One of today’s undisputed facts is that technology can improve pretty much anything in business. Across multiple industries, the ability to automate processes via innovative solutions has created a level of efficiency that our culture has come to rely on. The mortgage lending industry, in particular, places a significant emphasis on technology—with automation being the cornerstone—to streamline its processes and ultimately, produce quality loans. The better mortgage technology gets, the more we ask of it to further enhance our business processes.
In the beginning …
The rise of mortgage technology came with the introduction of loan origination platforms, which are still used within the industry by banks, credit unions, mortgage bankers and brokers alike for loan marketing, prequalification, origination and processing. While incorporating such software makes a dent in streamlining the loan process, it also dictates a reliance on small desktop applications, essentially acting as a single, non-networked database program with limited functionality. Storing data in one place puts a burden on staff members to move and manage files from one stage to the next throughout the lending process and requires each individual working with the data to have significant knowledge of the originations process and current compliance requirements. The potential result is an obvious compromise in data integrity, a lack of coordinated compliance checks, ineffective delivery to the secondary market and a generally inefficient process.
While loan origination software has its place in the market, most organizations utilizing these platforms have slowly started to layer in various additional automation solutions to protect themselves and their customers. Single-point solutions have given way to networked data and cloud-based systems. Still, the system today largely remains manual in nature and expertise-driven. Cumbersome workflow processes and designs with limited compliance checks and rules-based decisioning widen the margin for error where there should be none. Pricing and eligibility for loan programs aren’t nearly as tightly tied to investor guidelines for post-closing delivery as they should be.
A challenge to push forward
Mortgage technology has come a long way in recent years. A number of viable tools are already available, with a new breed of solutions no doubt waiting in the wings to further enhance the way we do business. Still, there remains a great deal of work to be done in tightening up the lending process. Technology vendors need to diligently focus on finding innovative ways to integrate automation into the entire process, including all business rules and work flows.
If lending institutions, mortgage technology providers, and regulators partner more closely on identifying the gaps and potential areas for enhancement, we can speed momentum toward the next level of automation—a level where improved compliance and risk mitigation become achievable, the possibility for human error is reduced, and staff members can turn their focus toward more intelligence-based tasks rather than being relegated to pushing paper. Incorporating event-based processes would allow the user to effectively focus on execution with minimum disruptions or manual interventions. New, robust tools are required to help lending organizations adapt to the constantly changing legislative environment while maintaining a low tolerance for default. For most organizations, maximizing value and delivering quality loans is the expectation rather than the goal, the main objectives for infusing automation enhancements into the lending process would be to reduce origination cost, minimize origination time and maximize product quality, while enabling an enhanced experience for the loan officer, broker and borrower.
Resetting the bar
So, how can automation further enhance the industry’s productivity, integrity and deliverability? Where exactly do we go from here?
From my perspective, we start by taking a hard look at quality control measures and evaluate opportunities to make them more foolproof. There is definitely room for improvement! In an ideal scenario, checks and verifications should seamlessly run behind the scenes in real-time throughout the loan process as opposed to at one or two stages. Everything starts and ends with that idea in mind.
The following are a few of the “must have” items on the roadmap toward improving quality control and efficiency through automation.
► Income verification: From the onset of the application process, a borrower’s tax and income verification must be completed correctly so that any possible red flags can be raised in a timely fashion. Incorporating a process flow where 4506-T requests are automatically completed would assure income is verified before any additional processing can occur. Data validation and integrity rules enforce accuracy and a tight integration with external vendors ensures a seamless interaction. Checks such as this should be repeatedly evaluated throughout processing and funding so that appropriate actions can be taken as necessary.
► Background checks: Currently, requests for background checks on the individuals associated with a transaction are handled manually. This requires a substantial amount of time and diligence, especially considering the number of individual parties associated with a single transaction, which can include appraisers, closing agents, escrow agents, brokers, title agents, loan officers, and a number of other professionals. Additionally, it has become increasingly important to validate the borrower’s relationship with all of the parties involved in a transaction to ensure that the transaction is being conducted at arm’s length. This process alone has the potential to slow down the delivery of a loan and invites opportunity for human error to occur, thus affecting loan quality.
Automated verification that all people involved in the real estate transaction are properly licensed, checked against exclusionary lists and cleared via third-party background checks would also benefit the process, as this would remove uncertainty concerning the legitimacy of any party’s individual role in the process.
Appropriate databases to run these checks against would include investor/government-sponsored enterprise (GSE), warehouse facilities, the U.S. Department of Housing & Urban Development (HUD) and the Office of Foreign Assets Control (OFAC).
In an ideal scenario, these checks would automatically be conducted in real-time, stage-to-stage, from application through closing, just in case something was to pop up in the middle of the transaction that could affect a loan’s legitimacy.
Loan pricing and eligibility
To eliminate unwanted and unnecessary surprises at closing, qualification checks concerning loan price and eligibility should be routinely conducted and repeated throughout the lending process, as opposed to at the very beginning and the end. Any changes to loan programs, debt-to-income ratios, loan amounts or credit profiles should be noted in real time and automatically trigger adjustments or notifications when they cause the loan to fall outside of its set parameters. Automation is essential here, since constantly repeating these checks throughout the process manually is time consuming and allows for human error.
Automated underwriting
An analytical comparison of real-time findings between an organization’s automated underwriting system and its current data is needed. Conducting an automatic and ongoing audit of initial underwriting findings and loan documentation while the transaction is in process is crucial to detecting critical errors that might either prevent a good loan from being approved or push through a loan that may no longer meet eligibility. Whenever a loan’s qualifications change or extend beyond the parameters of the automated underwriting system’s findings, this would trigger the necessary notification and resolution.
Loan delivery
If it became possible to automatically detect critical issues concerning loan documents during the post-closing process and prior to delivery, the appropriate modifications could be made before delivery of the final loan package, thus eliminating any need for corrections after the fact. The result would be a more streamlined delivery of the loan to the investment community and reduced expense to lenders.
At funding/closing, the system would ideally compare loan documents to corresponding data, check signatures for accuracy and flag any blank boxes when documents are returned seemingly completed. The result would be a more efficient, cleaner delivery of the loan.
As we move into 2013, there are a number of solutions in development in the industry intended to bring us a few steps closer to meeting these needs. Automating the origination, compliance and loan delivery process is crucial to realizing what is desperately needed in the industry—improving the customer experience, reducing the time of the origination process and improving quality.
Scott A. Reed is senior vice president of administration for Carrington Mortgage Services LLC’s Mortgage Lending Division, where he is responsible for compliance, process improvement, vendor management, training and the implementation of policies and procedures. Scott holds a California broker’s license, and has a bachelor of science degree in finance from Arizona State University. He may be reached by phone at (949) 517-7000.
