Lend Long And Prosper

Technology is changing faster than ever before. While it took 38 years for radio technology to reach nationwide adoption, it took Facebook just a year and half. Change is difficult, and this ever-increasing acceleration can be challenging to navigate.

This is certainly true for mortgage lenders. Most lenders’ loan origination systems looked very different five years ago than they do today. With so much at stake involved in lending in a compliant manner while providing a superior borrower experience, adaptability is essential. How can lenders successfully lead teams who require consistency through inevitable process and technology changes? There are two answers – one obvious, the other not so obvious.

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The obvious answer is leadership. While my background is in the study of human behavior, I now spend each day helping lenders plot major changes in their organization. My curiosity about people has led me to note a few consistent themes as lenders look to revamp their processes and change their loan origination technology providers. People can be naturally resistant to change, often preferring consistency, so how do we stay standing on the ship as technology shifts? There is a lot of great literature out there on the process of change management. The obvious and accepted part of the answer is that having a leader for your organization who can lay out a logical, straightforward plan (think Spock from Star Trek) for change is the starting point.

But people are, of course, emotional as well as logical beings, and emotion often gets left out of the plan for technology change.

That’s the second step in navigating change: Helping people deal with their emotions. While having a clear picture of the end goal is key, teams need to know why and how to get there, too. Captain Kirk said it best: “…the greatest danger facing us is ourselves, an irrational fear of the unknown. But there’s no such thing as the unknown — only things temporarily hidden, temporarily not understood.”

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Change, by definition, is a move away from the known into unknown. Our irrational fear translates into a fear of loss. It could be a loss of responsibilities (technology replacing manual processes or entire jobs) or a loss of comfort (sameness keeps anxiety and fear away). Teams must feel they understand the plan. They are the foundation through which our processes and technology can succeed, so leaders need to help them through their sometimes rational, sometimes irrational fears and emotions about technological change.

Helping people through change is actually quite similar to helping people through loss or grief. In fact, you may have seen all five stages in the Kubler-Ross model on loss: denial, anger, bargaining, depression, and acceptance. As a leader, how effectively you help your staff navigate through — or around — the first four could be the difference between excitement for the future and poison in the well.

In dealing with change, you can either lead from the front or from the back. Only the former will help you effectively navigate your staff through change. You’re removing that fear because the team sees you’ve already outlined the destination, and you’ve shown them the path to get there. No more pushing your staff into the stressful, scary unknown. You’re bringing them into something new, something greater. Change is a constant in business. It’s always going to be hard, but when it’s done right it can lead to gains, not losses.

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HMDA Highlights CFPB’s Failures

My Mother was a wonderful cook and baker. Coming home from school every day found the house full of wonderful smells and treats cooling on the kitchen table. The reaction of everyone who came into the house was always “oh that smells so good!” Her reply was always, “We’ll see. After all the proof is in the pudding.” Tasting the food and seeing if was as good as it smelled was the only way to make sure there were no hidden issues that rendered it uneatable.

For the past five years the CFPB has been mixing up a menu of new “tastes” for mortgage lenders and shoving them down our throats. The purpose of this was of course, to ensure that consumers were given a fair chance to obtain a mortgage that worked for them and did not result in the overpayment of fees or interest rates. This, they said was the answer to the problems that caused the mortgage meltdown and allowed everyone who could qualify to buy a house. In order words, with these new requirements the potential risk faced by those looking to buy or refinance a home would be mitigated.

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So the question is, have the changes, such as disclosures, credit standards and complaint databases been effective? On September 21st, the FFIEC released the HMDA data from 2014. Here at last was the proof in the pudding. Would the data show that consumers were taking advantage of these changes to obtain new mortgages? Were we in fact increasing homeownership, especially among those with lower incomes and those in protected classes?

Unfortunately the initial results were, to the least, disappointing. According to Mortgage Trueview, a data analytics firm in Bountiful, Utah, exclusive of the loan purchased by other lenders, the year over year number of applications decreased by 29% compared to 2013. Applicants with incomes less than $50,000 decreased by 24% and applications from male, non-white applicants decreased 23%. The data also shows that this was not isolated to particular metropolitan areas, but was evident in 362 MSAs. The Philadelphia metropolitan area suffered a 69% decrease, the largest of any MSA.

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These numbers appear to indicate that the changes made by the CFPB do not appear to be working. In fact it some may even say that so far the CFPB has failed to make any positive change in housing despite the costs and confusion of implementing their new requirements and the tremendous costs associated with training, file reviews and ultimately fines associated with them.

Of course, there is no doubt that there may be other influences that impacted these numbers. We know that housing inventory was down and housing patterns among millennials, who’s 72 million members would normally be in their peak home buying years. However, interest rates have been consistently at their lowest levels and employment rates are high.

It appears that the CFPB is failing. Even those who eagerly anticipated the new requirements and consumer options, appear to be questioning their effectiveness. If we really want to aid consumers, more complicated disclosures and tightened credit standards do not appear to be the answer.

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The Big Deal About Millennials

According to CNN, many of our nation’s Founding Fathers could be considered the millennials of their day.

Sitting beneath their white wigs at the Constitutional Convention in 1787 were young innovators around the age of Mark Zuckerberg or Taylor Swift. In fact, James Madison — our nation’s fourth president — was the youngest delegate elected to the Continental Congress at 29. He authored the Constitution by age 36.

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Millennials have a “can-do” attitude about tasks at work and look for feedback about how they are doing frequently – even daily. Millennials want a variety of tasks and expect that they will accomplish every one of them. Positive and confident, millennials are ready to take on the world.

They seek leadership, and even structure, from their older and managerial coworkers, but expect that you will draw out and respect their ideas. Millennials seek a challenge and do not want to experience boredom.

Millennials need to see where their career is going and they want to know exactly what they need to do to get there. Millennials await their next challenge – there better be a next challenge.

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Millennials are the most connected generation in history and will network right out of their current workplace if these needs are not met. Computer experts, millennials are connected all over the world by email, instant messages, text messages, and the Internet.

How do mortgage lenders target this group you might ask. Mortgage Master did some research on millennials. They tried to find out how this group ticks.

Mortgage Master was founded in 1988 by Leif Thomsen and grew into one of the largest privately owned mortgage lenders in the nation. Since its inception, Mortgage Master has funded over $60 billion in loan volume.

In looking at this group, Mortgage Master found that when it comes to their priorities, Mortgage Master found that 52% view a successful marriage as a priority; 30% view being a good parent as a priority; 21% view helping others in need as a priority; and 20% view owning their own home as a priority. That should be good news for lenders.

Going further, the research found that 73% of them want to have children; 66% want to get married; and 93% want to own a home in the near future.

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What Lenders Should Know About The Increasing Liability Of Undisclosed Debt

Recently, Fannie Mae released its Fraud Findings Statistics report, which reviews loans for various types of misrepresentations, such as identity, credit history, Social Security Number, property value and other information that is critical to the origination process. The report found that since 2014, nearly 70 percent of misrepresentations were related to liabilities, or “undisclosed debt” that is originated during the time between the original credit file pull and the loan closing. So why are liabilities at an all-time high? I have two suspicions…

First, under the Federal Housing Finance Agency’s (FHFA) extended rep and warranty framework, Fannie Mae is reviewing loans earlier in the process for eligible rep and warranty deficiencies that may trigger repurchase requests. Prior to the extended framework, this review only covered a sample of loans delivered, and deeper reviews for the non-performing ones. With an increased scope of review and a goal of greater transparency to lenders, more issues are being uncovered than ever.

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The second reason we’re seeing record-high misrepresentations is due to the return of the purchase market. The increasing originations open the door for another interesting, albeit common trend. As they prepare to move into a new home, homebuyers are tempted to and often borrow more. Some of the purchases are for more essential items (new furniture, washer and dryer, lawn mower), while others, such as a new car, are not. Regardless, the collective amount of new debt and number of trade lines can significantly impact the borrower’s debt-to-income (DTI) ratio with the potential of making them ineligible for the mortgage.

For lenders, the vast majority of borrowers are forthcoming about their debts during the initial mortgage application. Many borrowers simply don’t realize how new “undisclosed debt” impacts their ability to qualify for their mortgage. It’s an innocent oversight. During my tenure at Equifax, I’ve seen some pretty interesting studies on undisclosed liabilities (for both risky and “safe” loans) and the data is telling. For instance, one study found that consumers with higher credit scores take on more debt during the “quiet period” of underwriting.  In another review of more than 35,000 loans, more than 11,000 new lines of credit were found to have been opened during the quiet period.

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Misrepresentations occur across the lending spectrum, from purchases to refinances and are not predictable by traditional scoring models. Conventional wisdom might suggest that a higher credit score is indicative of low-risk borrower, but Equifax research has found in some studies that a high percentage new debt are on loans to consumers with credit scores 720 and higher.

The good news is that there are dynamic monitoring platforms that assist lenders in identifying these liabilities on a consistent basis. In addition to early detection, it is important to discuss the impact of new debt with borrowers, as well as obtain documentation that is necessary for loans on the secondary market and even change the terms of the loan. The end result is a reduction in buy-back risk and the ability to provide a higher level of service to borrowers. Now that the purchase market is gaining traction and originations are increasing, this will be a significant component of any successful lenders’ strategy.

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Nuances Of Investing In Transformational Mortgage Technology

Mission critical decisions for technology investments are never comfortable, but now is a great time to invest in technology to prepare for the next surge of mortgage lending, given the five-decade low in homeownership rates. Many lenders and servicers have carefully evaluated and invested in new technologies over the last several years to help them offset rising costs, remain compliant and improve operational efficiencies. For others that have not made necessary investments, this may create future challenges.

Implementing new platforms can be costly and challenging, but relying on outdated systems can be even more dangerous, opening institutions up to regulatory risks and a host of operational deficiencies. While often viewed as a pain point, there are best practices for navigating the technology buying process. First, before investing in a new core or ancillary system, lenders and servicers must conduct a thorough assessment of their organization’s business needs. For example, is the goal to reduce the cost and labor to service a loan? Or is the goal to reduce risks?

Typically, the business case that drives organizations to invest in new technologies falls under one of three categories. The first category is business process optimization, where lenders and servicers aim to upgrade platforms to improve operations, reduce costs or reallocate staff to focus on other growth areas of the business.

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The second category is addressing the evolving regulatory landscape, where existing technology systems no longer comply with the latest regulations. Organizations are forced to upgrade their systems to avoid penalties for violating guidelines. The third and final category is when change takes place within the organization, such as consolidating systems. Organizations must either convert from one platform to another or invest in additional technologies.

Once the lender or servicer identifies its business needs and which technology systems to upgrade or replace, they must then determine what type of platform works best for the institution – a hosted platform or a cloud-based platform. Many institutions, however, rely on multiple platforms to address all of their needs. The challenge is that these systems typically lack the ability to exchange data seamlessly between each other, which is critical for today’s lenders and servicers. As a result, many institutions are opting for cloud-based systems that provide complete control and oversight into their loan portfolios.

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For example, Irvine, Calif.-based Intercap Lending recently decided to change their loan servicing system from a hosted platform to a next-generation cloud-based platform. Switching to a cloud-based platform will help Intercap improve operational efficiency while also lowering operating costs. According to Clay Tol, chief operating officer and director of Capital Markets for Intercap, a fully web-based system “not only streamlines our processes and provides for greater efficiency, but will prove to be a competitive advantage.”

In addition to matching technology investments with business needs, like reducing costs and eliminating compliance risks, lenders and services must also consider customer service. Today’s borrower expects to have access to their account through different digital channels, especially for the Millennial generation; therefore, institutions must invest in technology platforms that are accessible from multiple devices.

Finally, who you partner with is just as critical as the technology itself. Lenders and servicers must work with vendors that easily and quickly adapt to industry and regulatory changes. If your vendor fails to do so, technology upgrades are likely to be a significant pain point or – even worse – prevent you from making necessary technology changes that impact profitability and service as a result.

Ultimately, lenders and services are striving for operational improvement to support increased profitability, and doing so means investing in transformative technologies. The decision process is not always simple, but relying on outdated technology can be detrimental. Identifying your organization’s business needs and then matching that with the right technology while also keeping customer service top of mind is crucial to long-term sustainability. By following these best practices, institutions will better navigate the technology buying process and position themselves for growth.

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Is Your Compliance Legally Defensible?

The regulatory environment for today’s lender is exceedingly complex. Meeting your compliance burden is becoming more difficult each day, and the ever expanding risk for non- compliance is perilous.

As a lender, you should be focused on generating and maintaining a profitable business in this volatile market, rather than constantly worrying about the enormous and ever changing compliance landscape. Your burden is too great and the risk is too high to rely solely on your internal staff to provide compliant solutions that are legally defensible.

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“Legally defensible” means the “buck stops here.” Today’s challenging regulatory environment should not mean that compliance questions directed to your vendor, partner, or other service provider can answered by a “two step” response, where the first step is to delay and the second step is to defer to another. Rather, answers to compliance questions must “come from the source” – lawyers who are some of the most preeminent and knowledgeable in this industry.

Is your current document provider backed by a nationally recognized team of attorneys, who are the “go to” attorneys for real estate advice and mortgage document solutions? Do those attorneys provide advice, recommendations, and document solutions derived from years of experience, directly responsive to your needs and/or concerns? Do those attorneys thrash about the legal issues and build solutions that can be defended to your vendors or mortgage partners, before a regulator preparing to audit, or in a court of law?

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Depending on how you answer the questions above, you should expect from those answers a highly respected staff of attorneys who provide lenders like you with legally defensible compliance expertise. Unparalleled compliance solutions combined with years of real estate law experience, in-depth compliance insights with state-of-the-art technology to compliantly document your mortgage transactions is paramount. Your chosen solutions should provide industry leading built-in compliance checks to mitigate your risk and alleviate your compliance guesswork.

Regulatory pressure is mounting. You are faced with an immediate and compelling need to re-evaluate and update your institution’s capacity to successfully respond, analyze and compliantly implement mandated regulatory changes. This includes your ability to produce compliant documents for all your lending needs. Don’t get caught in the chaotic throws of being unprepared – rely on your trusted partner.

MRG’s attorneys and team of compliance experts recognize the business imperative of proactively monitoring and continuously analyzing regulatory changes, trends, and impending regulations that impact your business decisions. Our highly skilled team of professionals are constantly on alert for changes from all federal, state, local and investor requirements to provide you with up-to-date compliance from a source you can trust.

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Are You A Success?

We all want to be successful, but it isn’t easy. I think we can agree that Bill Gates is a very successful man, but that wasn’t always the case. His first business failed miserably.

Yes, one of the successful people in the whole world couldn’t make any money at first. Gates’ first company, Traf-O-Data (a device which could read traffic tapes and process the data), flopped. When Gates and his partner, Paul Allen, tried to sell it, the product wouldn’t even work. Gates and Allen didn’t let that stop them from trying again though.

Here’s how Allen explained how the failure helped them: “Even thought Traf-O-Data wasn’t a roaring success, it was seminal in preparing us to make Microsoft’s first product a couple of years later.”

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Similarly, we all think of Benjamin Franklin as a very smart and successful man, but he didn’t start out that way either. Franklin’s parent could only afford to put him through school for ten years. That didn’t stop the great man from pursuing his education. He taught himself through voracious reading, and eventually went on to invent the lightning rod and bifocals. Oh, and he became one of America’s Founding Fathers.

So, what do Gates and Franklin have in common? What makes certain people successful? According to John Maxwell in the article “What’s the One Thing all Successful People Have in Common?,” some would say it’s great ability or intelligence. But we all can probably think of someone who’s not particularly talented who’s doing quite well.

Others would point to a privileged upbringing. In other words, a head start via training or opportunities that others didn’t have. But many successful people can point to very humble beginnings or to major obstacles that didn’t set them up to win in life.

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And what about naked ambition? Sure, there are some very cutthroat “successes” out there, but there are also just as many kind and unselfish people who are succeeding in their field.

In my years of learning and teaching about personal growth and leadership, Maxwell believes that he has discovered the one thing all successful people do have in common. It’s described very well by one of his favorite authors, Dale Carnegie:

“The biggest lesson I have ever learned is the stupendous importance of what we think. If I knew what you think, I would know what you are, for your thoughts make you what you are; by changing our thoughts we can change our lives.”

How we think: Maxwell believes that’s the key to success, because thinking comes before action. We can’t do things that lead to success until we think in a successful way.

So what does successful thinking look like? It’s more than anyone can communicate in a short article like this one. However, if we’re going to boil it down to one thing, successful people take calculated risks. If you want to be successful you have to put yourself out there. Don’t be content to follow the crowd and expect success just to land in your lap. You have go out into the world and get your own success.

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Post Closing Lender Communications

Trailing documents continue to be an industry pain point, especially with the new TRID requirements. Lenders need to know where the documents are and what has happened to them after closing. That is where the need for advanced post closing communications comes into play and helps to solve some major problems that have existed in the industry for decades.

It starts with automating the post closing process. The right post closing solution gives lenders and settlement agents the unique ability to view, access, and share post closing information and statuses on recorded documents and data in one central place, completing the full life cycle of the loan through final title policy delivery.

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The right post closing communication solution benefits both lenders and settlement agents. Let’s first discuss the benefits of a post closing solution for lenders.

With lenders becoming more liable for the closing process, visibility is more important than ever. The right post closing solution provides the visibility lenders need into settlement agent processes along with the reception of recorded documents, fee data, and final title policy.

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The right solution already has connections to over 17,000 settlement companies, ranging from small independent agents and attorneys to large title offices, and offers the ability to e-record documents with counties across the nation. Most likely, your favorite settlement agent already uses that solution or can easily get started. Documents e-recorded through the solution are instantly delivered to you the moment they’re recorded.

Additional Benefits for Lenders include the ability to:

>> View when and how documents are sent to the county

>> View estimated recording time, fees, and transfer taxes

>> Track recording status and rejection reasons

>> Electronic delivery of recorded documents and data

>> Configurable notifications and activity alerts

>> Complete audit trails and reporting

>> Communicate changes, deficiencies, and statuses

>> Visibility into settlement agent post closing processes

>> Prompt agents for final title policy upload and return

>> Electronically receive final title policy

>> Quickly provide your lenders with post closing updates, recorded documents, and final title policy.

Post closing for settlement agents also delivers significant benefits. With the right post closing solution, lender communication and electronic document delivery have never been more simple. This automates the post closing process for settlement agents at no cost by providing your lenders with recorded documents and data, estimated recording fees and transfer taxes, and estimated recording times—reducing follow up calls with lenders.

Additional Settlement Agent Benefits include the ability to:

Share when and how documents are sent to the county

Share estimated recording time, estimated recording fees, and transfer taxes

Provide recording status and rejection reasons

Electronic delivery of recorded documents and data

Configurable notifications and activity alerts

Complete audit trails and reporting

Communicate changes, deficiencies, and statuses

Electronically send final title policy

Helps with compliance

Helps satisfy ALTA best practices

The time to get connected with the right post closing solution to minimize industry pain points while addressing the new TRID requirements is now.

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Doing The TRID Shuffle

The TRID deadline has come and went and we are all still here. We saw a mad dash on the part of mortgage lenders and technology vendors alike to comply with this new rule. They all danced around, did a little shuffle and by now everyone has found a dance partner.

It all reminded me of a prom. The technology vendors did there best to comply and stand out so they’d be picked to escort the most lenders to the dance. And in fact, lenders did make their choices.

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For example we heard that PHH Mortgage (PHH), one of the largest providers of residential mortgages in the United States, signed a multi-year license agreement to use DocMagic’s expansive set of products to help ensure compliance with the TILA-RESPA Integrated Disclosure (TRID) rule.

“We have worked closely with DocMagic for the last year to thoroughly evaluate, test and integrate their technology and compliance solutions, and we will use various components to ensure we are TRID compliant,” said Eric Sadow, chief compliance and fair lending officer. “We are confident that our use of the DocMagic technology and compliance solutions will meet our needs and the needs of our clients, regulators, investors, partners and borrowers.”

Did you get that? PHH worked on TRID for a year. Why? “Anyone working on TRID implementation will tell you that there have been many unexpected challenges,” said Gregory E. Teal, president and chief executive officer of Ernst Publishing. “We wanted to go live as early as possible so lenders can begin using the tool and testing their processes ahead of the CFPB’s deadline. I’m very proud of our team for getting everything together so quickly. The system is available now for lenders to use.”

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Ernst programs process an average of 150 million real estate transactions every year, industry-wide. Since the company was founded 26 years ago, Ernst has processed over 1 billion transactions. The firm estimates that its patented technology is in use for 90% of the nation’s new loan originations and refinance transactions.

Smart technology vendors not only helped their clients comply, but they also offered training. For example, Ellie Mae launched its Resource Center online for lenders to take advantage of the complete library of help resources.

“Our goal is to help mortgage lenders of all sizes feel prepared and confident for the RESPA-TILA Integrated Mortgage Disclosure Rule on October 3rd and beyond,” said Jonathan Corr, president and CEO of Ellie Mae. “We are able to offer comprehensive resources and training to help our customers prepare for this major change and we’re adding new resources to respond to feedback and concerns.”

“TRID rules are complex and affect all of the financial loan institutions’ – both originators and servicers – federal and state compliance tests; RxOffice allows users to ensure their processes are compliant,” added Andrew F. Campbell, counsel with Ober|Kaler. “Once the loans are run through the system, lenders or the servicers can immediately know if they are compliant or not and they can also know what they need to do to fix it so that they can be compliant.”

IndiSoft partnered with Ober|Kaler earlier this year to provide guidance and assistance to IndiSoft in enhancing two of its compliance modules, RxOffice Vendor Management Portal and RxOffice Compliance Portal, on all the current regulatory compliances.

“The industry is in a constant flux when it comes to regulations,” said Sanjeev Dahiwadkar, IndiSoft CEO and president. “Our platform and specifically our compliance modules make it easier for users and the executive management to keep up with the current compliance mix of its portfolio and help them in making right decisions. This gives them peace of mind and saves them the time, money and effort of trying to decipher complex regulations on their own.”

What’s my point in rehashing all this? My point is that this is a testament to this industry’s ability to tackle tough challenges. Now that the challenge of TRID is over I challenge lenders and vendors alike to do even more. Let’s move beyond TRID and really think about how we can improve the whole mortgage process. The CFPB hasn’t told us to do this, but why wait for them?

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