Q: For many years, people predicted the rise of the paperless office. Here we are in 2015 and we are anything but paperless, especially in the mortgage space. Why hasn’t the paperless office come about yet?
Jonathan Kunkle: It’s important to note that most lenders are paperless in the origination process. Borrowers may submit their paystubs, bank statements, and other verification documents in paper form and in virtually every shop these are scanned and routed into a file system within that lender’s loan origination system. Or, when they’re received digitally, they go directly into that document management system. We actually don’t have a paperless problem, but rather a systemic lack of the right technologies and challenges with the arcane recordation process that handcuffs the lending industry to paper.
In order for the industry to become truly paperless, there are four challenges that need to be resolved.
First, most paperless shops lack a paperless workflow. For example, when that paystub or bank statement arrives, the loan processor or loss mitigation single point of contact (SPOC) may not get pinged when they have to take action. As a result, they don’t want to let their borrowers deliver documents into a general, centralized indexing team and grasp tightly to the notion that the documents are delivered directly to them.
Second, when selling the loan, there are always issues in locating, identifying, and delivering the proper documents used in the credit decision. When each loan processor or SPOC identifies received documents directly, they file them according to their personal preference. Then, the underwriter gets the file and makes a credit decision on specific documents that are likely not denoted within the file for inclusion in the credit package. Subsequently, when the loan is packaged for investor delivery it’s a challenge to ensure the right images are included (or not included). In some cases, sending the wrong documents can be worse than not delivering the right ones.
Third, there’s a delicate balance in protecting a customer’s non-public information and the usability of any application. As a friend of mine recently said, “The hacking of Sony has proven that the only way to secure an email is to never use email.” A number of new mobile capture technologies, online borrower portals, and digital data (over paper) solutions have been developed, but until we figure out how to replace the 40-plus-year-old fax technology. The lending industry still lacks a global paper-to-image (or data) delivery mechanism that is usable and convenient for consumers.
And last but not least, the physical signing of closing documents is still done on paper. Each state has specific legislation related to notarization, which is an important fraud mitigation process to ensure that the person executing the documents is, in fact, the person you expect and not signing under duress. As a result, even if a lender or servicer was 100% paperless in the origination or loss mitigation process, it’s almost impossible for them to be 100% paperless at loan closing today. Advancements in eSignature solutions are being made to accommodate the notary, but it’s not perfect yet.
Once these are resolved, I strongly believe that our industry can start to see the efficiencies of a truly paperless process.
Q: Document management technology has been invaluable in helping the industry. But in your opinion, are there still areas where this technology is either not being used to its fullest or is still not being used at all?
Jonathan Kunkle: Some of the largest hurdles for creating real efficiencies in a lender or servicer’s document management platform are the grading of the applicability of borrower-provided documents; the collection of data from those documents that is usable in the credit decision; and automated analysis of that data..
If you’ve solved for the paperless workflow, then it’s easy to solve for the centralized document intake mechanism. It’s in the centralized document intake that the operation’s OCR engine and resources first look at each document. Instead of using a (highly-paid) processor or SPOC to look at every document assigned to their loan files, why not use the document management associates to assess the condition of the document first and then have a processor or SPOC only look at the documents that are applicable to the needs of the loan file? Then, once you’ve assessed that a document is needed for the transaction, reliably lifting the data from it and analyzing it in an automated fashion removes additional manual steps from the process. Financially, that makes better sense and will likely improve your borrower experience.
As long as we still rely on paper in an origination process, whether that is for a new loan or to modify an existing one, this centralized collection and analysis process, coupled with a data-enrichment process, is ultimately where our industry is headed.
Q: Due to consolidation, there are less tech vendors serving the industry now. But is the lower quantity of vendors leading to a lower quality of products and services being offered?
Jonathan Kunkle: Consolidation isn’t necessarily a bad thing. Some of these vendors (and lenders) were swallowed up by firms who had the financial strength to withstand the impact of the housing crisis. However, that doesn’t mean that the acquired company didn’t have great technology or that they put their technology on a shelf. Great technology is great technology and the prudent acquirer has figured out how to retain and grow market share with it.
And, I would counter that in light of the OCC consent orders with vendor management principles woven into them and the CFPB’s focus on vendor oversight, vendors today are far more sophisticated than they were prior to the housing crisis. But if a vendor can’t finish an external audit without a slew of critical findings, they’ll either invest to become mature quickly or, if they don’t have the capital needed to resolve their ills, they’ll likely add to the consolidation movement. Perhaps the cost of compliance in technology, process, and security has had more of an impact on the consolidation trend than the financial impact of the housing crisis. If that’s the case, then consolidation has helped our industry because the larger vendors are typically far more serious about ensuring proper controls in all facets of their organizations … and, in most cases, they can also afford to do so.
GuardianDocs is online at www.gts.com.