These days lenders just can’t afford to get it wrong. Big brother is watching. There are too many new rules that are hitting the mortgage industry, and regulators are keeping a close eye on what lenders are doing.
For example, with heightened regulatory and media focus on Home Mortgage Disclosure Act (HMDA) data, more lenders will find themselves the subject of fair lending exams, according to Mortgage TrueView, a provider of data-driven business intelligence services. In a new independent study, the company found that many lenders are leaving themselves vulnerable to fair lending exams and significant penalties by not properly monitoring and managing HMDA reporting.
Mortgage companies and banks are not taking full advantage of the insights offered in HMDA data, said Mortgage TrueView President and CEO David Moffat. Additionally, Moffat said the company’s 2013 HMDA survey showed that many lenders are submitting their data with formatting errors, which could lead to non-compliance issues with regulators.
Specifically, the HMDA Survey and Case Study, Volume II: 2013 HMDA Data Insights details Mortgage TrueView’s findings based on 2013 HMDA date collected from nearly 400 of the country’s lenders, including seven of the top 10 lenders and 15 of the top 20 lenders.
Among the key findings:
>> 2013 regulatory risk indicators show a 13% year-over-year increase in loan denial rates
>> Denial rates for white applicants increased from 17% to 21%, while denial rates for non-white applicants increased from 23% to 28%
>> Denial rates for Hispanics increased from 25% to 30%. Denial rates for non-Hispanics increased from 18% to 21%
>> Denial rates for female applicants increased from 21% to 26%. Denial rates for males increased from 17% to 21%
For its survey, Mortgage TrueView requested the 2013 public loan application register (LAR) filings from the top 1,160 mortgage originators in the country. Notably, Mortgage TrueView found that a sizable number of the 388 respondents had critical errors in their filings, including missing data fields, incomplete data fields, incomplete records and incorrect data formats.
Another area of mortgage lending that is under increase scrutiny is the appraisal space, and lenders aren’t getting it right in some cases. “When lenders try to do their own appraisal assignments, they end up getting the wrong appraiser matched to the wrong property in some occasions,” said Alice Sorenson, Chief Investment Officer of LRES. “As a result, you end up with an appraiser who is asking more questions than should necessarily be needed, and the lender ends up with a longer turnaround time, which prolongs their ability to generate the loan.
“Lenders also use appraiser trainees or may not recognize when an appraiser trainee is being used by an appraiser. Why is that important? Depending on how well that trainee is supervised, it will drive the quality of the information that is put into an appraisal and then the lender could end up with a bad appraisal if that appraiser doesn’t catch the trainee’s error or if a lender doesn’t have the audit capability to perform and confirm that all compliance issues are being followed. I’d say that insufficient oversight is one of the biggest causes of lenders increased costs and ultimately, of course, consumer cost,” Sorenson pointed out.
LRES is a national provider of commercial and residential valuations and asset management for the mortgage, banking, credit union and real estate industries. Earlier in the year the company upgraded its DirectConnect framework, which enables a user’s technology to seamlessly connect with the LRES LINK proprietary order management platform to optimize and accelerate the valuation ordering process.
The latest version of LRES DirectConnect reduces the time for successful systems integration from 4-6 months down to 2-4 weeks. This release is flexible enough to connect any financial institution to any third party provider of appraisal and property valuation services. It also provides users collateral valuation reports as well as the supporting data in the MISMO industry-standard format.
Other industry players like Advantage Systems, agree that some lenders are not paying close enough attention to simple processes to ensure total compliance in all cases. “The right procedures have to be in place to make sure that these amounts for paying appraisers, or any reimbursables, are captured quickly and that they have the right technology in place to make sure that they’re seeing when these things are coming up,” noted Brian D. Lynch, the Founder and President of Advantage Systems. “So, being able to look at a report quickly and see who’s behind in their payment or whatever, so that you can take care of it quickly is essential.”
Advantage Systems is a provider of accounting and contract management tools for the mortgage banking and real estate development industries. Last year the company noticed a 20% increase in sales for its Commission Calculator Module. The Commission Calculation Module enables lenders to automate the calculation of commissions and bonuses in both retail and wholesale environments and utilizes the loan-level accounting capability of AMB software to minimize user input and increase accuracy. This eliminates the time and cost associated with manually calculating commissions. The technology enables users to set up commission calculations by loan officer and loan type as well as calculate bonuses monthly, quarterly or annually.Lenders can also choose to implement Advantage Systems’ web-based Loan Officer Reporting Module, which gives loan officers the ability to access their commission reports using an Internet connection.
“Lenders need to isolate their pain points and put the proper procedures and technology in place to eliminate errors. You can’t just throw spreadsheets and bodies at it these days,” said Lynch.
In general, according to Greg Marek, Chief Marketing Officer of Capsilon, the industry has a data integrity issue. “The most common types of errors that we’re seeing really all point back to data integrity or data quality. Lenders are making underwriting decisions and investors are making loan purchase decisions based on information that is, in many cases, out of date.”
How does this happen? Marek says that some times underwriters rush it to clear the pipeline. “Underwriters are not necessarily doing the type of rigorous audits that they need to do on the loan file before they underwrite or sell to an investor. One specific example of how this happens is they may be using expired documentation to make underwriting decisions, so the borrower may be providing investment statements or bank statements that are stale. The documentation is outside the window according to the lender’s guidelines, but there’s no time to get the right documents, so someone might not have verified the date, and therefore they’re making calculations based on data provided that may or may not be as accurate as it could be.”
To this end, Capsilon, a provider of document imaging for mortgage lenders and investors, released a Network Delivery capability, which enables users to deliver secure and compliant loan packages to leading GSEs and financial institutions. Users of Capsilon’s DocVelocity product can now deliver a single or group of loan packages for batch delivery to seven flagship institutions. Four supported major investor institutions include Chase, Citibank, Flagstar Bank and Wells Fargo Bank. Three supported government institutions include Fannie Mae, Freddie Mac and the Federal Housing Authority. With a single click, loans are sent directly to these institutions according to their prescribed formats and protocols. DocVelocity’s quality control features provide more efficient selection, mapping, translation and tracking of mortgage documents to ensure accurate and on-time delivery of quality loan packages. Using DocVelocity delivery, the correct documents are selected, properly named and reflect the desired stacking order.
The bottom line is that every area of a lender’s business has to be more controlled, even marketing, says Jim Blatt, CEO of CRM provider Mortgage Returns. “Given the amount of regulation that applies to how disclosures are made, what type of marketing and advertising is permissible and what isn’t, sharing of fees among clients with RESPA or sharing value of cobranded advertising, lenders have to have a tightly controlled marketing system, where everything is centralized and locked down. We see almost all of the good lending companies trying to consolidate marketing activities to control them better, and those that are not taking those actions are certainly putting themselves in a scary spot.”
Really any lender that is not relying more on technology to eliminate errors around things like appraisals, data integrity, marketing and a host of other functions is choosing to do so at their own risk.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at firstname.lastname@example.org.