Magazine Cover Story

*A New Era
In Mortgage*

**Executive
Interview**

***Have
you ever had a problem?

Come on,
we all encounter

problems
in life. The bigger

question
is: How do you solve your

problems?
In order to overcome

adversity and move forward you need

a lot of
input from a variety of sources.

You can’t
make snap decisions and

hope you
get a positive outcome.

Sometimes
you’ll get lucky, but in

most cases
snap decisions result in

more
problems.

****Today
the mortgage industry faces

a lot of
problems. Volume is down.

Margins
are thin. Investor confidence

has not
been restored. New regulation

never
seems to stop. And these are

just a few
issues that the mortgage

space
faces. We know the problems,

but what
we don’t know are the

solutions.

****How do
we get at those solutions?

PROGRESS
in Lending Association’s

Tony Garritano,
Roger Gudobba and

Michael
Hammond talk about the

benefits
of industry collaboration.

Beyond
that they discuss candidly

what they
think are the industry’s

biggest
problems and propose some

solutions, as well.

****Q: Why does the mortgage industry need

PROGRESS in Lending Association?

****TONY GARRITANO: The
mortgage industry is

under
siege. What do I mean? There are

game-changing
regulations compounded

with the fact that there is really no place

in
the industry for technology thought

leadership
to happened openly and

freely.
That’s what lead me to believe that

there
was a strong need for something

like
PROGRESS in Lending. This is an

open
industry utility for people to come

and
get more quality information about

how
technology combined with sound

business
strategy can really help lenders

and
people involved throughout the

mortgage
progress who are struggling

with
a very tough market because of new

regulations,
but not only because of new

regulations,
also because investors are

becoming
increasingly more stringent,

because
borrowers are scarce, because

unemployment
is high and there is

a
strong need to be as efficient as

possible.

****ROGER GUDOBBA: I would
second that.

One
of the reasons I got involved

is
because I felt this was a different

type
of opportunity than everything

else
presented. Typically, most of the

publications
are online newsletters

with
just news. They are all about

here’s
what’s happening kind of stuff

and
some of the feature articles would

expand
a little on where they thought

the
future was going, but a lot of times

that
was written by people that were

self
promoting something or other even

though
it might have been very subtle. I

see
this as an opportunity where anyone

in
the industry can respond and speak

out.
We are going to make more use of

blogs
and other forms of multimedia.

PROGRESS
really gives anybody a

chance
to talk about things. That’s the

whole
idea. It isn’t like we are trying to

set
the whole strategy going forward, we

are
trying to be thought provoking and

get
thought provoking people involved

so
that other people can look at it and

say,
“You know, maybe I should try this

or
that.” We are trying to stimulate their

entrepreneurial
ship if you will.

****MICHAEL HAMMOND: Roger
makes a great

point,
PROGRESS is really about getting

people
to engage and share ideas. It

doesn’t
mean that everyone is going to

agree
with every article or every stance,

but
that’s the benefit of PROGRESS in

Lending
in that people can share different

ideas
and different strategies about

how
they are using automation to handle

the
vast challenges that are happening

in
the market and by sharing more and

more
of those ideas and different ways of

thinking,
we can come up with better solutions

as a
whole and really collaborate

to
solve problems instead of just putting

band-aids
on things and trying to keep

moving
things forward.

****ROGER GUDOBBA: This
industry has certainly

been
very reactive over the years and there

are
a lot of followers and not a lot of leaders.

Typically
everybody just kind of sits

back
and says let’s wait to see what the

big
bank does or big mortgage industry

player does. A lot of times they don’t understand

that
by being a small company

that
is a little more nimble, you have the

opportunity
to move ahead. The big players

are like
big ocean liners trying to turn

in a
small harbor. PROGRESS in Lending

should
encourage people. We want to

stimulate
people’s thought process.

****TONY GARRITANO: And
the more different

ways
we can give people forums and

outlets,
the better we will be as an

association
and the better the mortgage

industry
is going to be. This is why we

started
off with the website and then we

added
a daily newsletter, then a video

and
now we are adding a magazine.

The
point is not to saturate the market

with
output strategies, the point is to

give
mortgage participants as many

opportunities
to react to what goes

on
in their daily lives so they can help

their
peers move forward. Some people

are
more comfortable doing that in a

magazine
while some people prefer a

few
quick stories via e-mail. Others are

more
visual and would prefer a video. We

want
to come at people how they prefer

to
be approached and get some thought

leadership
going. Sometimes they are

going to agree with us
and sometimes

in a place where the
dialogue starts and I

think
that is what separates us from other

organizations
in that we are not telling

people
what to say or think. We are not

going
to put out position papers and say

everyone
involved in PROGRESS in

Lending
has to think like this. We are just

putting
out content from as many people

in
the industry that want to participate

and
put out their ideas. Some of those

ideas
might be similar to those of the

people
involved with PROGRESS in

Lending
and some may be opposite but

that
is ok. That is why we are here to get

those
ideas out there

****ROGER GUDOBBA: When I
started writing

my
weekly column for the e-letter, I at

first
thought that having shorter columns

would
make it difficult to get ideas across,

but
then after having to write many of

them,
I am glad they are short. It gives

you
an opportunity to carry thoughts

across
to the next one and keep people

coming
back. Even if they miss an issue

of
our newsletter, the fact that when they

are
registered and click on read more, it

expands
and shows all that has been done

to
date is a big benefit for the reader. If

you
missed a column or two you can

look
over to past columns and see how

that
idea came about. It doesn’t take a

lot
of time to read. I can go through the

links
faster than in other publications.

I
get so bogged down navigating other

publications.

****MICHAEL HAMMOND: It
is important to keep

the
content to the length that makes it

easy to digest. We are bombarded with information.

How
many e-mail newsletters

do
you get? By keeping it short and concise

we
are allowing people to be exposed

to a
lot of different content, and unlike a

lot
of the other publications where you

have
one or two editors filtering information

the
way they think or through their

lenses,
our content is coming from many

different
industry participants that are actually

in
the industry. With PROGRESS,

there
are so many different voices producing

the
content that it really gives a lot of

exposure
to different ways of thinking.

Whether
you agree, disagree or believe

there
should be more in-depth discussion,

it
triggers thought processing in a multitude

of
areas.

****Q: Transitioning for a bit to market conditions,

what do you think is the most prevalent trend

we are seeing in the mortgage market today as it

pertains to automation?

****MICHAEL HAMMOND: I
think that one of the

biggest
challenges—and it isn’t anything

new—is
how many rules and regulations

are
being thrust upon the industry. When

you
talk to lenders they are just trying

to
keep their heads above water. They’re

asking:
How do I manage and maintain

all
these rules and regulations? How do I

implement
them? What is their impact on

what
I do? I think that using automation

to
allow lenders to better handle those

regs
in a systematic process that is easily

duplicated,
that can have an audit trail, is

probably
one of the key areas that people

are
very concerned about. Fraud is still

a
heavy issue, as well. What is going to

happen
with valuation and where are we

going
to get proper valuation modules so

that
the housing market can stabilize is

also
hot. There are a host of issues, but

the
No. 1 issue is still how to handle all

these
rules and regulations.

****ROGER GUDOBBA: It is very
important to

ensure
lender participation in the development

of
these rules and regulations.

The
minute you get people outside the

industry
setting the agenda, you are in

trouble
because they don’t know our industry.

The
sad part of all this is the fact

that
these regulations were set in place

to
correct bad business practices perpetrated

by
people within the industry. We

can
right that wrong, especially when

you
think about lenders always being

reactive
instead of being proactive. In

fact,
when it was so busy they were so

excited
about making all this money

and
making all these loans that they

really
didn’t want to change. They got

caught
up in the same euphoria that the

borrowers
did. Everyone thought, wow,

I
can buy this house for $100,000 and

sell
it tomorrow for $500,000. If you

look at the history of
this industry, there

are
always times of rapid accelerations

in
an area that really didn’t have any

business
sense. Just follow the times. It

is
like the stock market in that there are

ups
and downs. We are in a down period

and
we are going to pay some penalties

for
not paying more attention.

****TONY GARRITANO: The
big question is how

long
will this downturn be and how can I

stimulate
recovery. You won’t stimulate

recovery
by sitting on your hands, you

have
to move. To Michael’s point, I think

lenders
are most interested in automated

compliance
because they’re still reacting.

Once
they get that technology in place,

I
think it will be time for them to think

more
long term.

****Q:
What really happened to cause this downturn

and
what needs to happen to turn things

around?

****ROGER GUDOBBA: Lenders
have to do a better

job
up front in making better loans. Back

in
the old days when the local community

banks
knew the borrower who sat across

from
the President of the bank and said

I
need a loan for a house, there was a

personal
relationship there. That has all

but
disappeared, especially as you hear

about
more and more originators coming

through
the Internet. They don’t know

that
person and as I mentioned that,

the
Wall Street Journal stated that 48%

of
mortgage fraud is at the application

level
where the borrower had falsified or

misstated.
That doesn’t necessarily mean

that
the borrower intended to defraud,

the
borrower might have just been doing

it
to get the loan, but the problem with

that
is it affects evaluating risk. You

have
to understand all the parameters

involved
in risk evaluation and in doing

so
it is important that the information

is
correct. Lenders did a very poor job

of
validating data, from appraisals to

borrowing
information, which are all

used
to evaluate that risk. Maybe they

should
have made some of those loans,

but
maybe the risk should have been

evaluated
creating a higher interest rate

and
the borrower wouldn’t have qualified

and
the loan wouldn’t have got done.

They
just made a lot of bad loans and it is

going
to take some time to recover. The

difficulty
right now is how to get out of

those
bad loans because obviously this

loan
modification program has been a

waste
for the amount of time and money

that
has been spent. For the few borrowers

that
made it, more have slipped back into

default.
It has been a dismal failure as far

as I
am concerned.

****MICHAEL HAMMOND: I
agree. As to Roger’s

point,
loan quality is going to be an

area
that has to improve as it impacts

the
entire lifecycle of the loan. It’s not

just
about originating correctly and

having
a good borrower, it’s about

getting
at better quality on the front

end
because the better that loan is for

the
secondary market, the more we can

restore
confidence. I also think there is

a
trend that you are going to see because

wholesale
is drying up, because there are

fewer
brokers in the market, the retail

lenders
are really going to enhance those

channels.
There is a strong fight for who

has
the relationship with the borrower.

As
Roger said, when the industry was

booming
and people were getting loans

left
and right, they didn’t have that

personal
connection. Lenders are now

getting
forced to deal in retail, which

means
that they really have to focus on

who
owns the relationship, what tools

are
needed to get at the borrower, etc.

Lenders
need mortgage-specific CRM,

and
data analytics to come together to

really
help foster a stronger relationship.

****TONY GARRITANO: If
we’re truly going improve

our
space we have to embrace data

from
trusted data sources. The more data

we
collect from a trusted data source vs. a

third
party, the better we’ll be. There are

a
lot of tools that validate data against a

variety
of sources, why not use tools like

that
to collect the data in the first place

instead
of asking the borrower or anyone

else
emotionally involved in the deal? It

doesn’t
make sense. I have no doubt that

the
industry will recover, though. This is

a
growing up period for mortgage. We all

have
to get used to a new world of globalization

and
find our place within that

world.
Things change, now mortgage has

to, as well.

****INDUSTRY PREDICTIONS:

****Tony
Garritano thinks:

****1. Attaining the full e-mortgage is a big

part
of industry recovery.

****2. Lenders will rely more on data and

less
on third parties for loan-level

information.

****3. More data repositories will emerge

to
make it easier for lenders to access

data
directly from the source.

****4. Lenders will invest in technology that

enables
them to know everything

about
their business.

****5. Automated quality control will be done

earlier
in the process and at several

key stages out
of necessity.

****INDUSTRY PREDICTIONS:

****Roger
Gudobba thinks:

****1. There will be more emphasis on

qualifying
the borrower and the

property.

****2. More companies will develop predictive

analytics
to help the lender predict

where
the borrower will be in the future in

terms
of their true propensity to pay.

****3. Technology won’t be about features

going
forward, it’ll be about what it

does
for the end user.

****4. All lenders will be actively
re-evaluating

their
processes and taking a more

holistic
view.

****5. From those internal evaluations, we’ll

see
more action on the part of lenders

in terms of
embracing technology.

****INDUSTRY PREDICTIONS:

****Michael
Hammond thinks:

****1. There will be a constant influx of

rules
and regulations that will burden

lenders.

****2. The battle for the “relationship” with

the
borrower will rage on.

****3. Borrowers will demand more online

tools,
including social networking

capability.

****4. Overall loan quality is key to market

recovery.

****5. The role of analytics in the mortgage

process will
continue to expand.

****ABOUT
TONY GARRITANO: Tony Garritano is Chairman and Founder of PROGRESS
in Lending

Association.
When asked why he started an industry group like

PROGRESS
in Lending Association, Tony answered, “Going forward,

given the
recent turmoil, the mortgage space is literally going to be

transformed.
I formed this association to ensure that this transformation

is for the
better and not for the worse. Technology is going to play a

critical
role in how mortgage lenders comply with new regulation, remain competitive,

ensure
profitability, and serve borrowers looking to get their piece of the American

Dream. That’s why this
association was formed.”

****ABOUT
ROGER GUDOBBA: Roger Gudobba is Chief Executive Officer of PROGRESS in Lending

Association
and Chief Strategy Officer of Compliance Systems. When

asked what
the industry significance of PROGRESS in Lending is,

Roger
believes, “The mortgage industry has always lacked strategic

thinking.
It’s slow to embrace new ideas. PROGRESS in Lending

Association
provides a place for thoughts and ideas to flow freely.

It’s
easier to move things forward when you’re in a group. This association is a
central

place for
industry participants to have discussions about how technology can improve

the process.”

****ABOUT
MICHAEL HAMMOND: Michael Hammond is Chief Strategy Officer of PROGRESS in
Lending

Association
and President and Founder of NexLevel Advisors. When

asked what
PROGRESS in Lending can do for the mortgage space,

Michael
noted, “There currently is a void in the mortgage industry

where
technology and business discussions can openly and candidly

take place
to address industry problems. In the past year alone the

mortgage
industry has had to adapt to business-changing regulation like MDIA and

RESPA, for
example. Coming next year we’ll see the broadening of state licensing and

TILA
reform. All of these challenges call for automated solutions. I joined PROGRESS
to

be part of the solution.”

*****http://www.progressinlending.com/TME1110-Cover-Story.pdf
*****

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