In response to “The Great Meltdown,” the passing of Dodd Frank created a totally new regulatory agency the Consumer Financial Protection Bureau (CFPB) with broad regulatory and enforcement power and the bureau’s name was clear. Their primary focus is all about how lenders should treat their customers (consumers) and it introduced and imposed many new workflow requirements as to how this should be accomplished. Major regs like QM, TRID, HMDA and UCD have greatly impacted lenders, but the response to this has driven, many new products and workflows to support them.
GSE’s Driving the Process – Move to collecting more and better data
As the saying goes, “Whoever has the gold makes the rules” and when it comes to what drives future trends I always look for what the investors require to package and sell them loans as you are not going to originate a loan that cannot be purchased by them to ensure fungibility
Automated data verification services
Partially in response to above the GSE’s jumped on board with their Uniform Mortgage Data Program (UMDP) that is utilizing MISMO data standards to introduce more automated, direct to the source (VOI, VOD, VOE) system to system data validation and verification services to reduce origination time and steps and secondary market risk. With new automated workflow products such as Freddie Mac’s Loan Quality Advisor and Fannie Mae’s Day One Certainty they are continually perfecting the model to eliminate steps, requirements and streamline the process from the traditional, linear paper verification mortgage process and putting enhanced reps and warrants around this as further inducement to implement and adopt.
Collecting more data upfront in the process and being able to validate it sooner results in processing and closing good loans sooner and shrinking the time to close.
Move from a post-Closing to pre-Closing automated QC review
Also supporting above trend, the three-day delivery requirement of the Closing Disclosure (CD) of TRID along with the GSE’s Uniform Closing Data Set, (UCD) mandate provides a huge benefit to ensuring the quality of loans pre-closing Vs post-closing. This will finally drive the value prop of eClosing as that will be the only way to ensure data and document compliance and integrity because if you paper out at closing you lose the entire benefit of maintaining a complete electronic audit trail (evidence of compliance) because you have no way of knowing what changes were made at the closing table if now leave the electronic system of record, (eVault) that captures any and all changes made to the disclosures and paper out.
Competition for the consumer – Mining the Gol
Speaking of gold, just like the gold rush the forty-niners went to where they thought the gold was and in today’s world it’s online. Online is where the consumers are. The technical power of Smartphones, tablets and much improved transactional web sites to attract consumers eye balls, interaction and stickiness to keep them engaged and coming back for more have advanced the focus of technology to capturing consumer clicks at Point of Sale, (POS).
Creation of the new “Fintech’s” to “E”nhancing the consumer “E”xperience
With silicone valley investments and ability to develop with newer web services technology, the legacy LOS companies were slow to recognize and seize upon the opportunity to capture the consumer at the get go. At time of application or Point of Sale, (POS).
This has launched the creation of “Fintech” companies to create more intelligent, logical and consumer friendly UI’s at POS. As use and demand grows for them they will continue to evolve and expand their functionality to support a full end-to-end Digital <Mortgage process.
Drive to a ten-day close and a ten-minute closing
Another result of capturing more data sooner is the ability for intelligent AI and machine learning systems to automate more of the routine decisioning that underwriters make. With machine learning you can build mortgagebots behind your consumer UI’s to handle the most routine, rote questions and automate responses and with AI you can mimic and continue to optimize the results of your best underwriters to ensure consistency of results across the enterprise. The real power of these systems is that they are constantly updating and learning so with every instances and response they will provide even better and more intelligent responses over time.
Blockchain Vs. eVault
Like so many of us in this business, because there are so many touch points and multiple people (both internally and externally) having to sign-off and agree on implementing something new, technology innovation, adoption and progress happens slowly in our space. But that does not preclude us for looking at the next shining object. Blockchain is one of those objects. If we looked back in history within the mortgage space, the long list of hot technology buzzwords and acronyms that were once big news, are no longer even talked about.
The formation of MERS and the GSE’s embracing eMortgages eVaults have existed for some time and have the legal infrastructure to support capturing the full electronic chain of evidence of events to provide a full electronic date and time stamp audit of key milestones and transactions to prove compliance. Early on and to this day many people only believe the reason you need an eVault is to support the secure registering of a SMARTDoc® eNote with MERS, but it can and should be to provide a full electronic accounting, tracking and evidence of consumer compliance across the entire mortgage process to protect against future audits or anyone contesting the legal validity of the loan downstream. From loan application to servicing.
SMARTDocs® Vs Smart contracts.
Blockchain is also held up as the “new” solution to ensure the security and sanctity of the data. But one of the real values of implementing intelligent SMARTDocs® today is that any data on the document can be authenticated, shared and secured (tampered sealed) down to the field level so why wait for a totally different technology when eVaults have the legal vetting and investor acceptance to solve that need today.
Investors acceptance of eNotes
Yes. We’ve been talking about an end to end paperless eMortgage process for years and the GSEs have been successfully promoting it, but Dear Investor Community, it’s time to step it up and accept eNotes already! For those that do there is a lot of pent up demand with most of our clients still doing hybrids as they currently do not have an investor take-out to purchase eNotes. But it’s coming soon and for those that are ready to step now, (price being the same) it’s going to hard for the Johnny-Come-Lately’s to participate because once that correspondent is electronically lock in and happy with the investor that worked with them to provide it sooner it’s going to be hard to come in later and displace them.
MISMO driving standards and adoption
Finally, all the above would not make sense unless there was some sort of data standard that can capture and interpret the data in a common structure and terminology that makes sense to all systems across the mortgage manufacturing process that need to share and utilize it. MISMO has moved from being just a data standards group to now looking into how those standards can solve real business problems for lenders. Work groups like the Fee terminology, Doc Classifications, RON, Standard Closing Instruction Letter, Verifiable SMARTDoc® eNote, Third Party Risk Assessment, Electronic Evidence and the list goes on. All the trends and initiatives to above have incorporated MISMO to ensure the data, loan quality and most importantly compliance of the information that is shared across systems.
Now that it appears at least for the time being that the CFPB has backed off from enforcement lenders have some time to take a collective breath and really look at doing some innovating and implementing technology strategically rather than the reactive and piecemeal approach to responding to the flurry of regs that have been inundating them for the last few years. Lenders only need to look at the rapid growth of a previous income tax technology company called Quicken to become the number one originator in the country to see how making it easier for consumers to do business with them Vs. the old, traditional, antiquated mortgage process to see who’s driving innovation and adoption in this space.
About The Author
Tim Anderson has been in the mortgage industry for over 35 years. Most recently, he oversaw DocMagic’s eMortgage and electronic commerce service capabilities and was responsible for growing the company’s market share as the industry continues to adopt electronic documents, eSignatures and digitalization of the mortgage process. He has held executive management positions with LPS (now Black Knight Financial Services) , Stewart Title, Freddie Mac and HomeSide Lending where he ran the eCommerce Division and worked at technology companies like Microsoft, Dexma and Tuttle Information Services. He was also the original founder of the eMortgage Alliance.