Revolutionizing Lending

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With the TRID deadline behind us, the industry is breathing easy again. But should it? Recently ComplianceEase, a provider of automated compliance solutions to the financial services industry, released an analysis of compliance defects for closed loans and estimated that the cost of correcting these errors is increasing the cost of origination, on average, by approximately $28 for every loan. The analysis was based on a cross-section of 700,000 audits that were performed in ComplianceAnalyzer and RESPA Auditor during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another 6 percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.

So, this industry clearly is struggling with compliance. The answer to ironclad compliance is migrating to a truly data-driven process according to Dominic Iannitti, president and CEO of DocMagic. DocMagic is a leading provider of fully-compliant loan document preparation, compliance, eSign and eDelivery solutions for the mortgage industry. Founded in 1988 and headquartered in Torrance, Calif., DocMagic, Inc. develops software, mobile apps, processes and web-based systems for the production and delivery of compliant loan document packages. The company’s compliance experts and in-house legal staff consistently monitor legal and regulatory changes at both the federal and state levels to ensure accuracy. Here’s what Iannitti thinks the industry should do to forever revolutionize lending:

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Q: How did you get started in the mortgage industry?

DOMINIC IANNITTI: I was originally very interested in data and putting data together, re-packaging data, and being able to sell data in a different format. I read a story that focused on the manipulation and modification of data. I thought that it was wild to be able to take data, and change it, and format it, and turn that into a marketable service. I immediately got interested in this idea, started to look at technology, and created a business plan for a document production company for the mortgage industry. That’s where it all started. We began to migrate and leverage that data to actually select appropriate forms, to apply rules around that process, and make forms very intelligent. Later we added the ability to electronically deliver those forms. In the end, it’s because of that interest in the raw data that brought me really into the mortgage finance area.

Q: Over the time that you’ve been in the industry, how do you think mortgage lending has changed?

DOMINIC IANNITTI: It’s changed a lot. When we first got involved in mortgage lending, we were delivering documents. We would produce those documents and then literally take the packages out to the car and drive them to the client. We were limited in our reach from a customer perspective. Then modems were created and we had a way to actually send the ones and zeros on the form remotely to another office from another location, which was amazing. Then the laser printer was created and that radically changed documentation. The rules engine behind the document became more powerful. We created our own rules engine within the DocMagic product, which enabled us to be very dynamic in selecting forms and making sure the correct forms were there. Ultimately we were leveraging this technology to pick the client’s rules, validate them, make calculations, ensure regulatory compliance, etc. The industry has changed a lot.

Q: What about Doc Magic as a company? How has it evolved since you started it twenty some years ago?

DOMINIC IANNITTI: When we started DocMagic was very focused on documents. It’s still focused on documents, but it’s become much more of a compliance company, much more of a technology company. So, we were very production oriented in the beginning. You would take in information, and create a document, and manually deliver everything. It was all about documents and creating those documents. Today we have evolved into a compliance company that delivers everything electronically. You could also make the argument that we’ve become a software development company, as well. We’ve had to become very quick at creating solutions, and that means having a large development staff. When we think of an idea we have to create a prototype and ultimately bring a product to market. The company is dramatically different as compared to what it was when we first started off. Now we have one particular department focuses on document production, which is all the original company used to do.

Q: Over the past year, you’ve made two acquisitions, eSignSystems and Document Express. How did they come about? How are things going with them now? Where do you see them going in the future?

DOMINIC IANNITTI: DocMagic has become a very large company. We are serving in excess of 7,000 lending institutions at this point. When requests come in, there’s sophisticating systems and metrics and sophisticated technology to make sure that we’re doing what we promised our clients we would do, service their needs as quickly as possible. We’re always looking for ways to improve that efficiency. Real-time data is coming back from our clients about how we performed. It’s not unlikely that we’ll get somewhere in the neighborhood of 8 to 10,000 requests each week. It’s an insane amount of requests that come into the system. So, when we looked at Document Express, it was a small, boutique company, much the same way we were when we first started out. What we liked about that was the fact that they had a good group of clients and they were very boutique oriented in the way that they were handling those clients. It was very hands on. It was very mundane. It was exactly the opposite of what the company had evolved into. Not to say either one is better or worse, but to say we were interested in that acquisition because it reminded us of what we were when we first started. We looked at that acquisition as a way of bringing that mentality back. When we brought them on, every client that they had stayed with the company. We’ve not lost a single client. The group of people that run that organization are phenomenal and they’ve done an incredible job. We extended our toolset to them, as well. Their systems now integrate to all of the DocMagic clients, the DocMagic calculations, and the DocMagic evolving and electronic delivery technologies.

The eSignSystems relationship is a little bit different. There was a different motivation for that acquisition. DocMagic focuses on the mortgage industry and we learned during the time that we were trying to transition the industry to start to think about DocMagic as a compliance company, which we felt was critical, that was an uphill battle. When people think of you as a document production company, it’s difficult to change that mindset. We have been on the cutting edge of electronic delivery, and electronic signature technology here at Doc Magic. All of that is integrated into the Doc Magic products. Our clients don’t have to go out and look for an electronic delivery service because those services are tightly woven into the very fabric of our product because we have that expertise. We realized that in order for the mortgage marketplace, and other industries as well, to consider adopting an electronic signature strategy, it would be necessary for us to bring on another company that has that expertise as a strategic advantage. eSignSystems had great technology. Most of their technology was designed to be on premise. It was designed for much, much bigger organizations. So, we felt that the marriage of the two companies would be great. We would bring our SaaS offering together with the on-premise offering at eSignSystems. Now very large organizations could come to us and we would have the right solution for them. We’ve been doing a lot of work retooling their technology, as well. eSignSystems also gives us the ability to reach beyond the mortgage industry, and expand to serve other industries. For example, now we have a number of insurance clients and we’re hoping to bring on some automotive dealerships. That’s been very exciting.

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Q: Are you still in an acquisition mode? Are you actively looking for other acquisitions? Or do you think that those acquisitions were just opportunistic that came up at the time? How would you describe your M&A strategy?

DOMINIC IANNITTI: We’re always actively looking. There are certain companies that we are always watching. We’re also opportunistic at the same time. If the situation presents itself and we feel that we can it work, we are open to acquisitions. Our eyes are always open and we’re absolutely keeping a very close watch on a number of different types of companies that we’re very interested in.

Q: You recently launched a product called SmartCLOSE. Describe the evolution of the product. What’s the value proposition behind the product and where you see it going in the future?

DOMINIC IANNITTI: We realized very early on that collaboration is going to be key to making the mortgage system work. Lenders, settlement agents, and other have to collaborate and the changes to the loan that happen as a result of that collaboration need to happen in real time. If I’m in the system and I make a change, but you don’t see it for five minutes, that’s not collaboration. We researched and came up with a new technology stack that would enable us to provide real-time collaboration, much the same way that Google Docs works. We wanted to allow for real-time updates. If I’m in the system, the settlement agency sees exactly what I’m doing. It is truly dynamic. If I make a change and I need to make sure you know about that change, SmartCLOSE will notify you. So, the communication within the system is very sophisticated. If you’re in the system you will see the update in real time and if you are not in the system you will be notified of the update in real time.

In addition, the system handles data. It handles an immense amount of data. That data moves and hits the disclosure forms, for example. So, the forms are created and updated dynamically. The system also maintains a record of all the changes. I can go into, for example, the origination fee and I can see in that fee all the communication, conversations, and messages that went on about that fee. You know who made every change and why they made that change. We had no idea when we started the project how important communication was. At every step the system is creating a record and audit log.

The most exciting part about SmartCLOSE is the fact that it establishes the relationship between the lender and the settlement agency. That just never existed before. Again, it’s so simplistic, but it comes down to communication. Really, if you play in this arena, you faxes and e-mails and all kinds of things going back and forth, but there’s nothing that brings it all together. There’s nothing that unites all of those communications. SmartCLOSE does that.

Q: DocMagic surpassed 100 million e-signed transactions this year. How did you do that?

DOMINIC IANNITTI: What’s really exciting is that we can create these disclosures perfectly with e-signatures. We feel like we are uniquely situated to move the industry forward when it comes to the usage of electronic signatures. We are so proud of our e-signature number. We have even opened up this service to other industries. You can bring your own docs into our system and apply an electronic signature even if you are not in mortgage. We also have strategic alliances with other companies where they will leverage our electronic signatures for appraisals, for example. There has been an outpouring of interest in electronic signing.

Q: What’s the future of doc prep as an industry category within mortgage lending?

DOMINIC IANNITTI: Doc prep has become much more dynamic. For example, closing disclosures get messy really fast if you’re just using templates. The reality is that you have to create a document dynamically for closings to work these days. Very early on DocMagic realized that there has to be a lot of intelligence embedded in the form itself. For example, our documents can audit themselves. So, if a calculation is wrong it will throw that alert back into the main system to show that something may be out of compliance. In that case, the doc is actually performing a regulatory audit on itself. Increased intelligence within mortgage documentation is something that you are going to see more and more of.

INSIDER PROFILE

Dominic Iannitti is President and CEO of DocMagic, Inc., the mortgage industry’s preeminent provider of fully-compliant loan document preparation, compliance, eSign and eDelivery solutions. Since founding the company in 1988, Iannitti has been responsible for the company’s wildly successful track record as a leader in closing loan document production software and eServices solutions. DocMagic’s innovative technology and company growth is the result of his leadership and vision. Most recently, Iannitti spearheaded the development of SmartCLOSE™, the leading Collaborative Closing Portal for TRID compliance.

INDUSTRY PREDICTIONS

Dominic Iannitti thinks:

1) Most collaboration closing portals for TRID will fail, with only a handful being viable long-term solutions.

2) Current TRID requirements and the CFPB’s commitment to eClosings will drive lenders to implement a true eClosing process — sooner rather than later.

3) Because of QM, ATR and now the TRID MISMO 3.3 data requirement, many investors will push their post closing QC process to a more automated pre-closing QC process that ensures better data and document integrity, compliance and control.

Our Compliance Journey

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John-ListonFor the past two years we’ve all been talking about TRID compliance. Now that the deadline has come and gone, I think it’s instructive to discuss how technology vendors handled this big challenge. In our case, when Associated Software Consultants, Inc. (ASC), the developer of the PowerLender Loan Origination System, first became aware of the looming regulatory requirements that comprise what we now know as TRID, namely the delivery of a new loan estimate and closing disclosures documents, they hatched the idea of developing a solution within the LOS itself, rather than have their clients rely on doc prep vendors. After combing through the initial regulation specs beginning in late 2012, ASC determined that there could be literally thousands of variations of the forms required to deliver the final documents. Maintaining a vast series of boilerplate docs and using line coordination to map the data was barely feasible and certainly not practical. They focused their energies on using PowerLender’s dynamic document generation capability, which employs XML mapping, to determine the correct series of documents to generate in order to fulfill the TRID requirements.

While working on development of the solution and subsequent upgrade to PowerLender, ASC wrote and distributed two comprehensive guides for their end users to aid in the preparation, implementation and testing of the PowerLender TRID solution. The first was the Setup guide, which outlined the procedures that users were required to execute ahead of the software upgrade. The second guide outlined in detail the procedures required to map the data generated in PowerLender to the forms, to be employed after the upgrade had been installed.

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Chelsea Groton Bank, a billion-dollar bank located in Groton, Connecticut, has been using PowerLender since 2003. Rachel Carlson, AVP and Retail Loan Operations Manager, is a self-described ‘technical person’ and ‘well versed’ in PowerLender’s business-rules flexibility commented on how ASC and PowerLender prepared their institution to generate the loan estimate and disclosure documents. Here’s her story:

We first began the preparation process for accepting the PowerLender TRID solution in the fall of 2014 when we began gathering information and analyzing the setup manual that ASC had prepared and distributed to PowerLender users. We then went through our own internal audit to determine the work that was needed to get our PowerLender system ready for the programming update. During this time, we consulted often with the PowerLender support team who were not only available at our convenience, but were extremely thorough with their answers and also provided clarity on issues to satisfy my ‘technical’ inquiries.

I can’t say enough about how useful the Setup guide has been, we wouldn’t have been able to do this project without it. It has been amazing.

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When the software upgrade was ready the next spring (2015), we installed it on our test environment. This is a very valuable feature of PowerLender, which allows us to simulate all of the aspects of our current configuration for use in testing without compromising our production environment. We then began mapping the required field using the mapping guide that ASC had provided. As soon as we had fields mapped, we began printing docs to see how things were coming out of the system. Our testing process continued in this manner, mainly printing and checking the docs as we made our way through our different loan programs that we offer.

In conjunction with the actual mapping and testing procedures, we have developed an in-depth training program for our staff based upon their roles. Our loan officers obviously need to be very familiar with the loan estimate and have the ability to explain it to borrowers, and all of our back office processors and underwriters will get an in-depth training as well. As for the closing disclosure, we are still determining what roles will receive the various levels of training that we have developed, while focusing on the ability to explain all the details to the borrower at the closing table. We have a group that has been creating our training program and it has been very essential in getting us ready.

We are fortunate to have been on this fast track for getting the TRID documents produced because it has allowed us to develop a thorough training program that is tailored to all the different roles we have at the bank. This has also helped tremendously to allay any fears the staff may potentially have developed over the past few months when they read or heard about potential changes to the regulations. This training has given them confidence to not only understanding the regulations, but providing confidence that they can handle them should they occur.

In talking with other colleagues who use different systems, I think we are so far ahead of them in terms of being prepared. As I said, the guides were very well put together and thought out and on the items where I had a little confusion, the PowerLender support staff was always available to help.

In implementing this change, everyone wishes we had more time. We did get a little reprieve from the CFPB, but I feel that the guides, the updates, and the rollouts of the system patches are examples of the commitment of the PowerLender people to getting their clients ready. The patches, which seemed to be issued every two weeks, were in direct response to PowerLender users who were testing the solution and reporting back to them what changes were needed and their response was phenomenal, I can’t say enough about the support we received from them.

We achieved success in part due to the commitment of our people to this project. This was a large undertaking for us because we offer a variety of products in PowerLender. Not only did we have to deal with this new regulation, which we understand is part of the territory, but we also had to maintain our lending operation as well. I cannot stress enough the efforts of our people and the PowerLender team that supports us. We strove to keep moving forward on this and when we encountered an issue, we were able to make adjustments and move on which, again, shows the dedication of everyone involved.

In terms of having a good relationship with a service provider, really any service provider, is the ability to have open, constructive communication from both sides. Having a service provider who is responsive is a huge part, as we have dealt with many who are not, but the important thing is dialogue. Every issue that I have come across, either with my end users or with setting up PowerLender, I have been able to either call or email and get a prompt response or engage in a consultation to work out the issue. As I’ve said, we have had non-responsive service providers in the past and when you encounter that, you just say ‘forget it’ and move on; however, this was not an issue with PowerLender, and we are thankful because we simply could not have just ‘moved on’ without their guidance along the process. Knowing that they were there for us lifted a burden from our shoulders.

What we hear from some of our common vendors that we share with our competition is that other lenders are saying everything from ‘yes, we’re ready and set to go’ to ‘I don’t know how this is going to get done…we’re not even close’ when they are asked if they will be ready for October 3rd. To be fair, it’s hard to gauge everyone’s true feelings because it hasn’t hit yet, so nobody really knows.

But I feel for us, having a well thought-out plan, specific setup and mapping guides, thoroughly tested software upgrades and timely updates coupled with highly interactive guidance and support makes a big difference and gives us a huge level of confidence that has made this large and complex project much more manageable.

We know we’re on the right path. We have the support of our LOS and the PowerLender people, and we’re going to get there together.

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Compliance Just Doesn’t Matter

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Brandon-PerryThat may sound like a bold and foolish statement. There is an intense regulatory burden that is stretching staff resources and driving up the cost to originate. While all of the new rules and regulations are certainly an important priority for all lenders, and one that must be properly addressed, at the end of the day, compliance doesn’t matter if you don’t have any borrowers.

Even with the flood of rules and regulations and the enormous pressure to comply, lenders must continue to attract new borrowers if they want to remain viable. In the face of these challenges, lenders cannot afford to loose sight of the importance of bringing in new business and constantly looking for ways to drive new business in the most efficient manner possible.

How will your company continue to thrive in such a demanding and compliance focused environment? Identifying and acting on high-quality business opportunities is a big part of the answer. You need to generate leads quickly and efficiently, and then drive them to the point-of-sale. You need to convert them into customers with compliant in-process marketing. You also need to retain them and maximize their lifetime value through repeat business and referrals. It’s critically important to create and nourish strong relationships with referral partners in a purchase market.

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In order to survive and thrive in this mortgage environment of constantly changing rules and regulations, heightened competition for borrowers and extreme pressure to produce results, you must realize the need to identify high quality business opportunities. It is critical to identify leads quickly and efficiently and then drive them to the point-of-sale with compliant communications for converting them into clients. It’s equally important to retain these clients and to maximize their on-going value through repeat business and referrals.

Engaging these prospective clients in real time across a multitude of channels such as the Internet, email, social media, print, video, and mobile devices highlights the importance of working with a proven marketing automation solution that can illuminate or emphasize the best in your marketing while easing your compliance burden.

That’s where marketing automation comes into play. Lenders focused on driving new business and attracting more borrowers are turning to advanced marketing technology to attract more borrowers in today’s highly competitive and regulated mortgage market.

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So what is marketing automation, and why should lenders take notice? Marketing automation for lenders can be described as software and strategies that allow companies to consistently attract new borrowers–that is, to nurture prospective borrowers with highly personalized, relevant content that helps convert borrowers into customers and turns customers into raving fans.

Marketing automation typically generates significant new revenue for lenders and provides an excellent return on the investment, in addition to attracting top loan officer (LO) talent to the organization.

Leading LO’s demand advanced marketing solutions. These solutions automate engagement with prospective clients and provide relevant updates for in-process milestones while developing and enhancing partner relationships. Marketing automation employs leading technology to maximize marketing relevance and automation of communication that capitalizes on opportunities to increase pipelines and profitability.

LO’s experience :

>> Increased pipelines and commission potential

>> Maximize market opportunities

>> Experience a surge in response rates

>> Develop loyalty throughout customer base

>> Gain a clear competitive advantage

>> Automate communications with prospective borrowers and clients

>> Develop and enhance partner relationships

One such example of programs that mortgage marketing automation systems include are automated loyalty programs . Automated Loyalty programs deliver consistent and highly personalized marketing communication. These type of marketing programs automatically deliver powerful messages to a lender’s new borrower in the form of “Thank You” cards after closing, satisfaction surveys, one year Anniversary cards, and Mortgage Reviews (terms, rate, new credit review, etc.) after year two to name a few.

These programs are automatically generated within the marketing automation solution which provides “Set-It and Forget-It” functionality. Once set-up in the system, LOs and staff do not have to worry if their borrowers are receiving on-going communication.

This results in significant increases in client retention, referral business, and overall borrower satisfaction and on-going loyalty for future lending needs.

Another powerful tool that is part of a dynamic marketing automation solution is ON-DEMAND CAMPAIGNS.

Custom Campaigns can be run quickly and easily on demand to any mix of contact databases: prospects, applicants, borrowers and partners.

You’ll want to run a campaign whenever you spot a tactical sales opportunity – for example, a change in interest rates or other market conditions. On-demand campaigns are also an effective way of just staying in touch with your database – for example, making announcements about significant changes at your company.

Fulfillment is handled quickly and securely at the providers integrated state-of-the-art Production Center, whether you choose conventional mail or e-mail as your delivery medium. Campaign output is always fully personalized to each participating loan officer as well as the recipient – and you can rest assured it meets all regulatory compliance requirements.

At the end of the day, compliance does matter, but it only matters if you have borrowers. That’s where marketing automation comes into play. Isn’t it time to focus as much attention on driving new business as you do in meeting your compliance obligations?

The Turning Point’s MACH3 is a proven enterprise-wide marketing automation solution that supports you and your specific initiatives to address these market conditions. Each person in your organization that is involved with driving growth is empowered to focus on what they do best. For example, Loan Officers are free to close more loans, instead of trying to create marketing materials. C-level executives are presented with sophisticated, yet easy to use tools for more effective oversight and management, while marketing managers can demonstrate their marketing genius and compliantly maintain brand consistency across the organization.

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The CFPB Favors eClosing

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TME-DGreenThe Consumer Financial Protection Bureau (CFPB) released “Leveraging Technology to Empower Consumers at Closing” on August 5, 2015. This is an eagerly anticipated report covering the eClosing Pilot project the CFPB conducted with a group of lenders and mortgage technologists during the first four months of this year. (Full disclosure: we participated in the pilot with BECU, our long-time partner and one of the most experienced users of our lending technologies.)

A little background: The CFPB issued a Request for Quotation last April from teams of lenders and technology partners to help them test several hypotheses concerning the paper-based mortgage closing process as it exists today versus the newer, still under-utilized eClosing processes successfully used by some lenders. The CFPB’s hypotheses — that consumers would favor eClosing over paper closing because it would give them a better understanding of the process and a feeling of empowerment, leading to greater satisfaction — all turned out to be true.

We – Accenture Mortgage Cadence and BECU – thought we would make ideal pilot project participants because of our longstanding interest in improving the borrower experience, as well as our more than seven years of history in eClosing mortgage loans. For BECU, eClosing has, since October 2008, been one part of a bigger, overall eMortgage process to make the origination cycle completely paperless, from origination through closing and delivery.

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Improving the borrower experience was one big reason for this initiative; increasing lending efficiency was the other. An efficient mortgage program, after all, is both a profitable and competitive program. Being a pioneer eCloser also provides competitive differentiation. Thousands of BECU members have closed electronically in the last seven years, enjoying the benefits of receiving their closing package days before the closing itself, giving them the opportunity to review the documents before their closing meeting. It also leads to time savings at the closing table. Receiving a copy of their completed closing package on a memory stick is an added welcome bonus, too — more secure than a large file folder, much more accessible, and tremendously space-saving.

It obviously helped that we believed in the CFPB study and the hypotheses it tested, which made us eager to participate. The results, we believed, would also provide hard data to support the benefits of moving beyond traditional processes, pushing consumers and the industry forward.

One important note on eClosing: It does not have to be entirely paperless. The CFPB’s report discusses a hybrid eClosing model that involves both electronic and wet signatures depending on lender capabilities, comfort and recording entity preference and readiness for new technologies.

Why Don’t More Lenders eClose?

We have been closing loans electronically for more than seven years, yet eClosing is still relatively uncommon. One likely reason for this is the hard work required to transition from paper closings. It takes a fair amount of time and a true commitment from the entire organization. Timing is often challenging, too. For example, 2008 marked the beginning of the recession and its aftermath, and nearly every year since has seen new regulations to which lenders must adapt. Lenders have been far too busy to even think about major process changes.

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In addition, refinancing recently captured everyone’s attention, as borrowers scrambled to take advantage of rates not seen since the 1940s. While seven years may seem like a long time for eClose to remain in development, it was far from an easy seven years for the mortgage industry. Another issue holding back eClosing is the persistent belief that mortgages closed electronically aren’t legal, valid, enforceable loans. This is despite the Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transaction Act (UETA), which establish clear legal authority and procedures for electronic signatures. UETA came first in 1999, followed by the ESIGN Act in 2000. Both provide for creating an electronic record with the equivalent enforceability of a mortgage note.

Legal traditions in the mortgage industry are ancient. Yet electronic consent first appeared in mortgage transactions at the dawn of online lending. Electronic signatures for all sorts of financial transactions are so commonplace as to be expected; in fact, being presented with a pen and document is almost a surprise in some situations. It is time, we believe, to make this true at the closing table, too.

Times have changed, yet again, for mortgage lenders. Mortgage workouts are almost a thing of the past. Most refinancing is probably activity seen in the rearview mirror, as well. Big regulatory changes such as ATM/QR and the Mortgage Disclosure Regulation (also known as TRID and KBYO) will be behind us in October. With the market settling into a steady, long-term purchase run estimated to produce consistent annual volume in the $1.1 to $1.4 trillion range, and these big projects checked off the to-do list, will eClosing finally become a top priority for lenders?

We think the answer should be “yes” for all the reasons cited in the CFPB’s report:

>> During the pilot program, consumers who received their closing documents three days before closing perceived greater empowerment through the closing process. They also said they had a better understanding of the closing process. Receiving documents early gave them a chance to read through their closing packages, check for accuracy and ask questions.

It is important to mention that, during the pilot, borrowers received their entire closing package three days prior to closing. This is different from the Mortgage Disclosure Rule (TRID/KBYO) requirement that they receive only their closing disclosure three days ahead of time. There is nothing in the regulation that prohibits providing the entire closing package early. In fact, learnings from this project show borrowers prefer this approach.

>> Pilot program consumers who received their closing documents three days before closing reported shorter closing meetings than those who experienced paper closings, which indicates greater efficiency in the process as well as higher borrower satisfaction.

>> Consumers who were provided access to the CFPB’s educational materials along with their closing packages reported using them and also reported they found them helpful. Mortgage documents can be confusing, especially since most borrowers see them once every five to seven years. When you only see something a few times in your lifetime, every time you see it again is an entirely new experience. Providing reference material along with the closing package is a good idea, and one that borrowers like.

Greater consumer satisfaction, understanding, empowerment and increased efficiency are good reasons to consider eClose, but there’s another reason. A new generation of borrowers is emerging. The Millennial generation, the largest in history, is poised to begin forming households and, thereafter, to become homeowners. The U.S. economy and the mortgage industry have been expecting them to engage for the past several years, and, while it has not happened yet, the Joint Center for Housing Studies of Harvard University predicts that it will, driving annual household formation to above 1.2 million per year between now and 2020. Even with homeownership rates in the low- to mid-60 percent range, that equates to more than 750,000 new homeowners each year.

Millennials have different expectations than their predecessors when it comes to transactions. They grew up online and do not remember a time when there were no smart devices. Paper-based processes, such as those traditionally used in the mortgage industry, are not going to fly with this important group. Millennials have also lived through the housing crisis, watching parents and relatives deal with the aftermath. Consequently, they are going to have a lot of questions about their mortgages. They will research online, they will want to watch their mortgage ‘mature’ throughout its lifecycle, and they will want time to review their closing package before arriving at the closing table. These factors will all push toward eClose adaptation.

Yet eClose is not just for Millennials. Boomers and Gen-Xers fostered the technologies that make electronic mortgages possible. These, too, are the generations that learned to work in paperless formats. Most of these individual do not want to read large stacks of papers, nor do they want to be presented with a closing package, e- or otherwise, moments before they are expected to review and sign them. While Boomers and Gen-Xers will not buy as many houses over their lifetimes as the Millennials, they will remain important borrowers for several more decades, especially the youngest of these cohorts.

What Does It Take to eClose?

The CFPB report provides invaluable information on what it takes to eClose. The lenders and technologists in the pilot program were a mix of seasoned eClose veterans as well as those new to the process.

The report shares their experience preparing for the pilot and highlights three key success factors:

>> Commitment. Transforming an entire operation is a big endeavor. Big projects cost money, take time, and require focus. Those who have made the transition agree it takes the entire organization to make it happen. And it will not happen overnight; it is a months-long or year-long project to design, test and implement for all borrowers who opt in. Some will not, and, for those, paper closing processes must remain in place.

>> Collaboration. There are plenty of moving parts in every manufacturing operation. As with all manufacturing, it takes suppliers and partnerships to produce a finished product. The same is true in mortgage lending – especially with eClosing, since most lenders rely on a partner to close their loans. When working toward eClosing, close collaboration with settlement agents is crucial.

>> Communication. A natural extension of collaboration, regular and ongoing communication with the eClosing team is essential to a program that works. Expanding the definition of “team” is critical. The mortgage team should be joined by settlement agents, Realtors, and other staff members who interact with borrowers as well as others who influence the mortgage process.

The full report can be found at consumerfinance.gov. It makes excellent reading and provides valuable insight into what it takes to make the eClose transition.

When I read the final version, I came away thinking that an eClosing in which borrowers receive their closing package early, report a quicker closing, and feel more empowered, more knowledgeable and generally more satisfied has to be a good thing for the industry. When we’re closing the biggest, most complex transaction most people will ever engage in, and we’re doing it faster and making consumers happier, we’re doing the right thing. There’s no doubt in my mind that eClose is an idea whose time has come. Now lenders have to start thinking about how to make it happen.

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A Bold Statement

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Sue-WoodardHere is a bold statement: customer relationship management (CRM) technology is the most impactful development for the mortgage industry since the advent of broad-market loan origination software (LOS) about two decades ago. Those systems, despite being PC-based and just receiving their first graphical user interfaces, were transformative for their day. Printers replaced typewriters, and data that repeated throughout the loan file needed to be entered only once, for the most part. They seem quaint by today’s standards, but they were marvelous labor-saving devices at the time. In the new age of extreme regulatory oversight, however, when exactitude is required at every step of the origination process, no technology can bring as much impact as a great CRM.

That statement is certain to run contrary to the feelings of many who are involved with mortgage technology. But as someone who spent 20 highly productive years originating loans, as well as managing and training mortgage loan originators to succeed, I know without a doubt that an advanced CRM can make all the difference between success and mediocrity in our business. Here’s why.

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Innovation is more critical now than ever before for lenders, particularly in view of the industry’s multi-agency oversight and the precision that the new regulatory era requires of originators. In addition, lenders’ competitive pressures have shifted due to two principle factors. First, the decreasing influence of big box banks is giving rise to rapid expansion by predominantly non-bank lenders who are unfettered (at least so far) by the additional regulations to which depository institutions are subjected. Second, the homogeneity of products available due to the dominance of the GSEs in the investor community has made differentiation among lenders less dependent on products and more on marketing and sales efficiency. If every flavor is essentially vanilla, you had better possess superior surroundings, toppings and service if you want to engage customers.

Technology ties all these changes together. It represents the only truly acceptable response to the challenges of the new environment – and advanced CRM technology stands out among all others in this regard.

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Five-Tool Players: Baseball fans are familiar with the notion of the “Five-Tool Player,” the exceptional athlete who can run, field, throw, hit for average and hit for power at an elite level. They are as rare as unicorns and immensely valuable to a winning organization. Back when Branch Rickey, the legendary major league baseball executive, coined the term in the 1960s, he could name only two players who filled the bill, Willie Mays and Mickey Mantle.

In our business today, there are also probably only two five-tool players: the top-line LOS and advanced CRM technology. You need a superior LOS to get in the game and stay there; to win consistently, you need great CRM.

Historically, several of the core functions of CRM technology have been left to chance by lenders over the years, but in the new reality, that’s no longer a recipe for success. The days of leaving MLOs to their own devices in the creation of marketing collateral and non-standard presentations are over, thanks to the CFPB. Further, marketing campaigns and enterprise data must go hand in hand today, not only to achieve outreach excellence, but also to stay compliant with fair lending considerations, including Disparate Impact.

For the purposes of this discussion, I differentiate an “advanced” CRM from the garden variety tools to indicate that we are not talking about contact management software that produces basic email marketing messages, which the industry has used for decades. I am referring to the sophisticated variety of highly responsive technologies that are used by most other industries, yet have been strangely absent from the mortgage business until recent years. These are technologies that work with enterprise systems to maximize data usage, develop tailored marketing outreach campaigns, produce presentations that dazzle customers with personalized scenarios, and provide complete reporting to please data nerds and regulators alike. These technologies access content libraries representing hundreds of years of collective industry experience to produce articles, newsletters and informative materials that drive action, and create lasting bonds with borrowers and referral partners. They are an entirely new breed and rival the best CRM systems found in every other large industry.

So how does advanced CRM fit into the picture for lenders? Simply stated, that five-tool metaphor translates into functions every lender needs in order to excel today. The most advanced CRM technologies are cloud based, SOC 2 audited, secure platforms that:

>> Provide a competitive advantage with marketing sophistication to accelerate sales cycles and enhance recruiting efforts;

>> Keep MLOs and your brand protected and safely compliant with standardized messaging;

>> Regulate and keep track of outgoing borrower communications and offer detailed reporting for audit purposes;

>> Reduce costs associated with production through higher closing ratios;

>> Leverage enterprise data and exponentially increase the organization’s reach to potential customers, including to underserved markets that are affected by the Disparate Impact ruling and other fair lending mandates.

Excellence Trumps Freelancing: When discussing our CRM solutions, I am frequently asked first about how MLOs respond to having their freelance marketing efforts suddenly ended. The answer often surprises: they love it. Sure, it’s counterintuitive, because field loan people are quite often fiercely independent. But when they see the difference between the results of their amateur efforts versus the consistently polished, professional and always-impressive output of the advanced CRM system, their objections go away. The fact that the materials are produced so effortlessly wins them over because time is money for them. The fact that all are pre-designed for compliance is, in the minds of most MLOs, secondary. It has never been a good idea to let MLOs run amok with the company’s messaging in the field, but that course has been the path of least resistance for lenders over the years. Today, it’s an unthinkably dangerous practice due to compliance considerations, and thanks to great CRM, it can now be obsolete.

Another early question I am asked is, predictably, what about the cost issue? Until a few years ago, big technology improvements generally required writing a big check. These days, pay as you go and success pricing arrangements are the rule rather than the exception. You can expect some integration time and expense, of course, but those are recovered very quickly as the benefits of advanced CRM are realized. When those systems are already integrated with the leading vendors, much of the implementation time and expense evaporates, too.

Evaluating Prospects: Just as big league scouts vet prospects to find five-tool players, it’s important to do your homework before you commit to a CRM technology. And don’t just include the tech people in the organization, either. CRM is a business-side decision, as it can have enormous current and future impact on a company in terms of data productivity, retention marketing success, referral partner relationships, pull-through rates, and recruiting goal achievement. Schedule demos for senior production executives and be sure to include the operations and compliance leaders. Gauge their input and reactions and make certain nuts and bolts observations are carefully recorded, as top CRM systems are highly customizable. You don’t have to settle for “one size fits all” when it comes to features and capabilities.

Security is on everyone’s mind, as well it should be. The best CRM vendors have undergone rigorous audits to demonstrate their operational and data security measures and can share that information readily. The Service Organization Controls (SOC) 2 report, for example, focuses on a business’s controls over security, availability, processing integrity, confidentiality and privacy of a system. These are prepared by independent third party auditors and should be considered absolutely necessary for a CRM candidate when company data is on the line.

The upside of putting advanced CRM to work for an organization is greater than ever, thanks in no small part to Dodd-Frank and the CFPB. While many might disagree, it is a blessing in regulatory disguise; lenders would have benefited mightily from having these capabilities over the years. Now that everything lenders say to the outside world is under the microscope, they have the opportunity to do something truly transformative for their companies that is well beyond today’s regulatory demands. As the competitive landscape changes to spotlight fewer teams chasing greater shares of the market, they would do well to have some truly great five-tool players at their disposal.

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A New Lending Paradigm

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Paul-CliffordIn the current regulatory environment, especially under the Consumer Financial Protection Bureau (CFPB)’s TILA-RESPA Integrated Disclosures (TRID) rule, the lender is responsible for accurate and timely delivery of key disclosures to the borrower.

Lenders are under intense pressure to comply with these new rules and regulations. There is increased scrutiny and accountability thrust upon lenders in this new regulatory landscape. It requires lenders to rethink their lending practices, the touch points throughout the loan transaction and the communication that must take place among industry participants.

Historically, the lender prepared early disclosures, often without collaboration with the settlement agent, and the settlement agent carried the burden of preparing the HUD-1 Settlement statement. Now, due to the strict tolerances on fees and high potential fines to the lender, most lenders are preparing the new forms (Loan Estimate and Closing Disclosure forms) themselves and requiring information from the settlement agent earlier in the process.

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Currently, the limited communication is often via phone or email and not centralized or audited. Since the lenders are on the hook for completing these forms correctly, they need stricter controls and more streamlined processes to reconcile data between the lender’s main system, the loan origination system (LOS), and the settlement agent’s system, the title closing system.

In order to mitigate risk and meet these strict new compliance requirements and profitability goals, lenders have to drive new processes; but to accomplish this they need other parties to the transaction come along. Being connected to the right people at the right times throughout the loan transaction is critical and the main focal point for this new lending paradigm.

For lenders looking to do this securely and effectively, an electronic portal or document/data exchange is required. In addition, lenders are also feeling increasing pressure from investors to deliver final documents such as the recorded documents and the final title policy.

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The answer to these and many other industry challenges in this new lending paradigm is to connect lenders and closing agents in a truly collaborative manner.

For lenders to successfully navigate this lending shift, a system that is designed for adoption is critical. Collaboration can’t work in vacuum. A lender can invest in the best software but never create any efficiency if their collaboration partners, the settlement providers, are reticent to use the platform.

Lenders should be asking their TRID vendors what they are going to do to drive adoption. Will their vendor actively participate in onboarding and training of the settlement agents? Will there be a fee to the settlement agents? Does the vendor have a historical relationship with the agents? And, most importantly, if a vendor can’t deliver, can the lender freely move onto a vendor that has the mindshare of the settlement community?

Keeping collaboration open post closing is also critical. Your TRID solution should have a post closing/post tracking service that provides the visibility into the settlement agent processes after closing, along with the reception of recorded documents, fee data, and final title policy. Furthermore, in preparation for delivery of the Uniform Closing Dataset to the GSES, the system should support the ability to update final closing data so the lender has the final data for delivery.

Today these changes often never make it back to the lender’s loan origination system. Many solutions end at the closing process, which is why trailing documents continue to be an industry pain point.  Lenders need to know where the documents are and what happens to them after closing.

Lenders must find a service that allows them to share changes, deficiencies, and statuses and receive notification when activity occurs. So both parties can stay informed throughout the closing process.

A technology approach to this problem is needed, and one example of how technology can help is:

“With the TILA-RESPA changes, being able to connect lenders to their settlement agents is more important than ever to get the fee collaboration and transaction details right. Thinking ahead to October, I can’t think of how organizations would be able to remain compliant without electronic collaboration,” said Nancy Alley, vice president of strategic planning at Simplifile. “Our new services, Collaboration and Post Closing, were designed to deliver on the promise of a world where agents and lenders connect transparently.”

Simplifile Collaboration enables lenders to share, receive, and validate documents and data with their network of settlement agents. This independent service gives visibility into settlement agent processes and provides a platform for collaborating on fee data, documents, and transaction details. This allows lenders to share changes, updates, deficiencies, and statuses within one system, making it easier to audit and ensure compliance.

With lenders now responsible for the closing process, visibility is more important than ever. Simplifile Post Closing provides the visibility lenders need into settlement agent processes along with the reception of recorded documents, fee data, and final title policy.

Their post closing service is organization, system, and closing type independent. It supports all closing types including paper, hybrid, and fully electronic closings.

Over 17,000 closing and settlement companies are part of the Simplifile network. In total, over 9 million transactions go through the system annually. Also, Simplifile’s network has coverage of over 70 percent of the population from the counties. At present, 25 title closing systems and 93 land record systems are integrated with Simplifile.

This powerful, independent network already provides vast and deep relationships with closing agents and can now be leveraged by lenders to deliver critical collaboration (communication tools, document sharing, fee data sharing, notifications, alerts and audit trails) and post close tracking (recording and transfer tax fee estimates, recording status, estimated recording times, and electronic return of recorded documents and final title policy).

“Trailing documents continue to be an industry pain point,” Alley added. “Lenders need to know where the documents are and what has happened to them after closing. That is where Simplifile Post Closing comes into play and helps to solve some major problems that have existed in the industry for decades.”

Simplifile is pervasive on the settlement end, so if a lender needs to connect to the settlement end of the business, who better to work with than those people who are already there.

With the TILA-RESPA changes, being able to connect lenders to their settlement agents is more important than ever to get the fee collaboration and transaction details right. The movement of data, documents, and correspondence needs to be controlled, tracked, and audited to ensure a compliant process. In addition, the transaction doesn’t end at the closing table. Trailing documents continue to be an industry pain point. Lenders need to know where the documents are and what has happened to them after closing. If you are going to solve this frustrating problem, you have to embrace an electronic strategy that drives total transparency.

“I can’t stress enough the importance of meeting users where they already work every day. You have to start with the familiar, which means taking technology that is already in use and expanding the functionality,” stated Alley. “If you can do that, you can create a great value proposition that makes it easy for the user to take that next step. Our Collaboration and Post Closing services allow lenders and settlement agents to share, receive, and validate documents from time of application through delivery of final documents, and that’s a huge benefit. Delivering this benefit through an existing application that settlement agents, one way or another, are in every day streamlines their adoption; they don’t need new credentials to remember, and they don’t have to add or manage another vendor to start collaborating with their lenders.”

The other key to broader industry adoption is offering both partners and customers options to work with you, and you need to appeal to all sizes and types of customers. Some users want a lights-out process, so you have to offer flexible integration options. Others are seeking a ready-to-go user interface while others may prefer a hybrid of both to help them meet the October deadline and plan for the future. You have to work with everybody and make it easy for them to work with you, as well.

To embrace this new lending paradigm, lenders must collaborate with the right parties at the right time throughout the loan transaction to successfully navigate these new regulatory requirements while maintaining profitability. The time to connect lenders, settlement agents and counties is now.

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Start With Why

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TME-RGudobbaThe goal for my articles is to provide my readers with something that will pique their curiosity and in turn stimulate them to look at things differently. Recently I read the book “Start with Why,” by Simon Sinek.

Why Start with Why? In the introduction, Sinek practices what he preaches and starts with the “why” himself. His book, he states, is “about the naturally occurring pattern, a way of thinking, acting and communicating that gives some leaders the ability to inspire those around them….We can all learn this pattern. With a little discipline, any leader or organization can inspire others, both inside and outside their organization, to help advance their ideas and their vision.” Unlike so many other authors presenting a business or entrepreneurial philosophy, Sinek makes clear that his intention is not to supplant other approaches to leadership development and social influence. “However,” he suggests, “if we’re starting with the wrong questions, if we don’t understand the cause, then even the right answers will always steer us wrong … eventually.”

Let’s look at Apple Computer: Sinek then presents three examples of leadership, each illustrating how the individuals responsible for shepherding business and social sea change were not necessarily first, or perhaps even unique voices, in their respective causes. He focuses attention throughout the book on Apple, Inc., and its founders, Steve Wozniak and Steve Jobs. He notes the cultural ground conditions in play in the mid 1970s when Apple was established. In the wake of the Vietnam War, the Civil Rights Movement, and the student demonstrations of the 1960s, the American social fabric had been stretched to accommodate challenges to authority, to collective standards, and to conventional wisdom as never before. The revolution that was launched in 1976 was not one of arms or even ideas; it was an evolution of nothing less than the system itself, of the parts and principles that coordinate into the whole. Sinek describes the business realities faced by Wozniak and Jobs when the Apple 1 personal computer kit (yes, kit) was launched in 1976.

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“The personal computer revolution was beginning to brew when Wozniak built the Apple 1. Just starting to gain attention, the technology was primarily seen as a tool for business. Computers were too complicated and out of the price range of the average individual. Wozniak saw the personal computer as a way for the little man to take on a corporation. The personal computer could level the playing field and change the way the world operated.

No matter how visionary or how brilliant, a great idea or a great product isn’t worth much if no one buys it. Steve Jobs knew exactly what to do and would prove to be more than a good salesman. He wanted to do something significant in the world, and building a company was how he was going to do it. Apple was the tool he used to ignite his revolution.

In their first year in business, with only one product Apple made a million dollars in revenues. By year two, they did $10 million in sales. In their fourth year, they sold $100 million worth of computers. And in just 6 years, Apple Computer was a billion-dollar company with just 3,000 employees.

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Jobs and Wozniak weren’t the only people taking part in the personal computer revolution. They weren’t the only smart guys in the business; in fact they didn’t know much about business at all. What made Apple special was not their ability to build such a fast growth company. It wasn’t their ability to think differently about personal computers. What has made Apple special is that they have been able to repeat the pattern over and over and over. Unlike any of their competitors, Apple has successfully challenged conventional thinking within the computer industry, the small electronics industry, the music industry, the mobile phone industry and the broader entertainment industry. And the reason is simple. Apple inspires. Apple starts with WHY.”

Sinek asks us to consider a concept he calls the Golden Circle. The Gold Circle is inspired by the golden ratio of mathematics, a ratio that itself inspires architecturally and artistically pleasing design balance. The Golden Circle is intended to manifest a similar balance in human behavior. It is comprised of three concentric circles: the core Why, followed by How, then finally What. It all starts with why. First, let’s define the terms, starting from the outside circle and moving inward.

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Sinek equates the Why to an individual’s or organization’s purpose. He asks, “WHY does your company exist? WHY do you get out of bed every morning? And WHY should anyone care?”

The author uses Apple frequently as an example because simply they have broad recognition and their products are easy to grasp and compare to others. What’s more, Apple’s success over time is not typical. Its ability to remain one of the most innovative companies year after year, combined with its uncanny ability to attract a cult-like following, makes it a great example to demonstrate many of the abilities of the Golden Circle.

Again, to quote Sinek: “If Apple were like most other companies, a marketing message would move from the outside in of the Golden Circle. For example:

>> We make great computers.

>> They’re beautifully designed, simple to use and user-friendly.

>> Wanna buy one?

It’s not a very compelling sales pitch, but that’s how most companies sell to us,,,,

Let’s look at this example and rewrite it in the order Apple actually communicates.

>> Everything we do, we believe in challenging the status quo. We believe in thinking differently.

>> The way we challenge the status quo is by making our products beautifully designed, simple to use and user-friendly.

>> And we happen to make great computers.

>> Wanna buy one?

It’s a completely different message. It actually feels different. It just reversed the order of the information, moving from the inside out of the Golden Circle.”

Hopefully, this article will encourage you to take a step back and look at your organization from two viewpoints. First, how does your organization communicate to your customers and prospects, and second, how do they perceive you. I will continue this discussion next month.

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The Six Biggest Technology Challenges

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TME-Alec-CheungWhew! Can I just let out a long breath? Give everyone around me a high five and a fist bump? We’ve all just finished a long race! For the past year plus, lenders, settlement agents and mortgage and title technology vendors have expended a great deal of resources and effort in preparation for the CFPB’s Integrated Disclosures rule. And whether you’re feeling exhausted or elated — probably exhausted! — it’s good to at least be able to say we made it!

Now maybe I shouldn’t say we’ve finished this race. It’s probably more accurate to say that we’ve completed our training and preparation, and now we’re finally doing this for real. Just like there are different approaches to race training, there have been different approaches to preparing for TRID. Most everyone has tapped into technology in some form and to some degree in order comply with the new rule. For some, the use of new technology has been incremental, building on the systems and innovations they had already adopted. For others it’s been a major shift, representing a substantial change from their traditional mortgage practices and their supporting technologies. There are also some who have deferred technology changes as a result of TRID, preferring instead to wait until the dust settles, either because they just didn’t have the time and resources, or because they wanted to let the early adopters uncover the known unknowns. And make no mistake – there WILL be unknowns that pop up. TRID is too complex of a rule with far-reaching changes for every single nuance to have been predicted and foreseen in advance, even with 20 months – or make that 22 months! – of prep time.

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Here’s the thing though: Now that the deadline is behind us, we’re in it now. The race is live and no matter what approach you took, everyone will eventually get to the TRID finish line. That’s the point where the new processes and technologies that have been deployed are working and all the kinks have been worked out. So what then? If you’ve taken the time to train for and complete a hard race, ideally you don’t want to just finish and then go back to eating junk food again! It’s time to build on that momentum and keep making healthy progress. There are new challenges just around the corner. The technology and innovation that enabled us to meet the TRID deadline created a great deal of industry momentum. The best thing we can all do now is to keep that momentum going to push the envelope of technology and innovation in order to meet the next wave of change in stride, instead of being caught flat-footed.

Here are five significant technology areas – plus one demographic trend – that follow naturally on the heels of TRID. Each one is influenced by other factors and will evolve at its own pace, but with the right concerted effort, any and all of these will be where the industry progresses next in terms of technology-based evolution.

The Uniform Closing Dataset (UCD)

The Government Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac recently announced that data for any loans they purchase must conform to the UCD standard. This standard, which is based on the MISMO 3.3 reference model, defines the structure and contents of the loan files uploaded to the GSEs. The requirement means all the data for loans they purchase needs to be MISMO 3.3 compliant. Some lenders made this transition as part of their TRID implementation; others will have to make the transition by the second quarter of 2017 if they don’t want to lose the GSEs as a secondary market for loans.

eClosing

The CFPB has targeted eClosings as the next big step in their Know Before You Owe initiative. The eClosing Pilot project, organized by the CFPB and including eLynx and two of its customers among other vendor/lendor pairings, was designed to identify technology options and best practices related to an electronic closing. The CFPB announced their results in August and several vendor participants have identified some lessons learned from the pilot project. The CFPB’s endorsement of eClosings doesn’t mean all closings will need to be eClosings, but most lenders and technology vendors will eventually benefit by supporting eClosings.

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Collaboration

One TRID-focused innovation was the direct integration between lenders and the title production systems used by their settlement service providers. As a result, it is now possible for many lenders and SSPs to exchange loan and fee data instantly and securely, eliminating the delays and compliance issues that come with having to enter loan and fee data manually. The underlying technology to do this is not trivial. It not only requires MIMSO-compliant data, but also a common cloud-based infrastructure or platform that can serve as a hub to interconnect all industry stakeholders. This can extend the benefits of real-time, secure collaboration demonstrated with TRID compliance to all business partners across the entire loan workflow.

Data Validated Mortgage

In addition to increased flexibility and efficiency, moving to a data-centric lending process will have an impact on loan quality and risk. The standardized data structure defined by MISMO will improve transparency in the loan data and ensures that everyone is basing decisions made during the loan process on the same data. It also makes it easier to verify and validate the data in the loan documents, for example comparing the data in the approved loan with the data in the closed loan. This will help lenders and the secondary market better assess loan quality and manage risk.

eMortgage

The all electronic mortgage has been on the mortgage industry’s radar for a decade or more. eMortgages have been technically possible but not widely used. One reason was that the technology innovation was outpacing the industry’s appetite to make changes, solving a problem that wasn’t painful enough to make the technology and process changes required. Now, many of the hurdles have been cleared as part of complying with TRID and other industry requirements. There are very real benefits to the eMortgage and with fewer hurdles lenders may decide the benefits outweigh the effort of getting to an eMortgage.

Millennials

While not a technology, Millennials represent a significant technology challenge to the industry. According to the National Association of Realtors, today millennials represent 32 percent of all homebuyers. The Brookings Institute projects that within ten years, millennials will form 75 percent of the entire workforce. They are tomorrow’s mortgage customers and they are very different than the mortgage customers of today and yesterday. They grew up with mobile devices in their hands and have grown to rely on their smart phones and tablets as their primary communications channels. Most have never known a world without the Internet and have come to expect information to be delivered directly into their hands anytime and anywhere. They will likely shop for a home and a mortgage online and once they decide to buy, they will expect technology and efficiency to be integrated into every facet of the transaction.

Clearly, paper documents and office visits will no longer cut it with this generation and lenders will have to adapt. Fortunately, lenders who have met the five preceding post-TRID challenges will have laid the groundwork for extending a paperless loan process to mobile channels. Lenders who haven’t will be challenged to meet the expectations of the millennial generations.

These 6 technology areas are what lenders need to be incorporating into their strategies and actively working towards now, even as we currently progress through the implementation period for TRID and sort out the issues that we uncover only through live production. Lenders who build on their momentum will continue to stay ahead of the curve. Even if you’re a lender that has temporarily deferred the use of technology for TRID, preferring instead to go with a manual approach for the time being, you can accelerate quickly and take advantage of the learnings gained through the first wave of deployments. The last thing we should do is give up the momentum that we’ve built as a result of TRID.

So let’s share some high fives and fist bumps. Enjoy a moment of celebration when integrated disclosures processes are operating smoothly and steadily. And then let’s keep on moving to the next thing. It feels good to finish one race, but even better when you can keep it going and knock out additional ones after that!

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Learn From The Politicians

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TME-TGarritanoPoliticians say the craziest things. Just look at the comments made by some of the 17 Republicans running for President. It’s out of control really. However, mortgage technology vendors should take notes about what not to do from these blowhards. Here are five things to avoid:

Don’t Complain. Nobody likes to deal with someone that continually makes excuses for shortcoming. Here’s what I mean:

“Can you imagine, if after the bridge investigation began, I came out and said ‘Oh, I’ve done all my business as governor on a private email server. And, I’ve deleted now 30,000 of those emails. But trust me none of it had to do with the bridge.’ Give me a break,” Chris Christie said to CNN.

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But the only email he provided to the Legislature last year came from his private Yahoo account. Christie turned over just one set of emails to the New Jersey Legislature in response to its subpoenas about Bridgegate. That email conversation contained edits that Christie made to a statement announcing the resignation of Port Authority official David Wildstein, who has since pleaded guilty for his role in the lane closures.

Democratic Assemblyman John Wisniewski, who led the investigation, told WNYC that Christie sent those emails in December 2013 from his personal Yahoo account. The public documents had previously been released but the email address was blacked out. Don’t complain when you’re doing the same thing yourself.

Similarly, Carly Fiorina’s campaign slammed CNN and the RNC, accusing both of them of “putting their thumb on the scale.” She’s complaining about being shut out of the debates.

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“If the RNC won’t tell CNN to treat post-debate polling consistently with pre-debate polling, they are putting their thumb on the scale,” Fiorina spokeswoman Sarah Isgur Flores said in a press release.

Flores ratcheted up the attack even further during an interview on Fox Business.

“This is the status quo trying to protect the status quo, trying to protect their power, their prestige, and so they want the same people on the stage as before, and they’ve set up a system that will do that,” said Flores. In the end none of this complaining is going to get Fiorina into the debate.

Too often I hear technology vendors complain about the lack of media coverage that they get or the fact that certain vendors are always in the news. Don’t complain about media coverage, form good relationships with the media so they cover you more.

Don’t Namedrop. You just don’t speak ill of the competition because you end up looking bad. For example Rick Perry blasted rival Donald Trump in the harshest terms — even comparing him to a “cancer” and “false prophets.”

“Let no one be mistaken – Donald Trump’s candidacy is a cancer on conservatism, and it must be clearly diagnosed, excised and discarded,” Perry said, according to a transcript of his prepared remarks. “It cannot be pacified or ignored, for it will destroy a set of principles that has lifted more people out of poverty than any force in the history of the civilized world – the cause of conservatism.”

Similarly, George Pataki also called out Trump directly. Former Pataki slammed fellow Republican presidential candidate Donald Trump, who he said has been “disrespectful” toward Latinos with recent disparaging comments about Mexican immigrants.

“Yes, clearly, they’re disrespectful,” Pataki told Business Insider of Trump’s comments in a brief interview before the annual New York Republican Party’s gala.

Trump characterized Mexican immigrants in his campaign launch speech as “rapists” and drug runners when talking about how he’d focus as president on reducing illegal immigration. What happened to both Perry and Pataki? They sunk in the polls.

If you are a mortgage technology vendor don’t slam your competitors by name. You need to clearly articulate your value proposition, not waste time talking down about others.

Don’t Over-Generalize. Lenders want specifics. Speaking of Trump, the king of over generalizing is Donald Trump. When it comes to immigration he says building a wall will solve everything, and that Mexico will pay for the construction of the wall. When pressed about what to do with illegal immigrants in the country already, he said that he would round them up and send them home. How would he accomplish this? By hiring good managers. Obviously this is an over generalization that won’t solve the real problem.

Women make up a large voting block and Trump is not doing well among women so he over generalized again. “I will take care of women’s health and women’s health issues better than anybody and far better than Hillary Clinton, who doesn’t have a clue, “ he told reporters after an afternoon rally. Notice that he doesn’t give any specifics? As a mortgage technology vendor, you can’t just use buzzwords and acronyms that you think people want to hear to sell your product. You have to know your solution’s specific value proposition.

Don’t Pander. You can’t tell lenders what you think they want to hear, you have to clearly articulate your value propositions. Politicians tell people what they think they want to hear instead of the truth and they suffer for it all the time.

Former Florida Governor Jeb Bus changed his position on the Iraq War three times in the same week. In his clearest declaration yet on his feelings about his brother’s invasion of Iraq, Jeb Bush said that “knowing what we know now, …I would not have engaged.”

“I would not have gone into Iraq,” he said. But earlier in the week he told Fox News that he would have engaged, then he tried to backpedal because he knows that public sentiment is not in favor of the Iraq War.

Wisconsin Governor Scott Walker did the same think when talking about birthright citizenship. In the end Walker said, “My point is any discussion that goes beyond securing the border and enforcing laws are things that should be a red flag to voters out there who for years have heard lip service from politicians and are understandably angry.”

That’s a far cry from how the Wisconsin governor answered the same question last Monday. “Yeah, absolutely,” Walker said when asked by an MSNBC reporter at the Iowa State Fair whether he wanted to end birthright citizenship. The bottom line is that you should learn from these politicians and just tell it like it is instead of delivering falsehoods to make your system sound better.

Don’t Exaggerate. Nobody likes a person who stretches the truth and goes over the top. To this end, many politicians have exaggerating the impact of the nuclear agreement with Iran. Presidential candidate Mike Huckabee called the Iran deal “idiotic,” and likened it to events of the Holocaust, saying that President Barack Obama will ultimately “take the Israelis and march them to the door of the oven.” The Iran deal might not be perfect, but comparing it to the Holocaust is just wrong.

Politicians make the same exaggerated claims about the Affordable Care Act. Ted Cruz gave an impassioned speech on the Senate floor, a few hours after the Supreme Court ruled 6-3 to uphold the Affordable Care Act’s subsidies nationwide. The senator from Texas, who is also running for president, called the decision “judicial activism, plain and simple.”

“Today, these robed Houdinis have transmogrified a federal exchange into an exchange, quote, ‘established by the State,'” he said. “This is lawless. As Justice [Antonin] Scalia rightfully put it, without objection, words no longer have meaning.” Another crazy exaggeration.

If you’re a mortgage technology vendor, speak honestly and frankly with lenders. Don’t tell them that your system does things that it doesn’t. Exaggerating will only get you in to trouble.

I hope you learned a lot about what not to do from these politicians.

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Reaching For A Better, Brighter Future

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becky-walzakThe ongoing introduction of new regulations and the fear of non-compliance has permeated the industry to the point where everyone is frozen with fear. Instead of seeking new management methods and operational initiatives to meet the challenges, lenders keep piling on new processes and new reviews on top of the old ones. Is it any wonder that the Quarterly Mortgage Bankers Performance Report for the first quarter of 2015 found that origination costs have increased by nearly $1,000 per loan since last year? It seems that we are headed in the wrong direction when it comes to efficiency and effectiveness.

So why isn’t there any progress in lending? Can we solve our problems by making progress in the way we currently do business, or must we actually transform what we do and how we do it? The idea of transformation is much bigger than simply adding steps to a business process or adding in a new technology filter. In order to transform an organization, it must undergo a radical, fundamental change in how business is done. The days of slow incremental changes developed to try and address the CPFB requirements are no longer up to the challenge.

There is no denying that these new requirements are important, but it is also important that the company be profitable and that management controls are operating as expected. The CFPB recognizes this and even with their maniacal focus on the “Consumer Experience” they have grounded their requirements in solid and proven management practices. To meet the requirements they say, lenders must have a management system in place that evaluates and implements new changes and then monitors the effectiveness of the changes. This monitoring and management action is not a one-time thing, but is an on-going part of the management system. And therein lies the opportunity for lenders.

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Recognizing the need for fundamental change. This industry is not known for its willingness to change management style and focus. While CEOs and senior executives have read all the management books and attended numerous seminars, the reality is that they don’t know how to manage change. All too often they continue to be focused on “production, production, production” simply because they matured in an environment that celebrated and rewarded companies that made the most loans or had the largest dollar volume. There were very few companies that didn’t have a yearly celebration for loan officers where trophies were handed out for these very accomplishments. Yet none of these celebrations included processors, underwriter or closers and there were certainly no awards given out for loan quality. Now lenders must focus first on quality and regulatory compliance instead of volume and production. That is a hard change to make and trying to do so in a process with imbedded historic methodologies and achievements makes it nearly impossible. So whether we want to recognize it or not, how management does its job must become the transformation needed by our industry.

If lenders are serious about stopping the outflow of money for multiple unnecessary reviews, additional training programs and new technologies, they must engage the company in a centralized operational process, which focuses not on the number of loans originated, but on the quality and value of the loans as expected by consumers and investors. This change is a fundamental and maybe even a radical change; in other words, a transformation of the entire origination process. So how does one go about creating this transformation in a way that make sense?

Basic steps for a successful transformation. The first step is for management to actively engage in identifying what exactly they want to produce. Although it sounds simple, it really isn’t. For example, just saying “I produce mortgage loans” really doesn’t tell the consumer or the investor anything. How are you going to produce them? How will you interact with the consumer? What can the other stakeholders expect? Will it be profitable? Will it meet consumer needs? Will buyers of the loans see them as the best? All of this needs to be spelled out in the company’s “Statement of Objectives”.

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Next you will need to expand on this with specific statements identifying how the objective will be reached. For example,” we will produce loans through the use of technology that meets our customers’ expectations for fairness through continuous communication and compliance with regulations. We will meet the expectations of those that purchase our loans through proven quality and completeness and we will meet our stakeholders expectations through efficient use of the resources provided.”   This lays out what the underlying approach will be and defines how management will work. This statement says that management’s focus will not be entirely on just producing loans, but will instead be on producing loans that meet the consumer focused requirements of CFPB, the investor requirements for adherence to guidelines and overall risk standards as well as doing it in a manner that provides for a return on the investment made by other stakeholders.

The second step is to develop an effective risk management program, which includes a monitoring program of the combined operational processes. The individuals responsible for these functions must have a broad understanding of the risks found in the organization. The most critical of these risks is operational risks. If the processes fails to operationally produce products that meet expectations, management must know this. This information can be used to make adjustments or changes to the processes themselves

Today Quality Control acts as this feedback mechanism, but the process is distorted by agency requirements to the point that it is virtually useless to management. Waiting 90 days for information about processes that are not working does nothing to address any operational risk. Although the agencies acknowledge that their prescribed program does not fit every lender, few, if any lenders are willing to develop a program that works for them instead of relying on a methodology and process that does not give them the results they need. This change has to be part of a company transformation.

Transformational Quality Control is about how the process is working and how well it is controlled. It is not a loan file inspection or an audit. It is systemic way of evaluating whether or not a process, any process, is functioning as expected. A variation (or defect using the agencies vernacular) is just that unless you can determine that it will impact the overall output of the process. When it is working as expected, the process is deemed to be under control.   This does not mean that there are no variations, but that the variations are random in nature and fall within an acceptable range.

For a management team that is transforming its operation, knowing if the new policies, procedures and technology they have implemented are working correctly is critical. Tracking variances and identifying processes that need to be addressed is what allows the transformation to continue.

Transformational QC also makes the organization more efficient. Because each change, whether it comes from a new regulation or a new process, can be incorporated into the QC program it eliminates duplicative types of reviews. One review process with a solid analysis of what is occurring in a process is much more conducive to correcting errors and managing the operations than what we have today. Furthermore if a lender has the ability to benchmark themselves against others in the industry this comparative analysis will identify where there are competitive issues to address.

The third step that management must undertake is the development of an incentive program for its employees. By replacing the volume rewards with operational effectiveness and efficiency rewards, staff will be motivated to collectively work toward meet the overall company objectives.

Getting help and support. Once the initial steps are taken and the staff alerted to the task, the work of transformation can get underway. Many lenders acknowledge that it is difficult to achieve this on their own and there are many companies ready to help. It is important that any help come from someone that knows the business. Despite protestations to the contrary, this process is unique. This uniqueness must be incorporated into any transformation if it is going to be successful. Company’s such as Transformational Mortgage Solutions, headed by industry expert David Lykken is one such organization. Based on his experience and knowledge of the industry he knows how mortgage origination works and can provide solid guidance in the transformation process. This is the type of support that is needed.

There are emerging technologies that can assist in this transformation as well. One such opportunity is the new quality control program that has been developed to maximize results and minimize cost. This new program, developed by the MarBecca Group, out of Deerfield Beach, Florida and Mortgage True View, based on Salt Lake City, focuses on the operational data collected and identifies through its analyses where there are weaknesses that need to be addressed as well as where the process is working within an acceptable level of control. In addition it has the benefit of utilizing an industry QC Benchmark which was developed with input and guidance by industry QC managers. This benchmark can provide a comparative analysis with the industry as a whole to assist in identifying issues and opportunities.

There is no doubt that members of this industry are bearing the burden of tightened regulations and reform. However for those managers who see this as an opportunity rather than a burden, there is the potential to turn mortgage lending companies into a shining example of how it should and can be done the right way.

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