2019 Trend: Mortgage Software That Can Think (And Do)

Technology is only getting smarter and more ingrained into daily life. With the emergence of technologies like AI and iBots, technology does more than just help you work, it works for you. Instead of just providing a faster way to calculate, AI can think and learn while iBots can complete scheduled tasks without constant human oversight. 


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With the term “AI” and “iBots,” assistants like Amazon Alexa or Google Home come to mind. However, these technologies stretch far beyond the consumer world. Many lenders are now using these technologies in their everyday business practices. There are a host of automation and decisioning tools out there for lenders that help them keep their business running quickly and efficiently, while staying on the cutting edge of new technology innovations.

The Benefits of AI in Mortgage Lending

This new technology is changing the mortgage industry. The use of automation brings benefits across the spectrum of lending. Arguably the biggest benefit of automating the mortgage lending process, or any type of lending, is efficiency gains. With automatic decisioning tools, coupled with automated settlement services like valuation, title, and flood, lenders can work more quickly and can more easily handle a high volume of loans. These tools are invaluable in eliminating any backlog a lender might have.


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For lenders, this clearly means that their job is streamlined and less complicated. For borrowers, however, there are different benefits. When a lender is backlogged, it hurts the borrower. Lenders not being able to turn loans around means that borrowers are not able to buy, refinance, or improve their homes. This sets borrowers back and can lead to stagnation in the market. A mortgage lender’s ability to work efficiently has ripple effects throughout the housing market.


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Automation in mortgage lending also brings another important benefit: cost savings. Lenders are already struggling to stay profitable in the current state of the market. In one case, when a lender compared the costs on 334 HELOC applications, they found that they saved $113,319 with automation tools. Costs using technology were $97,101, as opposed to $210,420 without it. These significant cost savings mean that lenders stand a better chance of holding up in tough times.

AI Powering Automated Decisioning

Just as the mortgage industry is changing, the technology it uses is changing. Automation and decisioning tools are constantly being developed and improved to ensure that lenders have the best technology on hand.


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Some decisioning tools at the forefront of this innovation push are being developed in a unique way, designed to mimic a lender’s underwriting guidelines. Lenders are able to sit down with the developers of these types of software and talk them through how they do business. They are able to explain common problems they face, how they would solve them and other day-to-day decisions they would make. The support teams can then enter that information into the decisioning system so that it is able to make those decisions in the same way. 

This essentially allows the decisioning tool to “think” like the lender. But lenders don’t always have access to real-time data, systems do, by adding another layer of data intelligence in the form of suitability logic really takes “intelligence” to a level beyond what the lender has today.  A lender’s LOS can now make the same decisions that they would, meaning, even with automation, a lender does not have to sacrifice their quality of service. With suitability logic, systems can read property data at order placement and decide whether an automated valuation is better suited than a drive-by or full appraisal.  This AI element means that no one has to sacrifice customer experience, quality or accuracy in the name of productivity. Automated decisioning that can “think” like the lender creates a win-win situation for borrowers and lenders.

Another benefit of automation that can think is true efficiency gains. Many technologies allow people to work faster, but not many are able to mimic their thought process. This means that technology can know what to do when it hits certain snags along the way. Lenders do not have to take as much time intervening in situations where the technology does not know what to do, because it is programmed to do just what they would.

This is why partnership with a fintech can be so important. Their expertise in technology can expand what a regular financial institution is capable of when it comes to technology. Fintechs are the ones that can teach the software to “think.” They can stay on the cutting edge of technology innovations so that lenders can spend time doing what they do best. Partnering with a fintech can boost efficiency in both time and finances, as financial institutions do not have to spend time working on an area that is not in their expertise and they can ensure money is being spent wisely on optimized solutions that will be sure to produce results.

Technology like AI, iBots, suitability logic and automated decisioning tools began to be adopted by pioneers in 2018, but they will come of age in 2019. In the coming year, these technologies will not be optional for lenders. They will become the new standard for doing business and financial institutions must keep up if they want to remain competitive. Partnership with a fintech can help a bank or credit union easily achieve their automation and technology goals.

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Lending Outside Your Comfort Zone

The mortgage industry has evolved a great deal since the crash of 2008. More than ever, we have a responsibility to look at the financial situation of each potential borrower and provide them with a product that will meet their needs. The first step in this process is educating ourselves on all of the available loan products and being willing to step outside our comfort zone in the origination process. 


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One loan program that is widely misunderstood and could help a lot of consumers is the FHA’s 203K Rehabilitation Program. In short, the 203K is a diamond of a loan that allows homeowners to renovate a property to fit their needs. Here are two reasons that make this loan more attractive now: low volume in housing and a large number of natural disasters across the country. 


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Consumers who want to purchase a home with specific features are having a difficult time finding them because of the limited inventory in most markets. The 203K loan will allow borrowers to purchase or refinance a home as well as make customizations and upgrades to make it their own. The FHA 203k program helps accomplish three major things:

>>It helps create inventory in areas that are outdated or distressed;

>>It will boost home values due to appraisals being based on After Completion value; and 

>>It will take a house you like and turn it into a home you’ll love all in one loan.  

Another type of loan that FHA has is the 203H which was created for natural disaster recovery. Hurricanes, wildfires and other natural catastrophes have also taken their toll on homeowners. In 2017, natural disasters cost the U.S. economy a record $307 billion, according to the National Oceanic and Atmospheric Association. There were 16 natural events last year that cost more than $1 billion each. This year we are at about 12 of those events. The near record number of natural disasters and fires has left hundreds of thousands of homeowners faced with rebuilding or recovering from damage to their homes.


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When uncontrolled events such as severe hurricanes, storms, wildfires and other catastrophes happen, an area can be designated as a “Presidentially Declared Disaster Area.” When this happens, the homeowners can qualify for a 203H or a 203K. The 203H loan provides the consumer the ability to complete home repairs, rebuild and make improvements to restore it back to its natural state. It is designed for single family homes and can help lenders as well as borrowers by preserving the home so the borrower does not have to relocate or purchase another home. 


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Many lenders could offer FHA 203K and 203H but do not. The challenge is that most loan officers do not understand the program and do not realize that FHA expands beyond the traditional FHA 203B. It is outside the comfort zone for lenders and requires loan officers to work with a borrower with a few extra steps during the loan process. A professional licensed contractor will provide information on the work needed as well as a HUD consultant depending on the scope of repairs. The repairs can take up to six months to be completed and the great thing with a FHA 203K is all the work takes place after the loan closes and funds, which helps close transactions fast and effectively. At the end of the process, the consumer is in love with the house and that is a long-term win for the lender. 

There are a few ways lenders can expand their offerings to include 203K loans. They can hire qualified loan officers who understand the product and the origination process around it. Lenders can also work with a correspondent lender on a delegated or non-delegated basis which is a way to expand their offerings without a large expense.

Products such as the 203K loan were created to give borrowers options and homeowners a tool to create the home of their dreams. It is our responsibility in the lending industry to make sure that consumers know about the loan and that we provide a service of educating ourselves so we can provide them with the services and loans they deserve that best meet their needs. 

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The Evolving Roles Of Mortgage Originators And Loan Officers

For years, many in the mortgage industry have used the terms “mortgage originator” and “loan officer” interchangeably. Today however, a new trend is emerging and the two monikers are developing into their own unique, individual roles. To understand this changing dynamic, and what their jobs will look like in the future, we’re going to dissect the two and see where the differences lie.


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While technology has helped simplify management of the more tedious processes of mortgage origination, sales and borrower engagement, there remains a great deal of information for lenders to keep up with. From creative marketing strategies to new regulations and products, it is here where loan originators tend to shine. Rather than engaging with borrowers on the minute details of their loans, loan originators tend to focus instead on their overall book of business and the “big picture” strategies for clients. I occasionally also refer to them as loan planners or mortgage consultants. 


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On the flip side, loan officerstend to be more adept at driving business through their branch or office. For these professionals, stress tends to build as they gather together a large book of business, but then have to back-up their sales with high-level research and study. Their preference is often to work directly with their borrowers on an individualized basis and help them identify the best loan for their own unique financial situations. These professionals are also tend to have a background in processing or underwriting, which typically means they are highly attentive to small details and nuances of specific loan structures.


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That’s not to say one is better than the other, or more necessary to a productive mortgage business. In fact, the most successful lenders have the two tracks running parallel with each other and functioning akin to a pilot and co-pilot, or even a counsel and co-counsel in legal fields.  


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This changing dynamic is important as it puts the borrower first by creating a synergy between the loan originator and loan officer, with both playing to each other’s strengths. Frankly, I see the loan originator as representing the first steps of a borrower’s journey, helping him or her identify possible strategies for their mortgage, building trust and offering general guidance on issues like credit scores, for example. Once this framework strategy is in place, borrowers can seamlessly shift to working with loan officers who can help them with the minute details and identify their personal pathway to debt-free homeownership. 

Taking a more in-depth look, one can see that it’s the originator who lays out the ‘big picture’ or 30,000 foot view for the borrower, and helps them narrow their focus to one or a few select options. Then, the loan officer helps them narrow that view even further to create a smarter mortgage plan that allows them to ultimately save money and build personal wealth. This works to the advantage of borrowers as they have access to not one, but two experts in the mortgage industry, each with their own specialization to help them identify the best possible loan. 

This trend will continue to develop as technology impacts how lenders do business with borrowers, particularly as data, machine learning and AI come to play as an integral part in the lending process. Using data, lenders are able to identify and interact intelligently with borrowers at the start of their decision making process, establishing trust prior to them even starting the mortgage process. When the borrower does decide to move forward with originating a loan, lenders will be better prepared to provide them the best quality advice regarding the loan options available. While the role of originator and officer may be diverging in some respects, when a borrower is deciding where to take their business, they do not look for individual titles or positions. Rather, they look for businesses that respect their financial position, care about their future and work with honesty and character. That’s why this changing dynamic is important, not because of job titles, but because it will offer lenders more opportunities to demonstrate their expertise, educate borrowers and guide them down a homeownership path that supports their long-term financial wellness.  

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Cutting Costs And Improving The Borrower Experience With eClosing

With only a slight increase in new purchase originations coupled with anticipated continuing declines in refis predicted for 2019, the importance of reducing costs associated with loan originations and gaining a competitive edge to attract millennial borrowers is vital. As new technology innovations and key platform integrations continue to be unveiled and further solidified, the mortgage industry’s adoption of digital capabilities are increasing and in turn providing new benefits for lenders and the customers they serve.


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With technology continuing to advance the mortgage industry, today’s lenders are striving to further optimize the loan origination process with a digitally driven borrower experience while simultaneously streamlining internal processes to accelerate cycle times, improve loan quality, and reduce costs. But how are they doing it? The key to making these goals a reality is to invest in the right tools to make each transaction as digital as possible. Simply put, it’s time to invest in eClose technologies.


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As a result of lenders’ continued focus on driving down origination costs, reducing time to close and improving the overall mortgage experience for borrowers, implementing the latest technology innovations to advance from paper to digital processes has transitioned from an optional investment to a strategic imperative. With the popularity of eClose continuing to increase based on the operational benefits of leveraging a more efficient and secure process, there is an absolute need for integrated digital mortgage solutions that provide true end-to-end eClosing functionality within a single platform.


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In the evolution towards adopting eClosing technologies, lenders are recognizing the importance of not letting perfect be the enemy of good. While nationwide acceptance of eNotarization is not yet a reality, eRecording is already mainstream with over 83% (1,800+ counties nationwide) accepting electronically recorded documents. Lenders now have access to eEligibility engines to analyze each closing package to “be as ’e’ as it can be” according to state, county, and investor variations. Leading lenders are taking action now, leveraging electronic processes for closing when and where they can.


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Beyond eSignature capabilities, innovative eClosing platforms include Fannie Mae and Freddie Mac approved functionality for eClosing, eNotes and eVaulting. Lenders can leverage eVault solutions integrated with the MERS® eRegistry for all eNote management transactions such as transferring control to an investor, updating the servicer and location when needed and later flagging an eNote as being paid off, assumed, or modified, and other life-of-loan events. 

Not only do eClosing solutions provide greater efficiency from an operations standpoint by no longer relying on cumbersome processes, they also offer significant cost savings and proven ROI for lenders making the transition. How much, you ask?

As an example, a non-warehouse lender originating 12,000 mortgages per year with an average loan value of $250,000 can save $155 per loan by transitioning to a hybrid eClose process, adding up to a whopping $1.8M in savings annually.

If the same lender were to move to a full eNote eClose offering, savings could increase to $224 per loan, resulting in more than $2.6M in annual savings. Lenders using a warehouse line can recognize additional benefits, reducing average days on the line from 15 to 5 or less, allowing them to turn their lines more quickly, reducing their cost of capital and liquidity requirements, and enabling them to do more volume with a given-sized warehouse line.In response to predicted trends in the mortgage origination market over the next 12 to 24 months, cost-optimization and efficiency coupled with delivering an experience the millennial buyers expect, now is absolutely the time to make the transition to a more digitized mortgage process. By investing in the right tools and solidifying the best methodology for managing the loan processes, lenders will not only enhance the mortgage experience for their borrowers but will also optimize profitability by reducing operational costs. 

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AI-Based Textual Analysis

In today’s mortgage market you can’t pick up an industry publication or attend a trade show and not hear someone talk about Artificial Intelligence (AI).  Many of the claims talk about how AI will disrupt the mortgage industry or radically change how mortgages are originated or processed.


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Some of it is pure hype and some of it includes technology that can clearly streamline processes and reduce cost.  So how do you filter fact from fiction?  Let’s take a look at how AI-based textual analysis is actually at work in the mortgage industry and the different approaches some vendors are using.


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High-Level Approach

The most fundamental difference in approach between an AI textual analysis and the majority of other “advanced” document recognition technologies is that AI textual analysis treats variable layout documents as unstructured documents whereas most other prominent solutions treat them more as semi-structured documents.


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To illustrate the difference in methodology let us consider a customer wishing to process pay stub documents. An AI textual analysis implementation would typically be deployed with one set of completely generic rules designed to encompass all variations of the “Pay Stub” document type from any company.  Because alltext is evaluated by the AI engine, the rules can flex with the layout and verbiage changes just as a human does when reading the page. The solution is also capable of being configured to perform conditional processing for specific exceptions to generic rules (per-layout exceptions) but it is not typically necessary to do this.


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Most other modern advanced document recognition technologies treat document variations as semi-structured documents. These solutions typically either: 

a) Remember as many of the variations as is practical and process each variation with layout-specific templates for processing Or b) Apply a mix of layout-specific processing and some generic processing (usually the higher incidence layouts are processed with layout-specific or templated processing) 

The obvious advantage of the AI textual analysis generic approach is that, as new layouts appear or existing layouts change, the software is better equipped to deal with these new variations. This advantage was recently validated at an account with over 35,000 layout variations where rules had been in place for five years with not a single modification. An audit of this client’s processes after five years revealed an identical automation rate to that when the system was first deployed. This outcome was observed despite the fact that a significant portion of the originally dominant layouts had been transferred to EDI processingand were therefore bypassing the system now. 

As you can see the varying approaches often produce different levels of success.  But how can you determine which is best for your organization? Get a demo and hope that the solution is more than smoke and mirrors?  Up until now that is usually the case.  To overcome much of the confusion and disappointment, a better evaluation process in many cases may go a long way towards greatly minimizing the risks involved in choosing a vendor who can actually deliver AI-based textual analysis.

In order to quickly understand AI-based textual analysis and its capabilities, a blind test with several sample files should be considered the gold standard for an evaluation.  This is especially true when it comes to the challenges presented with the many and varying document types and quality levels of document images found in the mortgage industry.  Asking vendors if they are willing to perform a test on a never before seen sample set of typical loan files on site and in sight of your evaluation team, is a great first step in separating fact from fiction.

Ideally, an evaluation should be setup as a one day event to hedge against any vendor refining their results.  This kind of test is intended to demonstrate the validity of the vendors’ out-of-the-box capabilities so that prospects can be assured that they are considering a proven, robust and scalable solution ready to deliver productivity improvements in weeks rather than months or years.

For qualified opportunities, Paradatec will perform this process, which enables prospective clients to quickly understand the overall levels of automation, and speed improvements they will be able to achieve with their technology.  Download our whitepaper on AI based textual analysis https://www.paradatec.com/wp-content/uploads/2018/12/CompetitiveMethodologies_2018_Final.pdf.

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The Video Craze

As companies in our space look to differentiate, video marketing should not be ignored. In the article “How To Write A Script For Video In 3 Steps: Video Marketing 101”by TJ McCue it is reported that HubSpot, the inbound marketing and sales platform, conducted research around video content that found 54 percent of respondents (your potential customers) wanted to see video from brands they support.


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A late 2017 research report revealed types of content that consumers also wanted to see, in order:

>>Email newsletters (number two on the list)

>>Social images

>>Social video

>>Blog articles were almost last at 18 percent

>>PDF content (ouch, last on the list)

Most of the above often will contain embedded videos or links to videos. Video works as a marketing strategy and tactic. Of course, this is not news to just about anyone in business or in marketing. I have done my fair share of creating videos for projects and written about its value as a marketing strategy. Video marketing is great, it is powerful, and it is at the top of most marketers’ task list, for at least the last few years in a row. 


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New video marketing and editing platforms have made it simple to create excellent videos in a fraction of the time it used to take with more traditional tools. Video is simply popping up as the method by which almost every marketer and entrepreneur and brand is leveraging or, at least, testing.


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A friend of mine used to read statistics or facts like the ones above and then ask: “That’s great, but just how do you do it, exactly?” Well, let’s get to it. For the record, just because there are only three steps listed here does not mean it will be fast or easy to complete them. Also, I share some additional downloads at the end of this post.


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Video Script Step 1:

Start with a brief summary of what you want to accomplish. Is the goal to get people to buy your product, or download a special report, or head over and read your blog post? Once you have your goal, go to step two.

Video Script Step 2:

Okay, so this one is the heavy lifting step. You want to script every word that you will say on the video. Do not worry – this does not mean you cannot go off-script later, during the recording phase, but it does mean you put every single word down on paper so that you can read it out loud in step three. By writing every word down, you get an idea of how easy it is to talk too much. But this is not the time for editing, just write. Write as if you are speaking to a friend; one who is going to buy your product or service.

Video Script Step 3:

Read it out loud with a timer as if you are recording. You may want to do this dry run step several times and it is here that you can start editing your script, adding visual directions as you realize actions or points you want to make. I have followed these steps (mostly more but sometimes less) each time I have to create a video. This process can be short and sweet for most marketing videos. If you are creating a long video, it is likely to be far more involved.

Now get started on your video.

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Explaining Credit Score Models

This article will provide a brief overview of different credit scoring models, the differences between actual and simulated credit scores, and the importance of knowing your actual consumer credit scores. 

FICO v. Vantage

Your FICO score is a score that is meant to evaluate creditworthiness. It is promulgated by Fair Isaac Corporation and was first utilized by lenders in 1989.  Your FICO score is calculated based upon the following five factors: 1) Payment history, 2) Credit utilization ratio, 3) Length of credit history, 4) New credit accounts, and 5) Credit mix. 


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In 2006, to compete with FICO, the three major credit bureaus developed the Vantage scoring model. This model calculates credit scores using some of the same factors as FICO, but also incorporates some additional information. The Vantage factors include: 1) Payment history, 2) Credit age and mix, 3) Credit utilization, 4) Balances, 5) Recent credit applications, and 6) Available credit. Although Vantage has been making a push in recent years, FICO scores remain the industry standard across various financial sectors for evaluating consumer credit worthiness.  

Actual v. Simulated

It is important to note the difference between actual credit scores and simulated credit scores. There are many websites, such as Credit Karma, that purport to provide consumer credit scores for free. However, consumers should be weary of putting too much credence or relying too heavily on those scores.  A simulated score is calculated based upon actual information in a consumer credit report, but it may not necessarily reflect your true credit score, which is promulgated by the FICO or Vantage models. There are many instances in which consumers review their simulated scores prior to applying for loan or other financial product, only to find out later that they do not qualify because their actual score is lower than the simulated score. 


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Importance of Getting Actual FICO Score

According to FICO, 90 percent of “top” US lenders use FICO scores when evaluating the credit worthiness of applicants. As the predominant scoring model in the US, consumer FICO scores will, more often than not, determine whether a consumer will qualify for the loan or financial product for which he or she is applying. It is imperative that consumers keep this at the forefront of their minds when devising a strategy or making a decision about when and whether they should apply for a mortgage or a car loan. 


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Whenever a consumer applies for financing, and the potential lender makes a hard inquiry (pulls the consumer’s credit), that consumer’s credit score is negatively impacted, and will decrease as a result of that inquiry. If a consumer believes that he or she will qualify based upon the simulated score, but is later denied, their credit score will take a hit unnecessarily. Because of the deleterious effect that hard credit inquiries have on a consumer’s credit profile, it is imperative that consumers know their actual credit score prior to applying for loans. There are companies that offer monthly subscriptions which include actual consumer FICO scores that are updated monthly. This type of service is invaluable for those who are serious about achieving and maintain credit health, and eliminating any guesswork when applying for loans.


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