Talking Digital Mortgages

There is renewed interest in the digital mortgage, but most LOS players aren’t ready. “When considered in the light of the pressing demand for digital mortgage capabilities, the areas in which today’s originations systems fall short become even more glaring,” noted STRATMOR Group Senior Partner Garth Graham. “When STRATMOR is consulting with clients – typically within the context of reengineering or establishing new origination platforms – we work toward implementing specific digital mortgage functional capabilities organized primarily around sales and fulfillment processes. Very few can currently be found in a commercial, off-the-shelf LOS.” So, we took Garth at his word and instead turned to an expert document provider to dissect the best way for lenders to embrace the digital mortgage. Here’s what Jonathan Kunkle, General Manager of LenderLive Document Services, told us about this and other hot industry topics:

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Q: Why did you first decide to enter the mortgage space?

JONATHAN KUNKLE: Funny question… I think the mortgage industry chooses us, not the other way around. (Did you not hear the giant sucking sound when it captured you, as well?) I was recruited into the industry from another field by the President of Guardian Mortgage Documents. My first role at Guardian was in sales, and I loved it from day one. At first, I didn’t speak mortgage; in fact, in my first meeting I wrote down three pages of acronyms I didn’t understand.

Q: How has the mortgage industry changed since you first got into the business?

JONATHAN KUNKLE: The Internet was relatively new when I started at Guardian and we’d just deployed one of the industry’s first web-based applications. It was technically sophisticated then, but technology has evolved so quickly that today’s software is light years ahead of where we started. In fact, I remember getting my first Blackberry, moving from analog to digital cellular mobile service, and dual computer monitors (the biggest technological leap in mortgage, according to Garth Graham at STRATMOR Group.) Obviously, technology has had a significant impact on lending and servicing. Today, we’re closer to the reality of digital mortgages and all things ‘e’, aka paperless. What I find most interesting is that the advent of technology has not driven down the costs of originating a mortgage or servicing a loan. Maybe, a better way to look at the lack of cost savings afforded by technology would be to consider that the fully-loaded cost of compliance and regulation is actually an offset to the cost savings that technology actually afforded the industry. Imagine the cost to originate a loan today if we didn’t have the efficiencies these technologies have afforded the industry to date.

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Q: How do you define digital mortgages?

JONATHAN KUNKLE: This is a great question, because in my mind the definition isn’t very clear across the industry. I think of a digital mortgage as one that is data-enabled. Data enablement or enrichment starts at origination, through a digital, borrower online application. This digital application needs to empower the process through digital data gathering (e.g., Yodlee, Plaid, Intuit, etc.), use the data for analysis, and only push exceptions to a human. A digital mortgage should interact with the consumer digitally: eSignature of the intent to proceed, eSignature of the loan estimate disclosures, and scheduling and follow up through the web interface, text, or other means of the consumer-selected communication path. Then the digital mortgage should be seamlessly processed, underwritten, and closed with minimal human interaction because the entire process is data enriched. Moreover, as more and more counties adopt digital notary acknowledgements, a true digital mortgage should be able to be executed as simply as an auto loan is executed today.

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Q: What are the benefits of offering a digital mortgage?

JONATHAN KUNKLE: First and foremost, the consumer demand for the mortgage loan buying experience is shifting to digital (queue the Millennials). Even though it may be the most important financial decision of someone’s life, the advent of technology allows for a personal, guided experience online. The lender should not lose sight of a critical point: when the borrower needs guidance, a human loan officer is a must-have component of that buying experience.

Steep cost reductions are another benefit: producing and manufacturing a digital mortgage should be a fraction of a traditionally originated, processed, underwritten, and closed loan. Why? Because it’s much more data-centric and less human-centric, thanks to automated decision making. Loans of the past required a human to make the cognitive decisions. With a data-enriched process, the human can focus only on exceptions.

And finally, a digitally executed mortgage has considerable benefits to the lender.  For example, a recent MBA study showed lenders save $1000 or more when closing loans digitally.

Q: What key hurdles still need to be cleared before the industry can go fully digital? For instance, Fannie and Freddie issued a survey identifying the lack of readiness from servicers, document providers, custodians and title/settlement agents as a key challenge.

JONATHAN KUNKLE: There are a still quite few hurdles for eMortgages, but I wouldn’t put the vendors in the mix of impediments. For example, our firm is ready for eMortgages today. The challenges are:

>>State and county adoption of digital notary.

>>Permissibility of eSignature on the SSA 89 form.

>>Investor readiness (and willingness) to buy digitally closed loans.

>>Warehouse line readiness to fund digital loans and take interim ownership of an eNote.

>>Adoption industrywide of the readily available eVaults. I know many lenders are anxious to start closing all loans digitally and many servicers are already onboarding loans with eNotes.

>>Title adoption of augmenting the closing package with eSign-enabled title documents.

Q: In building digital mortgages, what other considerations should lenders be thinking about?

JONATHAN KUNKLE: Regarding the digital front end, here are some critical thoughts:

>>Does the application process let the consumer pause and come back at any point in the future (without restarting the entire process)?

>>Are the connections to data sources (asset, income, collateral) capable of collecting data and images and both?

>>When the consumer opts out of data collection protocols, does it support image or document upload of the needed source doc?

>>What are the security features – does it support multiple authentication means and/or two factor?

>>Does it support home equity (HELOCs) through a more limited, TRID-free application process?

>>Can it seamlessly integrate to your product and pricing engine?

Is there a means to accurately estimate closing fees (i.e. accurate LE/CD production)?

>>Does it provide a means to communicate with the consumer in their chosen means?

Is it mobile enabled?

>>Does your consumer prefer an app or a mobile-enabled solution?

>>Does it interact with the AUS or does that remain in the LOS?

>>How does it drive a seamless workflow and can exceptions and escalations be routed back to the consumer?

>>Can it enable a compliant preapproval for purchase transactions?

Will the digital experience interact with your compliance service or does that remain in the LOS or doc service?

>>Does it integrate to your chosen eSignature application so that the borrower experience is the same throughout the entire process, including the loan closing?

>>What is the lender’s strategy to drive traffic, retain the applicant, and close the loan (i.e. Quicken’s Rocket Mortgage advertising)?

Q: What role does technology play in creating a digital mortgage experience?

JONATHAN KUNKLE: It doesn’t. Kidding… The technology will determine if the borrower can stay on the rocket path or exit to the self-propelled scooter circa 1950. Seriously, technology and digitization are totally transforming the mortgage experience.

Q: Where is LenderLive headed in the digital mortgage space?

JONATHAN KUNKLE: As a private label mortgage fulfillment provider, LenderLive needs to interact with multiple digital front ends. Our bank clients each have different strategies on consumer interaction and will choose a front end best suited for their strategy. Their consumer direct digital experience will also be critical to capture market share of the predominately purchase-driven market. As such, LenderLive is building a message layer to interact with the client’s selected front end. Moreover, LenderLive is preparing for the data-enriched process by enabling its back end processing to be free of the bondage tied to the traditional paper-based mortgage process.

Q: How is LenderLive freeing itself of that legacy process?

JONATHAN KUNKLE: We’ve invested heavily in our FACTCheck rules engine, that ingests source-of-truth data and runs complex rules and analysis on it to automate much of the cognitive thought process in the traditional mortgage. The FACTCheck solution in the market today is exclusively an income calculation tool, but we’ve already build asset and collateral valuation as well. The concept of FACTCheck is to take the available data, find normalcy in it, and then route exceptions for processing… but only when needed. We have proven that FACTCheck can eliminate 75% of the human processing needed if the origination channel is data enabled. This automation enablement will finally provide a technological lift in the cost of loan manufacturing.

Industry Predictions

Jonathan Kunkle thinks:

1.) There will be more than 1000 eNotes closed to date.

2.) Close a few dozen complete, end-to-end eMortgages in 2017 (with digitally signed and notarized security instruments)

3.) See multi-vendor-threaded versions of Fannie’s Day 1 Certainty and a Freddie version of the program.

Insider Profile

Jonathan Kunkle is general manager of LenderLive Document Services, one of the business lines of LenderLive Services, LLC. As a trusted premier services provider, LenderLive partners with financial companies to transform their day-to-day operations by delivering services and solutions that improve efficiencies, reduce operational errors, and mitigate compliance risk. In this role, he is responsible for client relations and the overall strategy of the company’s Document Services line of business, as well as their sales and client integrations. Kunkle has more than 25 years of experience in senior management roles, with 14 years in the mortgage industry. He joined LenderLive as vice president of sales in 2008 when the company purchased Guardian Mortgage Documents. There, he was responsible for all of the company’s sales initiatives.