Change can be good; however, it depends on your perspective. These days, you might be hard-pressed to find many mortgage-related companies excited about the changes brought about during the last five years. In fact, some mortgage professionals said change was inevitable due to some of the industry’s flawed business practices. Whether you see change as good or bad, one of the unintentional side effects of the new regulations such as those under Dodd-Frank and those proposed by the Consumer Finance Protection Bureau (CFPB) is that mortgage lenders and servicers are forced to reevaluate the cost of doing business. Technology is one of those costs, and it is becoming a larger piece of their businesses as more technology innovations are made.
In order to stay in business and evolve, companies will need to look at their different business units (originations through servicing through loan disposition) as a whole instead of individual components or silos. This perspective will enable them to better determine how to use technology collaboratively across those units. In fact, future technology will need to remove the barriers between these business units and eliminate the siloed mentality for the company to survive the burgeoning regulatory climate.
Until recently, most companies approached the different silos of their businesses with different technology solutions. Origination, servicing (or default) and loan disposition all operated separately with their own technology. Experts in each area, such as default specialists, servicing specialists and disposition specialists, used technology to enhance their individual capability without considering the ramifications on the whole process.
Unfortunately, when using disparate systems created a data integrity challenge that made it impossible to locate missing documents. Those days are now long gone.
Historically, it was not important to a servicer who originated the loans and conversely originators did not think about what happened after the loan closed. Why? Because there was little if any loan review. For example, when a servicer received a loan, they were not concerned with who verified employment for the borrower and could not tell who had done so. Now, with regulatory and audit requirements, servicers must retain all origination documentation to properly service the loan. Additionally, the call for a single point of contact (SPOC) requires this individual to possess detailed information and in depth knowledge about the loan and the borrower, rather than having expertise in a single specific area.
The growing need for transparency at every step of the loan process--from originations to disposition or default--makes it imperative for technology to fit within all lines of business, create efficiencies and at the same time allow the lender/servicer to remain compliant. Along with transparency, systems need to collect and archive loan information not only for servicing and disposition purposes, but for quality control and auditing as well.
Companies should use the following process to ensure its technology drives the company toward success in tomorrow’s business climate:
► Assess: Companies must evaluate their current systems and determine the viability of their business in the new regulatory environment. Companies may have to realize they cannot keep antiquated systems as their system of record, as they will not prove efficient or effective in the current or future business climate. In other words, a company should not expect a pig to fly (work with changing regulatory requirements) just because the pig could jump (worked previously). These closed-end systems that try to monopolize a specific area in the process will be a company’s downfall.
► Determine: An honest look at what they need to meet the regulatory requirements while still creating process efficiencies is paramount. Selecting technology that not only positions a company for future efforts, but can operate effectively in today’s market is critical.
► Contain: If a company determines it needs to implement new technology, it should begin using the current system only minimally in an effort to phase it out. Reducing the organization’s use of the sub-par system will prevent deeper entrenchment of the technology and allow for smoother transition to a new system.
► Reduce: After isolating and limiting the use of old technology to a specific department, companies can then slowly start to do reduce its use and transition.
► Migrate: This will not happen over night, but once the company begins making the change, migrating will be the step that allows new efficiencies and the ability to remain relevant and compliant in an ever-changing market.
Companies may find that some systems may need to be replaced while others work just fine. Using a gradual approach is necessary and can be executed with the use of a technology platform that can compliment the existing systems as well as operate with the new ones. This system will give users the ability to make an orderly transition between systems as necessary while providing the transparency and control they need. This method allows companies to avoid disrupting day-to-day processes and does not entail down time while making the transition.
Future technology also needs to accommodate mobile users who want to easy system access from anywhere and at any time using one of the popular tablet devices. Convenient technology that allows this to take place will be the leaders in the mortgage industry. The use of mobile technology will require additional mental adjustments on the part of the mortgage industry and will move the industry forward, if allowed to do so.
There is not a silver bullet technology that will solve all the needs and requirements of a mortgage company. A group of technologies that work together, have open architecture, create transparency and fill the gaps between business units seamlessly is what the industry demands. Now, regulatory entities such as the CFPB require audits that not only capture what was done regarding a loan but also who did it, when they did it and why, and technology helps organizations retain this information in one place. Instead of having several disparate systems with different pieces of information, more collaborative systems will rise and companies that want to be successful will leverage them instead of holding on to their old systems. Ultimately, you should not wait for the pig to fly just because you saw it jump.
Sanjeev Dahiwadkar is president and CEO of IndiSoft LLC, a Columbia, Md.-based software development company for the default servicing industry. He manages the company’s overall strategic planning and direction as well as oversees its business operations. He may be reached by phone at (410) 730-0667.