The lending community has very little control over the many challenges and changes that seem to be coming at it from every direction. Last month we talked about the impact of the housing markets ups and downs on the mortgage market. We just spent over 2 years with TRID. Now we are facing the HMDA changes, and no one knows what’s coming next in the regulatory environment. This industry has always had the tendency to throw bodies at its problems, rather than implement technology or process changes. However, that approach is not sustainable in today’s rapidly changing marketplace.
Financial institutions in particular are struggling to adjust to the shift in emphasis on mobile technology. SNL Financial reports that US banks and thrifts over the past 3 months closed 505 branches, with 120 in August, 236 in July, and 149 in June. Among them are these examples:
>> USAA will close 17 of its 21 financial centers nationwide next year as it adjusts to the reality that most of its members only use its mobile app and website to do their banking. USAA says only about 2.5% of its 11.7mm members use its financial centers.
>> BB&T plans to close an undisclosed number of branches by year end as it seeks to further downsize its network.
>> Fifth Third Bank will close 44 branches as it seeks to cut costs and adjust to changing customer behavior.
>> Comerica Bank (Texas) is laying off 450 employees as part of a plan to cut 9% of its 8,800 workforce over the next 2 years.
Mobile technology certainly impacts the pure mortgage lending organizations as well.
The business side of the organization doesn’t understand the challenges on the technology side and the technology side doesn’t understand the challenges on the business side. It’s a classic sort of chicken-and-egg question, as neither side can exist without the other. Each drives the activities of the other, but without synchronization of objectives and priorities, they are each hobbled and the organization stands still. And, unless all the other players on the field are also hobbled, standing still is the same as falling behind.
For an example of unrealized opportunity, we only need to look at the development of the MISMO standards. Those standards have significantly reduced the time and effort to exchange information between companies or within an organization. However, the adoption and vision for MISMO standards has always been about technology, with very little participation from the business side.
MISMO itself recognizes the problem and has recently established a business domain workgroup dedicated to better map the common activities over the life of the loan—from inception to disposition—in a format that ties the MISMO standards to the various business areas that benefit from standardization.
Historically, the mortgage loan process has had a linear flow—starting with the loan application, product and pricing selection, pre-approval, processing to gather all the relevant information, qualifying the loan using automated underwriting, and, finally, closing. The next step cannot be started until the previous step is complete, and not unlike an old-school automobile assembly line, any interruption can cause the whole line to stop and work to back up. Today’s automobile assembly lines are less brittle; multiple lines build a variety of sub-components and feed into a final assembly line. This not only allows manufacturers to easily produce variations in product offerings, but provides more flexibility in periods of disruption in a given sub-line.
As we move to a fully digital business world, we can integrate workflow, tracking, and audit trails. Today’s mortgage process flow should reflect this with interlaced, rather than linear data feeds.
Do you really need a Loan Origination System? In order to really understand this question, let’s look at the early solutions from 25 years ago. The data input screens were built to follow the flow of the Residential Loan Application (1003). Nothing substantial has changed over the years. In fact, in my opinion, the new URLA is just more data fields and proof that we are still focused on documents produced to capture data, rather than on the data itself.
Many very good Loan Origination Systems have not survived. There are number of reasons. One reason is mergers and acquisitions. Another reason could be the increase in business demands and technology innovations requiring major product rewrites. Some vendors have tried to develop new versions of their products, but remain hamstrung by demands to continue supporting older versions that they would prefer to retire. Some systems are targeted for a specific segment of the industry, which has forced some lenders to have multiple loan origination system(s) operating in different lines of business.
When I project what the next generation Loan Origination System might look like, I am reminded of this from the book Business @ the Speed of Thought, by Bill Gates. “A digital nervous system is the corporate, digital equivalent of the human nervous system, providing a well-integrated flow of information to the right part of the organization at the right time.”
Maybe it’s time to consider a central data repository. In fact, I already have a name for it: CADRE, or Common Analytical Data Repository Environment. Think of it as a hub that will connect all the various lines of business and market segments and eliminate all the silos of information to reduce data conflicts and inconsistencies. Certainly, this is not a new concept. A number of vendors over the years have undertaken the challenge to produce something similar. But this is a little different. Let’s take a high-level view.
Since the lender is on the hook for compliance and quality, it needs to own and control the flow of information. The core module (System of Record) will act like a traffic cop and manage the interactions. It will be entirely a digital transaction with two-way collaboration rather than just an exchange of data. However, taking advantage of the MISMO data standard will add the necessary structures to manage that interaction. There will be one common entry point for all applications, whether purchase, re-fi, or third-party originators. This will certainly eliminate the problems in the past when the servicing system couldn’t connect with the origination side of the business. Focusing on the data will allow you to make more informed loan decisions throughout the process and provide an audit trail, thereby reducing your overall risk. A huge advantage will be the ability to implement analytics, both historical and predictive.
Your current LOS, whether in-house or vendor sourced, may in fact be proficient in providing many of the individual features of a central data repository. What is important is that lenders have enough control of this data to drive the business and technology initiatives to meet the ever increasing demands on the organization—and that lenders have the ability to take action with that data in a timely manner.
Let’s not lose sight of the fact that there are only four classifications of customers: 1) prospects, 2) customers, 3) loyal customers, 4) former customers.