“My body had long since exhausted all its energy, but it went on running just the same. The physical overdraft came only from greater willpower. This was the crucial moment when my legs were strong enough to carry me over the last few yards, as they could never have done in previous years. With five yards to go, the tape seemed almost to recede. Would I ever reach it?”
—Roger Banister describing his four-minute mile
“You cannot run a mile in under four minutes …” and “the world is flat …” are two very oft-cited examples of beliefs that were at one point in time believed to be true. I believe that in the near future, companies will look back and say, “How did we ever survive with all that paper to manage?”
When I counsel companies about becoming more successful, I tell them that every step they take along the sales process must involve a deadline and a result. There is an outcome that must occur before we can call that step in the sales process complete. And until all of the steps have been completed, there is no sale. Not knowing the outcomes and managing the organization toward them leads to a lot of failure. In fact, I think that’s why the mortgage industry isn’t completely paperless already.
Lenders have known the benefits of paperless lending for years now. Studies have shown that paper in the mortgage lending process is one of the key drivers of higher costs and lower borrower satisfaction. We pay to buy paper, print on it, staple it to other sheets of paper and then file it away. We pay more when we have to replace the paper we cannot find or duplicate it to share with other parties. When sensitive borrower data is printed on the paper, we pay even more to have it shredded.
And it’s not just money that lenders lose when they rely on paper, it’s time as well. Paper in the lending process has been shown to slow down the mortgage origination process by up to a week. We can calculate the cost of that in a different article. On the servicing side, the millions of pages of paper that have flooded into these firms from borrowers hoping for a loan modification have completely clogged up the system.
Even the government-sponsored enterprises (GSEs) have been pushing lenders to get rid of the paper. Both Fannie Mae and Freddie Mac have been offering electronic mortgage products for years but, have had very little luck getting lenders to originate without paper. More recently, Fannie Mae has required that certain loan modifications be delivered electronically, using its SmartDoc Version 3.
But the industry knows all of this. Lenders and servicers don’t want the paper any more than their investors want it. And yet, it’s still here. Why?
Before I answer that, let me ask you a question: What is the outcome of a paperless process? If you say an electronic mortgage, then you must be a lender, servicer or originator. Borrowers don’t know about electronic mortgages, and they honestly don’t really care about them.
What’s the outcome of a paperless mortgage for a mortgage borrower? An electronic signature pad, a handshake and a couple hundred thousand dollars in debt? Not a very attractive outcome from that perspective, is it?
The reason we have three to five inches of paper in the typical loan file is to convince the borrower that they are getting a fair deal and to prove to regulators that all of the information has been disclosed to the borrower before the loan was closed. In fact, the reason that regulators require more paper disclosures in each loan file is because they believe lenders cannot be trusted to be honest with borrowers without the paper. Why would a borrower give this up?
For years, the industry has argued that more paper disclosures do not make for a better lending process any more than it guarantees that bad actors won’t take advantage of borrowers. After the financial crash, that message may have finally hit home. While it’s not yet clear what regulations the new Consumer Financial Protection Bureau (CFPB) will require, one thing is sure … the government is putting a watchdog on our industry because it believes we cannot be trusted. This will eventually lead to a paperless lending process.
Lenders haven’t gone paperless in the past because the paper was the government’s method of keeping the industry honest. If the borrower didn’t walk out of the closing room with that stack of paper, they couldn’t really be sure that the government had done its job, that the lender had done its job and that they hadn’t just made a bad deal. That freedom from buyer’s remorse is a critical and important outcome for the borrower.
From the borrower’s perspective, our industry has never done a good enough job of building trust on the part of the borrower. When the CFPB comes online, the government will step in as the primary protector of the borrower in financial transactions.
When that happens, it will quickly become clear that while a borrower may be able to read through a few dozen disclosures before signing at the closing table, the CFPB will not be capable of reading through the many millions of loan files in order to ensure that consumers are being protected. Of course, they won’t have to.
MortgageDashboard and the other leading loan origination software (LOS) providers can easily send electronic loan files to the CFPB for review. In fact, I wouldn’t be surprised if the government makes it mandatory that loan origination systems provide a window into their databases for government access. In fact, the GSEs have already begun making data standards available to make that easier to accomplish.
If borrowers know that the government is watching every transaction, they’ll feel as confident about taking out a loan as they do about buying a new deck at a home improvement store. When that happens, an electronic keypad and a smile is all they’ll feel like they need to finance their next home and the high cost and lost time that comes with paper-based lending will go away.
Rene Rodriguez is chief executive officer of MortgageDashboard, a Web-based, on-demand loan origination software built on the Software as a Service (SaaS) model. Rene is a renowned behavioral, leadership and organizational change expert, world-class sales trainer and dynamic keynote speaker. For more information, visit www.SeeReneSpeak.com.