Mortgage lenders are now operating in an altered lending environment, thanks to an onslaught of new regulatory requirements that mandate audit trails for virtually all lending decisions, complaint resolutions and life-of-loan interactions. These increasingly complex requirements are not adequately supported by traditional lending processes and business models. Financial institutions must now determine how to both streamline and safeguard compliance, and those that place loan quality and risk management at the center of their operations using an automated loan completion approach will be the ones to achieve a winning outcome.
Loan completion, the final process step to confidently creating a saleable loan unit, can be viewed as a new discipline in lending that leverages automation to track and control quality through continuous life-of-loan management. This approach includes the data transparency and audit trails necessary to support loan quality, loan servicing and loss mitigation. Many financial institutions are using technology to bring disparate systems manually tied together ever-larger excel spreadsheets and complicated process flows to manage data quality and secure access loan data and documents through origination, servicing and sale on the secondary market. What is required is a strategic focus on loan completion to reduce processing steps, costs and ensure quality throughout a loan’s lifecycle.
Traditional Lending Practices ended in 2010. Why won’t traditional lending practices work now? Lending has traditionally followed a linear model, which means there is a different team managing each operational step and little back-office integration. As a result, lending operations must cobble together information from a variety of systems and technology silos to prove that loan information is accurate, loan decisions have been fair, lender actions have been compliant and that all documentation is in place to sell the loan asset on the secondary market. Evidence that a lender is attempting to follow outmoded processes are the hiring of more FTE’s, temporary workers, more meetings and more spreadsheets and checklists. This approach increases lending costs to the point where many wonder why they are still in the business.
The biggest impact on lending practices has been new consumer protection and non-performing loan regulations, which were enacted in the last two years to track loans in foreclosure or near-default. Dodd Frank reform has tasked lenders with performing additional institutional examinations and the Consumer Financial Protection Bureau (CFPB) now requires lenders to document every complaint and resolution.
To keep pace, lenders have had to increase staff and functionality, adding to the complexity of systems and processes that lenders need to be compliant. Compliance is exponentially more difficult when different technology platforms or third-party systems are factored in. This complex concept of technology, process and compliance is codified by the CFPB in its discussion of the “Compliance Management System” mandate for January 2014.
When it comes to acquiring and selling assets on the secondary market, transparency is the most critical piece of the puzzle. The Private Mortgage Investment Act protects investors by requiring standardization and uniformity of mortgage securitization, transparency into all aspects of the securitization, and adherence to the rule of law.
The act encourages robust private investment in the U.S. mortgage market and as a result, has exerted added pressure on lenders’ Post-Closing area. These time-consuming processes are typically not automated, which forces lenders to use reams of paper and piece together workflows.
Asset quality begins with the loan origination process. To ensure loans are compliant from the start, lenders should focus on efficient data processing, automated task routing and process tracking. This stage is all about cost, time-to-close, collaboration, transparency, error discovery and correction, and overall data accuracy ? drivers that affect the lender’s ability to originate “clean” sales to the secondary mortgage markets.
Secondary market demand is forcing lenders to seek out quality assurance processes that speed time to market. However, in today’s multi-platform and manual processing environments – where quality control is challenged by data discrepancies and compounded by human error – speeding up the process may only exacerbate the situation.
Some lenders continue to struggle with the reality of loan buybacks in the secondary market, often a result of poor loan quality due to lax underwriting and document management. To improve the quality of mortgage portfolios, many lenders establish strong quality review workflows that identify problems sooner, and reduce risk and exposure. Multiple technology platforms, disjointed processes and multiple lending systems make this process much more difficult.
Loan servicers may struggle with integration and support, especially those that rely on systems beyond their servicing system of record or use add-on systems. Today, it’s critical to have transparency into reviews for acquisition/sale, early default, pre-foreclosure and payoff, as well as loan modification document routing. Tracking workflows and loan-level events across multiple systems is more challenging, but each step – loan origination, processing, post-close, delivery and servicing – must be scrutinized.
The right technology approach can mitigate risk, offset expenses, and improve quality control and customer satisfaction. A loan completion system automates loan quality processes into origination, servicing, loss mitigation and secondary marketing workflows.
Lenders need an effective loan completion system that goes beyond enterprise content management to capture point-in-time origination, related loan documents, and servicing and loan disposition events. A quality, auditable system also facilitates information sharing by making it possible to view and compare multiple loan documents and records from a single view.
Automating loan quality ensures that individual steps within the life-of-loan process are definable and traceable, and that loan data meets all quality standards and regulatory requirements. The loan completion system should be flexible and configurable so that lenders can design their loan completion processes to meet ever-changing regulatory demands and specific institutional needs.
There are five vital components of automated loan completion:
1.)Contextual Capture: Keyword data is extracted from scanned documents utilizing zonal OCR, intelligent templates, automated indexing and full document recognition
2.)Track: Automation tracks and reacts to maximize the consumer experience and minimize timelines
3.)Review: Processes support compliance and provide loan level data, remotely viewable documents, standardized packaging, pool reviews and electronic delivery
4.)Confirm: Quality controls are integrated into the pre-close audit, post-close audit, data validation and overall document readiness
5.)Deliver: Final validation and documentation are provided, including delivery of the completed loan document(s) to the correct destinations
Thriving in today’s lending space requires a centralized approach for managing loan quality and risk. Financial institutions that implement loan completion solutions will fortify overall lending and be positioned as industry leaders. Strategically using technology for loan quality assurance tool will help organizations overcome systems limitations, leverage secondary market opportunity, avoid compliance issues and enhance the life-of-loan experience for borrowers.
About The Author
Gregg Lehman (Gregg.email@example.com) is the product manager for Global Payment Solutions at Fiserv, a leading global provider of financial services technology solutions. Fiserv drives innovations that transform experiences for more than 16,000 clients worldwide, including banks, credit unions and thrifts, billers, mortgage lenders and leasing companies, brokerage and investment firms and other business clients.