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Market Analysis: We Live in A Data-Centric World

*We Live In A Data-Centric World*
**By Tony Garritano**

***With all of the emphasis on loan quality and transparency, the GSEs are now mandating a more data-centric approach. This trend is just going to continue. Investors need complete visibility into each and every loan, and data makes that possible. To this end, vendors are stepping up to make it easier for lenders to embrace the data. For example, ClosingCorp, an independent, real estate closing cost data and technology company that develops online data services for mortgage lenders, real estate professionals and consumers, has launched DART, a data service that provides recording fee and transfer tax amounts for title and settlement professionals to use for closing transactions. Here’s the scoop:

****DART delivers access to accurate recording fee and transfer tax information for any address in the U.S., and reflects unique requirements based on geographic location. DART’s highly sophisticated data engine also calculates Buyer/Seller splits, commonly called “who pays” rules, and has a strength or confidence level based on collected data of statutory and customary practices by geographic location.

****“Since title and settlement agents ultimately pay and file recording fees and transfer taxes, having timely access to the most reliable data available is critical,” said Paul Mass, president of ClosingCorp. “ClosingCorp now represents the only true “sole source” provider of all actual closing cost data that title and settlement professionals need. This additional offering complements our complete line of data solutions, which includes everything from title and settlement fees, to home inspection, home warranty, and other “Block 6” fees. We are pleased to enter the market and provide a very competitive, alternative data source to title and settlements agents who depend on accurate recording fee and transfer tax amounts to close a residential real estate transaction.”

****ClosingCorp’s initial version of DART will deliver the recording fees and transfer tax information via web services, enabling title/settlement companies and real estate solutions providers to seamlessly integrate the data into their current workflow. ClosingCorp provides a DART API to facilitate easy implementation of the service. The data is returned via XML for use within the requesting application.

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Powering Today’s Lenders: Ask The Bank That Owns One

*Ask the Bank That Owns One*
**By Daniel Liggett**

***The title of this article is a twist on a classic advertising slogan for a legendary automobile brand. The manufacturer implored the reader to ask the person who owns one and why they bought it knowing full well the satisfied owners’ words would be more convincing than any they could possibly dream up.

****This transparent approach is extremely powerful, but the manufacturer better have the utmost confidence in their product. If the owner doesn’t like what they bought, they’re surely going to say so when asked. This is more true today than ever, with the increased use and adoption of social media.

****At a recent technology symposium held in New England, lenders had the rare opportunity to hear from a group of decision-makers on why they chose their loan origination system and the reasons behind their decisions.

****The panel of lenders differed in asset size, loan volume, lending models, deployment and workflow requirements, but they were similar in certain aspects as well. They set the table by discussing the reasons that motivated them to perform their technology search. Most were prompted by upcoming regulatory changes and the lack of confidence in their present system or in their vendor to handle these changes. Fear is a great motivator, but most of the lenders had a detailed plan long before compliance deadlines became realities. The lenders’ plans all included a wish-list of capabilities they both required and desired and all echoed that it had to be an integral part of their banks’ overall growth program. It was here that their needs began to differ and requirements became unique to their operations.

****One adopter said that he wanted an internet-based solution in order to relieve his thin IT staff from the burdens of maintenance and upgrades while providing access to loan officers in the field. A second lender said flexibility, customization and ease-of-use topped her list. A third lender desired to mirror their present workflow and then improve upon it. One said a key component was the LOS’s ability to grow with their organization, and not just accommodate more bodies, but have true scalability. Another lender wanted one system to handle both mortgage and consumer lending on the same platform.

****Each individual then described their lending operation in detail; the nuances that they embraced and those that they wanted to change. What became evident was how the differences in each operation clearly outnumbered the similarities, meaning each one had a distinctly different way of lending and thus a unique set of requirements. They described how the chosen LOS allowed them to achieve their goals and the effort that was involved. They described future plans and outlined their growth expectations. They also included candid details about their implementation experience, including both the successes and pitfalls and described what they learned along the way.

****In an effort to share this valuable knowledge and insight directly from the individuals making these decisions, I will be adding a “Lender Spotlight” section to this column.  Come back next week to see how and why technology decisions are being made directly from the decision makers.

Daniel Liggett serves as Director of Client Services for Associated Software Consultants’ PowerLender Loan Origination & Processing System. He has more than 20 years experience in mortgage lending and loan automation systems. Danny oversees the configuration, training, support and project management efforts for loan origination and secondary marketing at ASC and serves as a development and marketing advisor.

Market Analysis: Here’s Why We Need To Automate

*Here’s Why We Need To Automate*
**By Tony Garritano**

***I always preach about the benefits of automation. But I preach a lot. My kids say I’m a broken record when I talk to them about the value of doing well in school, for example. However, when it comes to automation, and the value of a good education, I’m right on both accounts and the data backs me up. PROGRESS in Lending has been told that CoreLogic released its October Home Price Index (HPI) which shows that home prices in the U.S. decreased 1.3 percent on a month-over-month basis, the third consecutive monthly decline. Let’s face it: with home prices continuing to decline lenders need to automate to be as efficient as possible and also to offer first-class service. Here’s what else the HPI found:

****According to the CoreLogic HPI, national home prices, including distressed sales, also declined by 3.9 percent on a year-over-year basis in October 2011 compared to October 2010. This follows a decline of 3.8 percent in September 2011 compared to September 2010. Excluding distressed sales, year-over-year prices declined by 0.5 percent in October 2011 compared to October 2010 and by 2.1 percent in September 2011 compared to September 2010. Distressed sales include short sales and real estate owned (REO) transactions.

****“Home prices continue to decline in response to the weak demand for housing. While many housing statistics are basically moving sideways, prices continue to correct for a supply and demand imbalance. Looking forward, our forecasts indicate flat growth through 2013,” said Mark Fleming, chief economist for CoreLogic.

****Highlights as of October 2011:

****>> Including distressed sales, the five states with the highest appreciation were:  West Virginia (+4.8 percent), South Dakota (+3.1 percent), New York (+3.0 percent), District of Columbia (+2.4 percent) and Alaska (+2.1 percent).

****>> Including distressed sales, the five states with the greatest depreciation were: Nevada (-12.1 percent), Illinois (-9.4 percent), Arizona (-8.1 percent), Minnesota (-7.9 percent) and Georgia (-7.3 percent).

****>> Excluding distressed sales, the five states with the highest appreciation were: South Carolina (+4.6 percent), Maine (+3.1 percent), New York (+3.1 percent), Alaska (+2.9 percent) and Kansas (+2.8 percent).

****>> Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-8.8 percent), Arizona (-7.0 percent), Minnesota (-5.7 percent), Delaware (-3.9 percent) and Georgia (-3.6 percent).

****>> Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to October 2011) was -32.0 percent.  Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -22.4 percent.

****>> Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 78 are showing year-over-year declines in October, two fewer than in September.

****If this data doesn’t scream out: “This industry needs to automate!” I don’t know what it will take to get this idea across.

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Your Competitive Edge: Looking To Grow Your Business?

*Looking To Grow Your Business?*
**By Michael Hammond**

***It seems like every day we hear more and more bad news. When will our business turn around? It’s only as bad as you make it out to be. At first glance that may seem like an odd statement to make, but it’s true. I know of plenty of companies that are growing and thriving. How do you follow their lead? Don’t be caught in the self-fulfilling prophecy of doom and gloom, look to be a trailblazer. Here’s some things to consider:

****I read an article called, “4 Ways to Stand Out and Grow Your Business” by The Jon Gordon Companies, Inc. that really had some good points. Here’s their advice:

****1. Create a Great Culture – Whether you are a Fortune 500 company or a five-person company it’s never too early to decide the kind of culture you want to create and determine what your culture stands for. For example, even when Apple was just a two-person company consisting of the two Steves it was clear their company culture challenged the status quo and as they grew they attracted and hired those that fit their culture. While it’s difficult to quantify the benefits of a strong culture, we can all agree that there is something about culture that speaks volumes to the marketplace. When you focus on your culture you create a strong foundation of values, beliefs, expectations and habits that cause you to stand out in the marketplace and ultimately grow your business.

****2. Lead with Optimism – Now, more than ever, optimism is a competitive advantage. Bob Iger, the CEO of Disney, was asked the most important characteristic of a leader and he said “Optimism.” After all, it’s not the pessimists who will grow this economy. It’s the optimists who believe in a brighter future that will take the actions necessary to create it. Optimism will also help you navigate the set-backs, challenges, naysayers and Energy Vampires as you seek to grow your business. You have a choice. You can believe success is impossible or you can believe that with faith, hard work and an optimistic attitude all things are possible. To grow your business, choose the latter.

****3. Show your Customers you Care – I am convinced that the most successful companies find unique ways to show their customers they care about them. Les Schwab Tire Center employees run outside to greet their customers when they pull up in their cars. Zappos offers free shipping and free return shipping. My local cleaner replaces buttons on my suit if they notice they are missing and provides free pick-up and delivery service. Rosenblums, the place where I buy a lot of my clothes, sends a gift certificate on my birthday. I can’t tell you how you should stand out without knowing more about your business but I can tell you, if you want to stand out and grow you must create your own signature way to show your customers that you care about them. When you show your customers you care they will talk about you to everyone (even write about you) and you’ll stand out in a crowded and competitive marketplace.

****4. Pursue Excellence – They can blame the economy all they want but the economy is not the reason people and businesses are unsuccessful. The economy has merely exposed those with weak business models, bad cultures, poor leadership, toxic work environments, apathetic sales forces and mediocre products and services. On the contrary those who pursue excellence are thriving. From the carpenter who is in demand because everyone knows he’s on time, works hard and always satisfies the customer to the graphic designer who strives to make each project her masterpiece, to the Realtor who is passionate about helping her customers find the right home, to Apple iPads and iPhones, to restaurants that are jam packed… it’s clear that those who passionately pursue excellence will stand out and grow high above the competition. The economy no longer will support mediocrity but if you can find your niche, share your passion and work hard to be great then growth will be inevitable.

****What does this mean for you Mr. Mortgage Lender or Mr. Mortgage Technology Vendor? I challenge you to take a test, actually two tests. First, take these four principles and document how your company follows them today. Second, challenge yourself to think about how you can follow these four principles in new ways in 2012. Tests are usually a drag, but I guarantee you that these tests will be tests that you will not regret taking.

Michael Hammond

Michael Hammond is chief strategy officer at PROGRESS in Lending Association and is the founder and president of NexLevel Advisors. They provide solutions in business development, strategic selling, marketing, public relations and social media. He has close to two decades of leadership, management, marketing, sales and technical product experience. Michael held prior executive positions such as CEO, CMO, VP of Business Strategy, Director of Sales and Marketing and Director of Marketing for a number of leading companies. He is also only one of about 60 individuals to earn the Certified Mortgage Technologist (CMT) designation. Michael can be contacted via e-mail at mhammond@nexleveladvisors.com.

Market Analysis: Lean On Your Vendor

*Lean On Your Vendor*
**By Tony Garritano**

***Having trouble keeping up with new government programs and regulations? As I always say, that’s what technology is for. Vendors should do the heavy lifting for you. For example, PROGRESS in lending has learned that ISGN Corp. can assist lenders and servicers with their loan infrastructure needs in meeting the expected higher demand of distressed borrowers for the new streamlined federal Home Affordable Refinance Program (HARP). ISGN has been processing, underwriting and closing HARP loans for lenders and servicers in the original program for the past two years.

****ISGN can get lenders and servicers ready to meet the expected increase in HARP volume, primarily with three mortgage outsource opportunities. First, ISGN offers staffing augmentation that provides lenders with key personnel for processing, underwriting and closing HARP loans. Secondly, ISGN can provide component outsourcing in which ISGN handles an area of origination that might be a process constraint for a lender, such as processing, underwriting or closing.

****Thirdly, ISGN offers end-to-end HARP loan outsourcing, in which ISGN processes, underwrites, closes and sets up loan funding. Lenders can manage their customer calls through a single point of contact, while ISGN handles the loan fulfillment. ISGN has the experts to manage remote lender client connections through technology, which enables ISGN to use its proprietary workflow in concert with a lender’s system to generate more efficiencies and lower costs.

****President Obama initiated the new expanded HARP 2.0 in October to aid more borrowers. Only approximately 838,000 Fannie Mae and Freddie Mac mortgages were refinanced in the original program. Today, the government estimates millions of more homeowners will be eligible for the new simplified HARP 2.0, which is the only government program designed for underwater borrowers who owe more than their house is worth. HARP 2.0 started accepting applications on December 1, 2011 for loans sold to Fannie Mae and Freddie Mac on or before May 31, 2009.

****The new streamlined HARP 2.0 should generate substantially more volume for lenders, because it removes the old loan-to-value ceiling of 125 percent, so the program is now available to homeowners in states such as Arizona and Florida where LTVs have exceeded 200 percent on many homes. It also makes it easier for lenders to participate by relaxing the rules concerning loan buybacks based on the representations and warranties of the original loan.

****“Lenders today are looking more strategically in an uncertain marketplace at the expected higher HARP loan volume,” said Scott Slifer, president of sales and marketing at ISGN. “They no longer consider it just a play to hire more staff. Now they want to determine what their core competencies are and outsource their other lending components.”

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

A Bit Of TLC: “Just Do It” Won’t Cut It

“Just Do It” Won’t Cut It
By Mary Kladde

***Low interest rates going even lower have driven a refi boom in the third quarter and show no real sign of spiking until next year.  Although I’m not a confident prognosticator in unprecedented times, I’d guess that at some point in Q2 2011 and certainly by this time next year, rates will eventually trend upward.

****When the shift finally occurs, the tide of borrowers motivated and qualified to refinance will recede and our industry will be staring directly in the face of what will become “The New Normal.”  We’ve evaded the real impact of our industry’s new market realities as a consequence of the Fed’s repeated decisions to repress interest rates.

****However, the respite will end eventually, rates will rise, and the reality of a significantly shrunken pool of loan volume will emerge.    Then, I believe, our industry will experience another wave of culling among independent mortgage lenders.  Unfortunate, yes, but from the evidence I see in working with a broad spectrum of mortgage lending organizations, two traits persist:

****>> A mindset that some aspects of loan quality can be circumvented “when necessary;” and

****>> Unrealistic expectations of “business walking in the door.”

****You would think the first trait would be significantly nullified by the regulations and “cost to cure” on loans stemming from changes enacted the first of the year.  It still amazes me, especially during the last days of the month, the quality details lenders are willing to “let slide” just to get a loan closed.  I’d wager that nearly every mortgage banker executive within the sound of my voice knows exactly what I mean.  They know either because they have allowed/demanded it, or because they have dealt with the repercussions of a loan returned by the destination investor because of it.

****Regardless of why and how and judging from the exceptions we are asked to make among our client base, mortgage loans are still being allowed to close prior to receiving “clear to close.” As we’ve said before, there are elements of total loan quality (such as verification of employment protocols) that, in our opinion, add no knowable value to the loan’s integrity. However, it is in the interest of a mortgage lender’s business integrity and business continuity to apply themselves slavishly to the details – even when there is a spike in volume. Especially when there is a spike in volume!

****It never ceases to surprise me that some mortgage bankers decide to outsource their back office and mortgage fulfillment operations to ensure scalability and mitigate the risk of mishandling loan details, yet ironically expect that we will allow exceptions on demand and assume the risk associated with these exceptions.  Our steadfast position on quality has ended some relationships, but those relationships often boomerang after those misguided lenders experience the pain of investor-returned loans or significant “cost to cure” requirements.

****May the words, “Don’t get hung up on the details, just get it done,” be banished from the mortgage banker vernacular now.

****Returning to the two traits above, I’d like to caution mortgage lenders who have been gorging on refis for the last 90 days to look up from the trough.  Look up and realize that your more fearsome competition is the lender committed to loan quality and strategic marketing.  Here’s my advice – know what your purchase to refi ratios are and spend at least 15 percent of your time each month in creating productive realtor and/or affinity relationships.   This focus will help fill your pipeline when the boom ends and positioning you for continued success in 2011.

In May of 2007, Mary Kladde decided to fully capitalize on her extensive experience within the mortgage industry by forming Titan Lenders Corp. Her 18 years of actual mortgage operations experience and exposure to all residential lending channels and processes from origination through point of sale has provided unique insight into the operational needs of lenders and investors. Her past experience includes operating and managing a successful fulfillment division for a leading document preparation provider in the industry. Prior to that, she managed the retail and wholesale closing and post closing department for a regional office of one of the larger residential mortgage banking investors in the country. Mary can be reached via e-mail at mary.kladde@titanlenderscorp.com. Also follow Titan Lenders Corp. on their blog at titanlenderscorp.com/blog/

Market Analysis: Putting Cloud Computing To The Test

*Putting Cloud Computing To The Test*
**By Tony Garritano**

***The National Institute of Standards and Technology (NIST) has taken a hard look at cloud computing. Cloud computing has been the subject of a great deal of commentary. Attempts to describe cloud computing in general terms, however, have been problematic because cloud computing is not a single kind of system, but instead spans a spectrum of underlying technologies, configuration possibilities, service models, and deployment models. As a result, the NIST released its definition of cloud computing along with some guidelines to ensure security. Here’s what they said:

****First, in defining cloud computing, the NIST noted, “A cloud computing system may be deployed privately or hosted on the premises of a cloud customer, may be shared among a limited number of trusted partners, may be hosted by a third party, or may be a publically accessible service, i.e., a public cloud. Depending on the kind of cloud deployment, the cloud may have limited private computing resources, or may have access to large quantities of remotely accessed resources. The different deployment models present a number of tradeoffs in how customers can control their resources, and the scale, cost, and availability of resources.”

****NIST went further to detail the economic considerations that users need to consider when going to the cloud. The institute said, “In outsourced and public deployment models, cloud computing provides convenient rental of computing resources: users pay service charges while using a service but need not pay large up-front acquisition costs to build a computing infrastructure. The reduction of up-front costs reduces the risks for pilot projects and experimental efforts, thus reducing a barrier to organizational flexibility, or agility. In outsourced and public deployment models, cloud computing also can provide elasticity, that is, the ability for customers to quickly request, receive, and later release as many resources as needed. By using an elastic cloud, customers may be able to avoid excessive costs from overprovisioning, i.e., building enough capacity for peak demand and then not using the capacity in non-peak periods. Whether or not cloud computing reduces overall costs for an organization depends on a careful analysis of all the costs of operation, compliance, and security, including costs to migrate to and, if necessary, migrate from a cloud.”

****While endorsing cloud computing overall, NIST did warn that users need to prepare for security. NIST pointed out, “Organizations should be aware of the security issues that exist in cloud computing and of applicable NIST publications such as NIST Special Publication (SP) 800-53. As complex networked systems, clouds are affected by traditional computer and network security issues such as the needs to provide data confidentiality, data integrity, and system availability. By imposing uniform management practices, clouds may be able to improve on some security update and response issues. Clouds, however, also have potential to aggregate an unprecedented quantity and variety of customer data in cloud data centers. This potential vulnerability requires a high degree of confidence and transparency that cloud providers can keep customer data isolated and protected. Also, cloud users and administrators rely heavily on Web browsers, so browser security failures can lead to cloud security breaches. The privacy and security of cloud computing depend primarily on whether the cloud service provider has implemented robust security controls and a sound privacy policy desired by their customers, the visibility that customers have into its performance, and how well it is managed.”

****To clarify, NIST released guidelines on privacy and security around cloud computing. Proactive technology vendors within the mortgage space are both adopting cloud computing and seeking to educate the mortgage space on the benefits of this technology advancement. For example, PROGRESS in Lending has learned that eLynx, a portfolio company of American Capital, has released a new white paper that will help companies that utilize Cloud computing technology understand the recently released guidelines on security and privacy issued by the NIST. The paper, entitled “Data Security in the Cloud,” summarizes the government’s recommendations related to cloud-based services offered by eLynx to the financial services and real estate industries.

****“Too many companies have over-used the concept of cloud computing in an effort to gain a marketing advantage,” said Alan Matuszak, Vice President of Software Engineering and Operations for eLynx. “In the process, many executives in our industry find they have unanswered questions when it comes to data security and privacy as they relate to these advanced systems. This new paper answers some of those key questions.”

****eLynx has been offering cloud-based services for close to two decades. The company’s experienced executives contributed to the paper, which also outlines how eLynx meets or exceeds all NIST recommendations.

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Things To Ponder: Artificial Intelligence And Computer Programming

*Artificial Intelligence And Computer Programming*
**By Roger Gudobba**

***Last time I talked about artificial intelligence having an impact on creative computer programming in the early 1960s. Let’s explore that further. In those first years the majority of computer systems were devoted to scientific number crunching, performing accounting functions or some other specific mathematical task. I was attending college and was fortunate to get a part-time job with a psychiatrist analyzing data for a research project. He was using a Bendix (I bet you thought they made brakes) G-15 computer. He was very frustrated with the time and effort required to get results. I had absolutely no idea what to do but looked at this as a great opportunity.

****What does this have to do with artificial intelligence and computer programming?

****One of the first programs I developed was used to guide the psychiatric residents’ thought process in determining the correct diagnosis for a patient. I presented questions and then modifying the sequence of questions based on user responses. I didn’t realize it at the time, but such an application might be considered a “rules-based decision engine” today.

****The program was modeled after ELIZA, a computer program and an early example (by modern standards) of primitive natural language processing. ELIZA was written at MIT by Joseph Weizenbaum sometime between 1964 and 1966.

****ELIZA has almost no intelligence and instead mimics the observable signs of human intelligence with tricks like string substitution and canned responses based on keywords. Nevertheless, when the original ELIZA first appeared in the 60s, some people actually mistook her for human.

****Simply getting a text sequence into a computer is not the same as imparting on it an understanding of natural language, and programming it to parse sentences is not the same as giving it the power to converse. The computer must be provided with a precise understanding of the domain to which the text relates, and this is possible for very limited domains.

****I was working at the Lafayette Clinic, a research and training facility connected to the Wayne State University School of Medicine and the Michigan Department of Mental Health. The clinic was recognized as one of the top three research facilities in the world for the study of schizophrenia. That reputation was gained in part by the fact that we had the largest and most complete collection of published articles on schizophrenia. The psychiatric residents read and cataloged articles and identified keywords. Researchers from around the world would request information based on different criteria and the computer program would read a tape file and list the article number that matched the criteria. We would then copy the articles and distribute them to the researcher making the information request. I developed this application based on a product from IBM called KWIC (Keyword in context). It sounds a little primitive based on what you can do today with online search engines, but remember that every antiquated process was once an innovative step forward.

****I was very passionate about the work and felt we were making strides in identifying the cause, effect, and potential treatments for mental illness. We were making a difference.

****During my 18 years there, however, the environment slowly changed. Technology was rapidly evolving and the public sector struggled to keep pace. Research grants became fewer and scientists fought to get funding. The state hospitals in Michigan were downsizing or closing, in part from cost cutting, in part from the desire to decentralize mental health care. Along the way, public policy shifted to allow psychiatric patients greater rights and responsibilities in determining their own course of treatment. I don’t disagree with that initiative, but the pendulum swung too far in the other direction. Now too many people who need help are on the street. I was discouraged and left to start a computer consulting firm specializing in working with small businesses. Eventually, this led me to the mortgage industry.

****Based on my experiences I came to ask: can computer programming ever replace the human intelligence factor? What do I mean? For example, when you think of a bird you immediately picture the bird flying. But then you think of the Penguin, which is a bird that doesn’t fly. Throughout my career I realized that computer programming was a tool to solve problems. But the key concept as I have always seen it was to understand the problem you were trying to solve before you attempted to develop the solution.

****Next time I will address some specific mortgage solutions.

Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader and chief executive officer at PROGRESS in Lending Association. Roger has over 30 years of mortgage experience and an active participant in the Mortgage Industry Standards Maintenance Organization (MISMO) for 17 years. He was a Mortgage Banking Technology All-Star in 2005. He was the recipient of Mortgage Technology Magazine’s Steve Fraser Visionary Award in 2004 and the Lasting Impact Award in 2008. Roger can be reached at rgudobba@compliancesystems.com.

Market Analysis: Lender Gets Immediate ROI

*Lender Gets Immediate ROI*
**By Tony Garritano**

***Market conditions remain volatile. Lenders need the right tools to enhance efficiency, promote transparency, increase customer satisfaction and remain profitable. For all these reasons and more, 1st Advantage Mortgage chose to implement business intelligence technology by Motivity Solutions, creators of the award-winning business management platform that helps mortgage-related companies get more business and more out of their business.

****The mortgage industry faces many problems. First, the foreclosure/default wave continues. Combined, Fannie Mae and Freddie Mac still hold more than 180,000 homes repossessed through foreclosure, known as REO, despite reductions in the third quarter. Second, new regulation shows no signs of letting up. For example, the Consumer Financial Protection Bureau is close to completing its redesign of the Good Faith Estimate form that home buyers receive after applying for a mortgage — but some industry groups believe the agency needs to test the disclosures on real loans. Lastly, the MBA predicts overall volume to be at a 15-year low next year.

****All of these conditions described mean that lenders are going to have to look hard at technology as a vehicle to remain competitive. The problem that lenders face in their quest for the right technology is they simply can’t afford to go with “unknown” or “untested” applications, which is precisely why 1st Advantage turned to Motivity Solutions. The lender was in search of technology that would instantly improve its operations and its bottom line, which it found in Movation, the flagship product of Motivity Solutions.

****In an uncertain market, lenders need to implement technology to promote certainty. How does it work? One of the dashboards is viewed daily by upper management to view lock activity. Specifically, 1st Advantage is looking to determine fluctuation in lock activity to plan resources and manage its all-important warehouse lines. The dashboard also shows trends in lock activity compared to loans that are submitted to processing to determine if there is a trend differential in lock versus float activity. This dashboard shows 1st Advantage the “bubble” as loans move through the pipeline. Now using this technology 1st Advantage can determine activity and volume as the loans progress to underwriting and closing to compare trends/match resource allocation based on this trend analysis.

****That’s just one example of how 1st Advantage is using one of the dashboards to get immediate ROI and greater visibility into their business. This technology also promotes accountability within 1st Advantage. Another dashboard is used to monitor loan officers closely to ensure that loan officers are submitting their files promptly to processing. The LO is actually compensated based on their ability to get their files in timely. They are also compensated based on how long their files take to get processed and underwritten. Loans displayed in the “Process Received Not Opened” status after 6 days is a flag to the manager to review and determine if there is an issue.

****If we turn to hard dollar savings realized, 1st Advantage uses yet another dashboard within Movation. A “Locks Due to Expire Report” is automatically sent to all loan officers if a file is within 5 days of lock expiration. This has made the sales force responsible for extending locks which in turn protects the client and company from costly re-pricing. The operations management uses dashboard reports that warn their staff if an appraisal or a credit underwrite is nearing its expiration. The use of exception based reporting has allowed 1st Advantage to highlight and focus on potential problem areas that can become costly mistakes. Other dashboards are used to advise management of investor purchase trends and warn staff about loans that are closed but not insured within a target range. All departments are monitored using Movation. The management team has adopted the use of these visualizers to proactively manage their respective departments. The COO and upper management have a real time view of changes taking place as volume fluctuates.

****In totality, 1st Advantage has gained valuable insight into its business that has led to immediate return on investment. As the saying goes, knowledge is power. 1st Advantage has used the vast amount of visibility it now has into its operation to its betterment. For example, 1st Advantage has made tremendous strides to ensure that underwriting turn times are within 24 to 48 hours. Loans showing up in Movation that are outside of 1st Advantage’s tolerance require immediate attention. Using Movation, 1st Advantage has been able to see volume trends weeks before bottlenecks occur. Staff is added before it becomes an issue.

****The total picture here is that 1st Advantage has chosen to implement smart technology during a very volatile time in the mortgage industry to get instant return on investment and the strategy is working now that the lender is using Movation.

****Market conditions remain volatile. Lenders need the right tools to enhance efficiency, promote transparency, increase customer satisfaction and remain profitable. For all these reasons and more, 1st Advantage Mortgage chose to implement business intelligence technology by Motivity Solutions, creators of the award-winning business management platform that helps mortgage-related companies get more business and more out of their business.

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.

Market Analysis: Negative Equity Situation Still Bad

*Negative Equity Situation Still Looks Bad*
**By Tony Garritano**

***I’m always looking to share good data and research with you. PROGRESS has learned that CoreLogic released negative equity data showing that 10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011. This is down slightly from 10.9 million properties, or 22.5 percent, in the second quarter. An additional 2.4 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the third quarter. Together, negative equity and near-negative equity mortgages accounted for 27.1 percent of all residential properties with a mortgage nationwide in the third quarter, down from 27.5 in the previous quarter.

****Negative equity, often referred to as “underwater” or “upside-down,” is the condition in which borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

****“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness. The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy,” said Mark Fleming, chief economist with CoreLogic.

****Data Highlights:

****>> Nevada has the highest negative equity percentage with 58 percent of all of its mortgaged properties underwater, followed by Arizona (47 percent), Florida (44 percent), Michigan (35 percent) and Georgia (30 percent). This is the first quarter that Georgia entered the top five, surpassing California which had been in the top five since tracking began in 2009.

****>> The top five states combined have an average negative equity ratio of 41.4 percent, while the remaining states have a combined average negative equity ratio of 17.6 percent.

****>> There are nearly 22 million borrowers, or 45 percent of all borrowers, that have mortgages with an 80 percent or more loan-to-value (LTV) ratio, and 69 percent of those mortgages have above-market interest rates of 5 percent or more.  Conversely, only 54 percent of borrowers who have less than 80 percent LTV have above-market interest rates.  While above-market interest rates make refinancing at today’s historically low rates a cost-effective step for qualified homeowners, it can be more difficult for borrowers with above-average LTV ratios to qualify for refinancing.

****>> Of the 10.7 million borrowers in negative equity, there are 6.3 million first liens without home equity loans that have an average mortgage balance of $222,000. They are underwater by an average of $52,000 which equates to an average LTV ratio of 131 percent. The negative equity share for the first lien-only borrowers was 18 percent, and 40 percent had an LTV of 80 percent or higher.

****>> The remaining 4.4 million negative equity borrowers hold first liens and home equity loans with an average mortgage balance of $309,000.  These borrowers are underwater by an average of $84,000 and have an average LTV of 137 percent.

****>> The negative equity share for first lien borrowers with home equity loans is 38 percent, or twice the share for first lien-only borrowers. Over 60 percent of borrowers with home equity loans have combined LTVs of 80 percent or higher.

>****>> Of the total $699 billion in aggregate negative equity, first liens without home equity loans account for $329 billion aggregate negative equity, while first liens with home equity loans account for $370 billion. CoreLogic estimates that of the $370 billion first liens with home equity loans, $190 billion is due to the first lien component.

****>> There are 8.6 million conventional loans in a negative equity position that have an average mortgage balance of $272,000 and are underwater by an average of $70,000.

****>> There are 1.5 million FHA loans in a negative equity position that have an average mortgage balance of $170,000 and are underwater by an average of $26,000.

****>> Given that bank portfolios account for 15 percent of all first lien mortgage loans, CoreLogic estimates that 1.6 million properties valued at $105 billion of aggregate negative equity are in bank portfolios.

Tony Garritano

Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at tony@progressinlending.com.