Ben Wu is executive director of LoanScoreCard, a leading provider of automated underwriting and compliance solutions and subsidiary of CalyxSoftware. Wu has more than 20 years of experience in the mortgage industry and is one of the founding members of CalyxSoftware. Joining the company in 1994, Wu developed the first Windows version of Point. Since then, Wu has been instrumental in the conception and implementation of several Calyx solutions, including Point Central, WebCaster and LoanScoreCard. Wu holds a bachelor’s degree from the University California Berkeley and a master’s degree in computer science from Stanford University. Here’s how he sees mortgage lending:
Q: Non-agency originations have grown significantly over the past year. What are some of the challenges that lenders face if they underwrite these loans manually?
BEN WU: The non-agency space is growing by leaps and bounds. Although it’s still a small portion of overall mortgage originations (representing less than 20% of all mortgages), it grew approximately 40% in 2015. From an originator’s perspective, manually underwriting these mortgages can take hours, sometimes days, for just one loan. These manual processes are also prone to human error and can expose you to compliance risk. For example, loan officers need to follow the different guidelines of different investors. But if each investor has a 100+ page document that the loan officer needs to follow, it’s practically impossible to originate correctly to all of these different guidelines. And of course, there’s the fear that if you don’t dot every “i” and cross every “t”, then you’re in a possible buy back situation, which could potentially put an originator out of business. Not only have lenders had to rework their entire workflow to be in compliance with QM agency loans, they have this additional growing need for what amounts to a separate workflow to ensure compliance and risk for non-agency originations.
Q: Are there any solutions available that can help them automate non-agency underwriting?
BEN WU: Our company offers a Custom Automated Underwriting System (AUS) that allows lenders to customize credit decisioning and safely originate compliant assets. Whether you’re a correspondent originator selling to secondary market investors or a bank or credit union originating loans to be held in portfolios, we can take whatever set of guidelines you are underwriting to and capture that within our engine. Custom AUS delivers an underwriting decision and an assessment report that includes a breakdown of every rule applied to that loan and whether you passed or failed that particular guideline—creating an audit trail for underwriting and ability-to-repay decisions. It can also accommodate third-party origination programs and helps ensure consistent, transparent credit policy application to prove Fair Lending. This automated solution helps underwriters focus on exceptions and the proper application of credit policy—improving efficiency and giving lenders greater peace of mind.
Q: It’s been six months since TRID has taken effect. What’s the impact been on your company and your clients?
BEN WU: TRID has been a learning experience for our entire industry. It’s presented enormous challenges for everyone: brokers, lenders, investors, LOSs, doc providers, settlement services companies, Realtors®, etc. I assume everyone has had horror stories about the early days of implementation and/or about less-common loan situations. Our clients primarily consist of small to mid-sized organizations and it’s not uncommon for these firms to operate without an IT department, a compliance officer or a system expert; leaving many business owners and originators who are trying to wear multiple hats. We’ve made some changes to help them better face these challenges, including increasing our support staff and the number of free resources available to help make the TRID transition as painless as possible.
Q: What’s the next big thing lenders should be focusing on?
BEN WU: Now that TRID has come and gone and the industry hasn’t completely imploded, the new Home Mortgage Disclosure Act (HMDA) data collection requirements is right around the corner. Based on the CFPB’s proposal, the final rule will dramatically increase reporting requirements and surprise lenders who have been lax on HMDA reporting and analysis, thus far. The new requirements will expand potential fair lending liability for covered institutions. Using the new information, regulators, advocacy groups and plaintiff’s attorneys will draw their own conclusions as to whether discriminatory lending patterns exists. In addition to mastering the new reporting requirements, prudent lenders will also take steps to analyze and explain their lending data.
Being able to demonstrate that a consistent, quality underwriting process is used to manufacture your assets will be essential for preparing for these new rules. The time to make process and technology changes is now and not next year when the rules take effect. If TRID has taught us anything, it’s that two years may sound like a long time to get ready—but it isn’t.