Internet communication etiquette
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 So the free money flowing days of a few years ago have been replaced by ones of thin margins and still-declining mortgage applications.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.