially in the non-prime
sector. With the lowest interest rates in a generation, consumers
were demanding new loans, refinanced mortgages and home equity
loans at such a rate that lenders had all the business they wanted,
even if they were using inefficient systems to handle mortgage
documentations. The higher interest rates since 2005 have changed
all of that. The Mortgage Bankers
Association of America expects another double-digit decline in
mortgages this year, following a double-digit decline in 2006.
So the free money flowing days of a few years ago have been
replaced by ones of thin margins and still-declining mortgage
applications. Such an environment demands that mortgage lenders use
best-of-breed documentation systems--ones that maximize the
efficiencies of today's automation capabilities, such as XML and Mortgage Industry Standards Maintenance
Organization (MISMO), and are positioned for future
advancements in mortgage automation.
Outside firms have provided closing documentation systems for
the industry for several years, but haven't kept up with all of the
changes in the industry or advances in technology. Some mortgage
documentation processes are still in the dark ages of paper-based
systems and older operating systems, while the industry itself is
moving toward end-to-end electronic mortgages.
Some of the older closing documentation systems still work with
outdated DOS-based technology. Translation programs, or
"middleware," have been deployed in an attempt to enable these
systems to attempt to be compatible with some of today's newer
online and offline systems, but the conversions of data are tenuous
at best. Conversion of information from one system to another
invariably leads to errors, meaning human intervention is needed to
compare information inputs and outputs in an attempt to find known
and unknown discrepancies.
The problem can be much like the translations between
applications for PCs and Macs. While there are programs intended to
make these conversions seamless, some symbols--like trademark
signs, percent signs, quotation marks and others--may not always
convert cleanly from one system to another.
As more and more of the mortgage industry becomes digitized,
these older systems won't suffice. No matter how much you bandage
or patch them or use middleware or other work-around systems, there
are too many potential points of failure.
If the information doesn't translate correctly, or if it must be
manually entered, it can mean incorrect Truth-in-Lending
informationmeaning possible disclosure or high cost loan
violations. A best-of-breed closing documentation system employs
advanced integration to ensure compliance with all federal, state,
county and municipal laws.
Lenders who employ these new best-of-breed systems, rather than
relying on inefficient legacy systems, will benefit from the
efficiencies and processes that automatically move information
through the system with tight integration. This eliminates manual
re-entry, ensures that the data that goes in the system on one end
comes out of the system on the other end in a secure, trustable
fashion, and generates documents that meet all compliance
standards. Those lenders that stay with older systems will continue
to suffer with the monetary and time costs inherent in them, and
are only postponing the inevitable shift to newer technologies.
To be competitive in today's mortgage environment and to be
positioned for the future, mortgage lenders need to work with a
best-of-breed closing documentation system, and with a vendor that
realizes that simple document preparation is no longer enough.
Smart mortgage lenders look for closing document preparation and
other vendors who are committed to staying on the forefront of the
industry, as well as technology developments to ensure that their
customers--the mortgage lenders--have the tools necessary to
maximize their revenues and profits.
The closing documentation system vendor should warrant that
documents comply with state and federal requirements as well as any
agency and private investor mandates. The documents should also
comply with best-of-breed standards and processes throughout the
industry--e.g., MISMO and Mortgage
Electronic Registration System.
Mortgage lenders need to use a best-of-breed closing
documentation system designed from the ground up. The system needs
to employ data transfer and documentation checks from all popular
loan origination systems--including Calyx Point, Data Track and Encompass--to
ensure accuracy and reduce input time. While many systems have
these pieces, they are not likely utilizing standards for data that
adhere to the MISMO guidelines. The definition for these MISMO
standards for data tends to evolve as technologies evolve. A
best-of-breed documentation system will use XML core technology,
intuitive navigation, customizable fields, defaults and edit
checks.
XML is the accepted best-of-breed standard for exchanging
information across electronic systems, yet many older closing
document preparation systems have yet to incorporate it or have
only a questionable, unreliable conversion program that attempts to
mimic XML.
Defaults make documentation systems easy to setup from initial
installation, while customizable fields enable systems to meet the
needs of forward-thinking lenders who develop innovative products
that need more flexibility in documentation than can be provided
with strictly standardized fields. Defaults enable the user to
pre-fill smart fields throughout the systems. But those pre-filled
fields must also be customizable to meet the needs of the
individual lender.
Edit checks and intuitive navigation make such a documentation
system easy to use for new employees as well as for veterans. This
is important for an industry whose employee base is in a constant
state of flux. There are new people entering the business all of
the time.
The best-of-breed closing documentation system would also work
with MISMO standards for electronic mortgages. While the definition
of electronic mortgages is hard to pin down--because different
people within the industry have different thoughts about how much
automation is necessary to consider a loan an electronic
mortgage--the trend is certainly toward more electronification of
more parts of the process and a complete end-to-end electronic
process. The closing process is the point in the mortgage
origination food chain where documentation is produced rather than
gathered. As such, this pivotal point will lead the way in the
elimination of paper as e-notes gain momentum. Leading vendors in
this space will recognize this and spearhead the revolution in
other areas of the origination and delivery process.
In addition to the advantage of processing business more
quickly--which provides the ability to do more business at a
cheaper cost--these systems also free lenders from focusing on just
moving data from one point to another in the mortgage system.
Whether time was wasted by re-keying information from one system to
another or fixing translation problems, by using these
best-of-breed closing documentation systems, lenders now have more
time to focus on isolating and dealing with true mortgage
exceptions like income tax or wage information that don't match
what was expected, or stipulations that were satisfied at one time
but have since disappeared.
While it may be some time before such a best-of-breed closing
documentation system becomes the de facto standard in the industry,
those mortgage lenders who move to such a documentation system
early will gain a significant advantage over industry laggards.
First, such lenders get the advantages of efficiencies evident
in removing the delays of paper systems and the information
conversion problems of cobbled together electronic systems.
Additionally, these early adopters won't be playing catch-up as the
industry migrates to true end-to-end electronic mortgages in the
near future.
At a time that the mortgage industry is fighting to maintain
profitability in light of declining applications and closings, it's
important that lenders eliminate inefficiencies and the associated
expenses wherever possible. These lenders will also be well
positioned to handle the ramp up in mortgage applications and
closings when the mortgage business cycle starts back on the
upswing--which many economists think will be the second half of
this year, when and if the Federal Reserve cuts
rates.
Paul Anselmo is president and CEO of SigniaDocs, based in Houston.
He may be reached at (678) 781-7220 or through his company's Web
site.
