Technology Innovations


At the end of the second quarter we got some good news. Black Knight reported that at $518 billion, Q2 saw the highest volume of 1st lien mortgage originations in a single quarter since Q2 2013. Purchase lending was particularly strong, making up 57% of all lending and seeing a 52% increase in volume from Q1. Purchase originations rose $102 billion from Q1 to a total of $297 billion, hitting their highest level in terms of both volume and dollar amount since 2007. Refinance originations rose by 8% from Q1, but fell slightly below last year’s levels, despite lower rates and a larger population of refinance-able borrowers. In fact, refi lending has risen in each of the past 3 quarters, though primarily in the higher credit segments of the market. The industry was also able to put the burden of complying with TRID behind it. Moving forward, new compliance burdens by the GSEs changing forms and the CFPB changes to HMDA still exist. So, what does all of this mean? There is ample opportunity for success in mortgage lending if the industry adopts a culture that embraces both innovation and change. Roger Gudobba, Vice President, Mortgage Markets at Compliance Systems, talked to our editor about the impact of technology innovation in the mortgage industry. Here is what he said:

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Q: Let’s start by talking about your first experience in computers.

ROGER GUDOBBA: In 1961 I was hired as a computer programmer by Dr. Beckett at the Lafayette Clinic, a research and training facility that was part of the Michigan Department of Mental Health. It was a little bit scary, since I had never seen a computer before. That led to 18 years of programming computer applications to facilitate their research endeavors on a Bendix G-15 paper tape computer in machine language. Over the years, there were far-reaching advances in computer hardware and software. I quickly realized that computers were just tools to enable you to do a job faster and easier, but it was paramount to stay abreast of new technology.

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Q: So, how did you first get involved in the mortgage industry?

ROGER GUDOBBA: I spent the next eight years developing software for a variety of small businesses, mostly on IBM computers in a variety of programming languages. The last two years of that period I managed a Mortgage Loan Origination System. I believe it was at the MBA Annual in Boston in 1986 where laser printers were the hot topic. The ability to bring an image in and overlay the data, creating an electronic document provided cost and time savings that were substantial over using dot matrix printers with pre-printed forms. At that time, VMP was the premier provider of mortgage forms and they hired me in 1987 to help develop the laser form library. The size of the library was huge and I looked for ways to simplify that. Our compliance officer pointed out that some documents, like notes and security instruments, only had minor differences. I wasn’t thinking about dynamic run-time forms. It was more about defining the creation and maintenance required for the source library. Like any new technology, there were some challenges and adoption was slow. And, for the first time, I was frustrated by the industry’s resistance to change and reluctance to embrace technology.

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Q: Over the years the key phrase that most associate with you is that you always said: “It’s all about the data.” How did that come about and what led to your involvement with MISMO?

ROGER GUDOBBA: VMP started looking at other authoring technology. That’s when I discovered XML, which was a subset of SGML. I attended an international conference on XML in Spain in 1997. I had the opportunity to meet a number of leaders, including Charles Goldfarb, the father of SGML. I was convinced that XML was a way to exchange data. The key was you had a start tag, information, and an end tag. Compared to the two solutions in use at that time (fixed record layouts or comma delimited files), XML was very flexible, less prone to errors, and, among other things human readable. I met Gabe Minton at a meeting at the MBA in D.C. Gabe and I were both in agreement about XML. In 1999, our respective companies—VMP and ULTAPRISE—formed a non-profit organization called XML Mortgage Partners to develop an XML data library for mortgage. Even though we had a nice cross-section of industry leaders, including lenders, LOS vendors, and consultants, it created some friction in the industry. Dave Matthews worked with the MBA to create MISMO in 1999 and Gabe was named the director. Both of us are still very active today and very proud of MISMO’s progress in establishing standards for the mortgage industry.

Q: What do you see as the major challenges facing the industry?

ROGER GUDOBBA: The U.S. financial industry is experiencing rapid evolution. While we are past the trial-by-fire days of the 2008 financial crisis, the consequences of that difficult time continue to impact the way we do business. Today, there is no doubt: increased regulatory oversight from federal and state agencies, as well as the uncertainty of regulatory changes yet to come, have created a hazardous business environment. The Federal Reserve has increased the imperative for financial institutions to implement an enterprise-wide risk management solution, one that effectively addresses operational risk, legal or compliance risk, reputation risk, and liquidity risk, among other risk types. These risks are ever present and their management by financial institutions is closely monitored by the Consumer Financial Protection Bureau (CFPB) as well as other regulating agencies. The only way to address these problems is with technology that controls and validates your information flow.

Q: How does Compliance Systems Transaction Risk Management Solution address this?

ROGER GUDOBBA: Financial institutions are becoming increasingly familiar with the demands of managing these various types of enterprise risks and many financial institutions are struggling to ensure that they can demonstrate that their specific policies, processes, and procedures are fairly and consistently applied across their customer communities. In the absence of a transaction risk management (TRM) solution, each institution is responsible for maintaining the integrity of the entire transaction risk system. Institutions are responsible for ensuring that their institution’s policy disclosures contain appropriate data based on state and federal regulatory requirements and applicable case law. They are responsible for determining that data is consistent across all documents required to memorialize the transaction. They are responsible for determining in any given transaction that there is data consistency across all documents. Their staff is responsible for determining complex, state-specific entity types such as limited liability and limited partnerships, and for determining the correct organizational authorizations. Failure to do so exposes institutions to the risk of unenforceable transactions that impact liquidity, compromise their reputation, and result in legal and regulatory repercussions.

It is understood that certain data is required in transactions by federal and state regulation, and every institution must present that content at transaction time. However, because all institutions are unique and offer unique products, they need to have the ability to define and control the language used to represent those products.

The CSi Transaction Risk Management (TRM) Solution allows financial institutions to easily configure language that precisely defines their policy decisions and product definitions. The solution ensures that only compliant, validated language is applied at transaction time, mitigating their ongoing operational and compliance risk. Security features and audit trails help them control and track access to their data.

Q: What is the foundation for TRM?

ROGER GUDOBBA: Throughout its history, Dennis Adama, CEO and Founder, has differentiated CSi from competitors with his willingness to conceive new solutions to the problems surrounding transactions. Starting in 1995, Compliance Logic Systems (CLS) was a standalone wizard application used by financial institutions to create and maintain their own ARM and TIL lending disclosures. That CLS was designed as an intelligent data collection and compliance validation tool proved prescient and reflected Dennis’s focus on the data necessary to document financial transactions, rather than on the physical documents or forms that would ultimately present the data. This foresight to build a software foundation on the data would establish CSi’s development model for the years ahead. Around the same time, initial launch of Document Selection Logic (DSL) was underway. That technology component uses transaction data to determine the documents required to perfect financial transactions and relates entities and collateral with the relevant documents, helping institutions mitigate risk at the root level of the transaction. This was quickly followed by the release of dynamic documents—documents in the sense that they end up rendering in the page format with which we are all familiar, but actually software applications that logically include or omit content based on transaction values.

All of these technological advances established the foundation for Transaction Risk Management. Transaction Risk Management (1) provides a warranted contract with a clearly enforceable promise to pay, (2) ensures the institution has an enforceable interest in any collateral on the transaction, (3) follows all governing law language and regulations specific to the transaction, (4) correctly assembles and associates all relationships on the transaction to appropriate documentation, (5) automatically configures any institution-specific language based on the institution’s very own selection criteria, (6) and clearly identifies any missing information.

I joined Compliance Systems in 2008 primarily because of their technology and their business model, which is based on offering strategic technology partnerships. We interact and exchange thoughts, ideas, and development plans with our partners in order to develop and support the best joint solutions possible.

The CSi Data Schema, launched in 2009, was the first technology component I saw built from the ground up at CSi and is another example of how the organization seeks to support partner integration efforts. Rather than simply working with MISMO data schema in the Mortgage market, CSi envisioned a complete data schema that supported Mortgage, Deposit, Consumer Lending, and Commercial Lending. Since then, CSi has only forged further ahead in developing technology solutions that reduce the risk exposure of financial institutions. We have Configurability, which allows lenders to modify, append, or replace text provisions within documents so that they can adapt to market, business, policy, and regulatory developments while maintaining warranted compliance with CSi. We have Simplicity, which expanded that configurable functionality and allows lenders to designate logos, bar codes, etc., to be applied to standard documents automatically.

When the TILA/RESPA Integrated Disclosures (TRID) Final Rule was announced in the fall of 2013, CSi immediately recognized that this was an excellent fit for dynamic document technology. Early estimates showed it could take potentially hundreds of static templates to produce all the variations, assuming that this was even possible. We communicated throughout the process with our strategic partners so that they would understand what we would deliver, actually a year ahead of the deadline. That allowed them to focus on the changes required from their end.

The Data Collection Logic (DCL) is one of our latest technology components. It provides CSi partners with information regarding the data that must be collected in their platform interface in order to fully document a transaction. That data collection is based on existing business and regulatory rules already integrated into CSi technology. CSi’s partners have traditionally struggled with the problem of data analysis in the development of their own systems, as their own data collection and application user interfaces also depend on an ongoing knowledge and analysis of regulatory compliance and business rules. The DCL can decrease the time and costs required for a business partner to get a quality platform solution on the market and to maintain that solution in the face of ongoing regulatory changes.

Q: When did you become associated with Progress in Lending?

ROGER GUDOBBA: I probably met Tony Garritano sometime in the 1990s when he was at Source Media. I served on the Advisory Board for Mortgage Technology magazine when Tony was the editor. I spoke with Tony on a weekly basis and we lamented on the fact the industry seemed to be slow to change. He wanted to give everyone in the industry a chance to express their concerns. With the encouragement from a number of us, he launched Progress in Lending in 2010. This is a central place for industry participants to have discussions about how technology can improve the process, and it provides a place for thoughts and ideas to flow freely. It’s easier to move things forward when you’re in a group. One of the monthly publications is Tomorrow’s Mortgage Executive and I personally have contributed over 70 articles. There are now over 15,000 followers on the daily posts. A high point of the MBA Technology Conference is the PIL Innovations Awards, with over 150 applications over the last 6 years. Progress in Lending has been a resounding success and I am proud to be on the Executive Committee for Progress in Lending.

Q: Lastly, what is the status of technology innovation in the mortgage industry in your opinion?

ROGER GUDOBBA: The use of technology has had a significant impact on many industries. Certainly, the mortgage industry is no exception to adapting technology. But have we exploited technology to its fullest potential? The answer is: No! I believe the industry has woefully underutilized technology. When you look at the loan process, not much has changed over the last 25 years. It is still a very document-oriented process. Certainly we have introduced technology solutions at certain points in the process, but we still have not seen a dramatic change in the process. The main objective for TRID was Know Before You Owe so that there were no surprises at closing for the borrower and sometimes the lender. It ensured that the CD was within tolerance levels from the LE. It changed that responsibility from the settlement agent to the lender. It certainly provided a great opportunity to modify the way we close loans. Instead, it is another opportunity missed. We are just getting around to standardized fee names. I am constantly both intrigued and mystified about the slow rate of technology adoption in our industry, but I’m also optimistic about the future.


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


Roger Gudobba thinks:

1.) Digital mortgages will mandate innovative changes to the loan process and move the industry to focus on data and not documents.

2.) Lenders will need to have an integrated central repository for all their data and have complete control over all their interactions.

3.) Consumers will demand multiple access points to communicate with lenders and it will be different for diverse consumer demographics.

Using Data To Confirm Facts


A recent LERETA study analyzed property tax bills across 33 states from January 2015 through April 2016 to determine which states and regions of the country had the highest property taxes. In total, LERETA reviewed 89 million parcel. In order to ensure a sufficient statistical review of the data, the existence of a minimum of 500,000 parcel records by state were required for that state to be included in the study. For analysis purposes, tax collection data were aggregated to the county level so that areas where tax collection is made at multiple levels could be accurately compared.

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LERETA studied 8.5 million parcels in the Northeast, 12 million in the Midwest, 42 million in the South and 26 million in the West. As depicted by the graphs, the data revealed that the Northeast region of the country has the highest property tax bill average at $4,991. The Western region had the second highest property tax average at $3,673 followed by the Midwest at $2,864 and the South at $2,267. The average tax bill across these regions was $3,026, and the total tax digest was close to $269 billion.

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The second graph shows a more detailed breakdown of the data by region, including the total number of parcels reviewed and the total number of exempt parcels. Also provided is a quartile grouping where tax data is segmented into four buckets to reflect the overall distribution of taxes. This is useful when analyzing the average bill amount to a specific distribution range. It also reflects how clustering in a specific quartile will affect that quartile’s position in the region. The table suggests that the average tax amount falls into a higher quartile based on the number of commercial and affluent residential properties “pulling” the average, and that the average is found in a lower quartile where the opposite is true.

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New York, largely due to commercial properties in the Manhattan area, and Connecticut had the highest billing averages at $11,482 and $6,794 respectively. California ranked third with an average of $5,156 and Minnesota was fourth highest at $4,022. According to the data, Alabama had the lowest average at $619 followed by Arkansas at $791 and Mississippi at $936.


LERETA’s dataset will become more comprehensive as information is posted to its proprietary property tax database through the fourth quarter of 2016. This data is available at the state and jurisdiction levels as well.


This information helps lenders accurately confirm average tax billing facts and be aware of how these averages compare and correlate with their individual portfolios. Summarized billing information is useful for measuring against a lender’s established footprint, and if needed as a means to collect data in its most efficient form as a service. The more data lenders are armed with, the more proficient they can be in serving borrowers.


The New Face Of Mortgage Marketing


In today’s highly regulatory environment, not having the proper corporate control can be extremely costly.

You’re faced with a difficult choice. On the one hand, with fierce competition intensifying to attract new borrowers, you need to use every marketing tool at your disposal to drive high-quality business to the point-of-sale. On the other hand, a flood of new rules and regulation is seriously impacting how you can and can’t market to prospective borrowers.

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Until now relatively little attention has been paid to the laws and rules that bear upon mortgage marketing. There’s an array of mortgage-specific regulations that constrain marketing activity, notably certain provisions of the SAFE Act. Looking beyond the mortgage market, we find yet more regulations (at both the federal and state level) that come into play. The bottom line is that we are now operating in an environment where mortgage marketing attracts greater scrutiny than ever before – not only by regulatory authorities, but also by trade associations and consumer groups.

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What follows is not intended to be a comprehensive or authoritative survey of the law as it currently stands. The writer is not a lawyer and this is not meant to be an exhaustive review of all laws impacting mortgage marketing. It’s simply an indication of the scope and type of pitfalls that await the unwary.

Licensing And Legal Disclosure

The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 “is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators.” The major consequence of the Act was the establishment of the National Mortgage Licensing System (NMLS) and Registry. An originator’s NMLS number must now be displayed in specific relationship to their name and contact information on all outbound marketing communications.

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In addition, marketing communications must incorporate the relevant legal disclosure per jurisdiction in which the company operates. How and where this information is displayed is typically indicated in state law, down to details such as minimum font size. Originators must, of course, be licensed to operate in a particular state before they can communicate with anyone living in that state.

Data Protection And Privacy

The Financial Services Modernization Act (commonly known as Gramm-Leach-Bliley, or simply GLB) became federal law in 1999. Title V of the Act covers issues of data privacy, including giving consumers certain opt-out rights regarding their non-personal public information. It is clear from the Act’s language that the responsible party is deemed to be the financial institution rather than individual sales agents or marketing executives.

The Telephone Consumer Protection Act of 1991 was the first to introduce controls on the unwelcome attentions of telemarketing operators. The Do-Not-Call Implementation Act came in 2003, which established the FTC’s “National Do Not Call Registry”. The Do-Not-Call Improvement Act followed in 2007, which tightened a key provision in the consumer’s favor: they need only register once, for life. Many states have introduced complementary measures, including Do Not Mail legislation that typically creates a consumer registry at the state level.

The CAN-SPAM Act of 2003 sets rules for the commercial use of email, which it defines as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service”. Among the law’s key provisions are prohibitions on the use of false or misleading header information and deceptive subject lines plus, perhaps most significantly, the requirement for a clear and conspicuous mechanism for the recipient to opt out of future emails, either selectively or in their entirety – which many do, raising serious questions about the effectiveness of email as a business-to-consumer marketing medium.

Brand Management

Regulatory compliance is one thing, but professionalism and adherence to corporate brand standards must also be assured. The topic is raised here since this is a natural although non-legal extension of the other issues discussed: the solutions are going to come from similar processes of management control to those that meet the challenges of compliance.

Mortgage Marketing Compliance

For some mortgage bankers – anxious to avoid costly lawsuits or simply to maintain (or restore) their reputation for transparency and professionalism – the response to the ever-tightening regulatory environment has been to issue policy statements to loan originators and/or require them to obtain approval before doing anything.

Clearly the MAP Final Rule has rendered this approach inadequate. Apart from which, blanket prohibitions were never likely to be effective. In the first place they run counter to human nature; people forget – and punishment after the fact is too late since the damage is already done. More significantly, speed to market is lost. Windows of opportunity open and close so quickly in today’s roller coaster mortgage market that even a brief delay can be disastrous. In any case, this is a highly inefficient solution, expensive to administer and wasteful of human resources.

What if there was a way to get the marketing compliance issues handled that at the same time brings with it the benefit of superior operational efficiency?

Copyright Law

We all know that we can’t reproduce copyrighted language – at least not without first obtaining permission from the copyright holder. What many don’t know is that photographs and other images of celebrities (alive or dead) are also typically protected under copyright law or under various “rights of publicity” laws, which can vary from state to state. In general, unless specific permission is granted, you may not use the image of a celebrity in marketing communications of any kind. Even if you own both a photograph of a celebrity and the copyright of the photograph, it still doesn’t give you the right to do anything with it in the absence of proper approval by the celebrity or their licensing agent.

Although not a copyright issue as such, it‘s also necessary to guard against the use of offensive language and graphics in marketing communications. These too can lead to legal entanglements – or at least they can become a source of serious embarrassment to the mortgage banker.

It’s clear that the tentacles of regulation are now reaching into all aspects of mortgage operations, not least the marketing side. The days are long gone when a mortgage banker could turn loan originators loose to do their own marketing. In the new world this is simply too dangerous.

Management has to take an active role in ensuring the company’s brands and its products are correctly and compliantly represented in the marketplace. Outbound communications with prospects, customers and referral partners – whether driven from the center or by originators – must be controlled, without inhibiting genuine creativity and individual initiative.

So how does a mortgage banker establish a controlled environment that ensures sales and marketing people are adhering to all relevant regulations, but at the same time still allows ingenuity and enterprise to flourish? Simple oversight of all outbound marketing – including variable communication content, such as personalized copy and graphics – is a good start, but it’s not enough.

What’s needed is rules-driven technology – a compliance-centric corporate marketing solution — that handles the regulatory requirements, thereby minimizing reliance on human intelligence.

This technology needs to provide graded levels of control over the players in the marketing process. Management simply has to decide what degree of control to exercise in relation to each of the system’s key functions.

The levels of management control might follow the pattern below, working down from the most to the least restrictive:

Prohibition: Different types of users can be prevented from accessing specific system functions by means of a customizable “permissions” capability.

Authorization Marketing materials created by users at lower levels in the corporate hierarchy cannot be implemented until approved at the center.

Alerts: A defined set of fields is monitored and changes are reported via an online feed, enabling quick action to remedy any departure from company policy.

Oversight: Users at higher levels in the hierarchy can “impersonate” users at lower levels, giving management an instant window on the activities of originators.

Reporting: A dashboard of mission-critical metrics provides information that allows management to hold users at lower levels accountable for their performance.

Audit Trail: Online access to a real-time log of actions taken by users, including copies of all-outbound marketing communications (per the MAP Final Rule).

Finally, in order to close the circle on this vital issue, management should implement a regime of regular instruction and training on both current law and how the company’s marketing technology enables compliance, ensuring that everyone involved remains fully conversant with their role and responsibilities in mitigating the inherent risks.

The right marketing automation provider delivers a proven enterprise-wide marketing automation solution that supports you and your specific initiatives to address 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 Originators are free to close more loans, instead of having to create custom 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 entire organization. The right marketing automation provides the ability to:

>> Establish consistent long-term profitability

>> Yield unseen business opportunities

>> Leapfrog the competition

>> Reduce marketing compliance risk

>> Attract new talent and retain top producers

>> Automate company branded marketing

In today’s market with intense competition, mortgage companies cannot afford to stop marketing to prospective borrowers. The key is having the right tools and partner to deliver compliance and control in their mortgage marketing efforts.

About The Author

What To Look For In An LOS


It wasn’t that long ago when consumers were in the market for a new car, exciting options such as high quality audio systems, alloy wheel rims, sunroofs, leather seats were not standard features. Consumers were forced to purchase these special options aftermarket from a third party.

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Consumers purchasing a new car today expect their vehicles to include digital entertainment systems that include everything from your basic AM/FM plus Sirius XM satellite radio service with Bluetooth/Wi-Fi integration with their smartphones, GPS, cruise control, leather seats, alloy wheels, moon roof, etc. What we find more interesting is the car manufacturers don’t produce most of these exciting options, but rather integrate these components so they are “built-in” to their total vehicle “package.” The key is they provide tight integration and support.

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To a certain extent, the loan origination software space has evolved in the same way. Looking back the past ten to 15 years, if a lender was using a LOS platform that only supported mortgages, lenders would acquire a second lending platform for HELOC’s, Consumer Loans or Commercial Loans. Often Lenders would subscribe to a separate Point-of-Sale platform for their loan officers or branches. HMDA reporting tools would be licensed to generate the .dat file or a Doc Prep solution was licensed to print documents like closing documents or disclosures.

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Lenders are looking for their LOS to handle more functionality than your “Father’s” LOS. Today, we recognize that electronic signatures, MISMO standards and other exciting functionality is high on lenders’ wish lists. But sometimes we need to go back to the basics.

Lenders, like consumers purchasing new cars, are looking for basic innovative technology that is included in the “package,” which will help streamline their operations, keep them compliant and ease the vendor management process by doing business with ONE vendor.

Vendors are constantly developing new functionality and/or successfully integrating their lending platforms to deliver “expected” functionality. Those vendors that deliver a fully integrated, data-driven loan origination system (LOS) will be the winners in the LOS space.

So you might ask, what is “expected” functionality that Lenders expect in the “basic” package? Read on to learn what Lenders are expecting …

The LOS Platform Should Supports ALL Loan Types

Due to the forthcoming regulatory changes, the advantages of a multi-functional LOS platform that supports more than one loan type greatly outweighs the idea of having multiple LOS system. This makes it easier to extract loan level data for reporting purposes ESPECIALLY with the new HMDA reporting requirements expected in just over 12 months. This approach will ultimately gain efficiencies and offer a better experience for Lenders.

Those Lenders that implement a LOS that can originate, process, underwrite, close and fund Mortgages, Equity Loans, HELOC, Construction Loans and Consumer loans are provided a competitive advantage, convenience and cost savings since they only have to manage a single system for all loan products.

Built-in Doc Prep and Reporting

The fact of the matter is … LOS platforms are supposed to generate documents. Whether those documents are hard copy or generated electronically, Lenders still has to generate critical lending documents. Lenders can expect cost savings are increased productivity when the LOS can generate all loan documents (including Loan Estimate and Closing Disclosures) directly from the LOS platform versus using a Third party “doc prep” service. Advantages include:

>> Security – Lender does not expose Borrower data outside their lending platform just to print documents.

>> Quicker document generation – documents are printed “on-demand” and no import or export process is required. Plus, it’s another link in the chain that can break if the Doc Prep provider is down.

>> Reporting – The reporting system should be internal with the LOS and users should be able to select any field in the database. Automated report scheduling should be supported and reports should be able to run dynamically. Besides generating hard copy reports, the reporting system should allow users to save reports in various formats including .pdf, .csv, excel, SQL, HTML and other popular formats. A data dictionary must be provided for quality report development and creating reports with graphical representation should be supported.

Since many legacy systems supported Crystal Reports templates, the ideal reporting system should be able to convert existing Crystal Report templates to your internal report writer environment.

>> Configuration control – flexibility of mapping fields.

Integrated Compliance Automation

This feature allows Lenders to validate or test compliance within your LOS platform such as QM/ATR, HOEPA, HPML (High Price Mortgage Loan), HMDA, Net Tangible Benefits. The LOS should also test for RESPA violations automatically and provide Forms compliance support without having to transfer data to a third-party compliance system. This results in…

>> Testing the compliance in your LOS, Lenders find there is a direct correlation in the reduction of regulatory errors.

>> Consistent Pass/Fail criteria will isolate specific violations that need to be addressed.

>> Live, real time results can be used for validating compliance.

>> Improved data transparency, which results in a smoother regulatory exam process. In other words, borrower data utilized during the regulatory testing process can easily be identified.

Smart Logic Equals Lender Definable Workflow

If you get 10 lenders in a room, I guarantee you will find 10 different ways to originate, process, underwrite and/or close loans. When the LOS allows lenders to dictate the “flow” (or logic) of data entry screens, required fields and which forms are generated by loan type/plan, lenders obtain a powerful LOS tool that will increase productivity and eliminate end-user errors.

The LOS should support smart logic design and a lender definable workflow. his capability allows lenders to identify specific loan requirements and characteristics to ensure all required data elements and proper documentation (i.e. disclosures) are provided to the borrower. This capability will increase productivity and definitely reduce errors.

Processing or underwriting screens should be grouped together using smart logic or “staging.” Required fields should be dictated by regulatory requirements and/or the lender. If required fields are missing, a visual indicator should be turned immediately on so end-users are alerted immediately that required information is missing.

Other examples of Smart Logic include:

When originating a 5-1 ARM, the LOS identifies the product and only prints the 5-1 ARM disclosure that is specific for that product.

Another area impacted by this logic is the generation of Closing Documents. Similar to the 5-1 ARM example, the system can identify key characteristics and state system requirements so that ALL documents are accurately provided.

Integration and New Account Opening

You would think the days of manually re-keying data to order basic services like credit, title, flood, appraisals, insurance, DU or LP are over. NOT. Many lenders still have manual processes when it comes to ordering 3rd party services.

Today, LOS platforms can deliver two-way, real time integration with service providers at time of application. Look for those vendors that follow MISMO standards.

This also leads to New Account Opening. The LOS should capture enough applicant information to open a new deposit account or at least cross sell other products. It is important to support OFAC at time of application. Two-way integration with the bank’s or credit union’s core system is very popular and supported by LOS vendors. Two-way integration means populating the loan application with CIF data at time of taking a loan application and uploading (also referred to as boarding a loan) closing and accounting information to the core system once the loan has closed.

There you have it, the five basic “features” that should be included in your LOS “package”. So get those keys out and start driving those loans home!

About The Author

Coming Soon: The Next Mortgage Crisis


Near the beginning of the American classic movie “It’s a Wonderful Life” Jimmy Stewart and Donna Reed are dancing on a gym floor that, unbeknownst to them, opens up to a swimming pool. Unaware that the periphery of the floor was slowly receding beneath them, they keep dancing, heading closer and closer to a steep drop into the water, all the while ignoring the shouts of others telling them to stop, that there was danger ahead. As would be expected, they fall off the edge and into the unknown waters beneath.

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Ten years ago the mortgage industry, dancing with Wall Street, was in the same position as Jimmy and Donna. Just like these two we kept dancing, despite the warnings being given, until we fell off the edge into the worst financial devastation seen in recent times. This Great Recession resulted in thousands of people losing their homes, hundreds of companies going bankrupt and the reputation of mortgage lenders destroyed. The repercussions were swift and severe. The Dodd Frank Act was passed and the Consumer Financial Protection Bureau (“CFPB”) was created. The regulations and examinations emanating from this body has placed previously unregulated independent lenders under their control, restricted credit, created new disclosure standards and documents that have cost millions for both production and servicing operations and generated fear of examinations, along with penalties, that have reached millions of dollars. Most surviving lenders, especially the larger banks, have been inundated with lawsuits from numerous private investors who trusted Wall Street and lenders representations about the loans contained in numerous RMBS deals. These lawsuits have cost the industry billions.

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Of course we have heard over and over again the underlying reasons for this debacle. It was the administration’s efforts to meet homeownership expectations that produced the bubble. Or was it in fact, the creation of new “easy qualifying” products, lower interest rates, the run up in housing prices, the expansion of subprime or the excessive appetite of investors, including Fannie Mae and Freddie Mac, to earn large returns on investments that were rated triple “A”? We now recognize that it was all of these in some combination that fueled the fire. However, in conversations with numerous executives, underwriters and loan officers it actually came down to one simple thing: greed. Once the profits starting rolling in and practices like stated income and pay options became part of lending, the only thing that mattered was making sure “nobody else did a deal I could have done.”

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Now that we have “paid the price” for the excesses of the 2000’s, but have we learned our lesson? Right now the economy is once again growing, interest rates continue to be low, and housing prices are rising. So, are we setting ourselves up for another jump off the cliff. There are many on all sides of the issue that say the new regulations and the changes made by Fannie Mae, Freddie Mac and FHA are sufficient to prevent another crisis. Yet others believe that the CFPB must continue its diligent control over the industry to prevent another disaster.

To really understand the probability of a similar situation occurring we have to look at what we as an industry have done to prevent such a reoccurrence. We cannot continue to justify similar actions because of the interest rates, or investors, or any of the other myriad of drivers that came together to create the loan origination bubble that burst in 2007. We must recognize that at the very center of the problem, it was our lack of control over the people, processes and technology involved in loan production and servicing that were at the very heart of the collapse. So, where did we fail? A root cause analysis of the operational risk issues underpinning this failure can tell us what controls were lacking and help the industry understand what has to be done to prevent it from happening again.

Root Cause Analysis

A “root cause” analysis is part of a quality management program. Its focus is on identifying the issues that are embedded into any process where the results are unsatisfactory. This type of analysis is also known as a fishbone diagram since it is used as the most common way of delving deeper and deeper into a broken process. Beginning with the obvious problem, sub-processes that contribute to the end result are identified and connected to the problem. Once completed, each sub-process is examined to see which one(s) is not working correctly. From there the analyst can make recommendations as what needs to be “fixed” if the outcomes of the process are to produce as expected. Performing this analysis tells us a great deal about where our operations failed.

If we work from the expectation that mortgage loans are produced with the expectation that they will perform and consumers will get the information they need to understand their repayment responsibilities, the following list of issues must be classified as critical failures that led to the collapse.

1.) Believing that technology was the critical control point in approving loans.

Although the industry has had technological support in completing its tasks since the early 80s, it was the introduction of automated knowledge based work (i.e. underwriting) that destroyed one of the most critical parts of the process. Despite automating steps in the process that relate to documenting the collection of information, that retrieves information and generates documents, it is still human analysis and understanding that generate the most effective decisions. When first introduced, automated underwriting systems were heralded as the answer to easing the chokepoint of underwriting, but only for “plain vanilla” applications. This however soon changed as more and more programs were introduced and the use of and payment for these programs became more competitive. At the same time the process failed to address the issues associated with the data that was input into the system and the probability that if incorrect or inaccurate data was input, the results would be bad as well.

During the booming days of the mid 2000s, these programs were used and abused by every lender. It is important to remember that these programs were not neural networks that “learned” from each loan underwritten, but were merely rules based engines. In other words, garbage in resulted in garbage out.

In reviewing numerous files generated by investor lawsuits it is all too common to find income input that was miscalculated, copied incorrectly or just plain fraudulent. This was also true of assets and other areas focused on underwriting. Often there were numerous AUS reports in the files that were obviously rerun with different information until such time as an approval was generated. This result was then used to approve the loan.

Another issue with this technology was the failure to complete the information about the application required by these AUS approvals. All too frequently the output of the system would require additional information or provide direction on requirements to be met prior to closing. These were rarely found in the file. Furthermore, when these programs referred these loans to underwriters, rather than analyze the issues they were just approved; most with no compensating factors identified. Whether you believe this was due to pressure from loan officers and production managers or just plain bad underwriting, the end result was that far too many loans were approved that should not have been.

An unintended consequence of this technology was the reduction in human underwriters who have been trained in the effective ways to analyze credit risk. Because of the volume and pressure, most of the individuals generating underwriting approvals were mere point and click junior processors. They didn’t understand the impact of bad data or the potential impact of inaccurate results. Unfortunately, the data from these poorly underwritten loans was used to generate data that was used in the secondary market for selling the loans. When this sales staff generated information showing DTIs averaging 40%, they believed that the number was accurate. They didn’t know, and never asked, if these number were correct when in fact many times, and in some cases, as many as 65% or more, were not.

2.) Failing to control counterparty and third party risk

There are no systems, or very few anyway, that are closed end systems. In other words, every system needs inputs and produces outputs that can be used in another, or greater system. This is true for mortgage origination and servicing. However, when we take the outputs of one system and introduce it into another, we open that system to risks that may not naturally be present. When we provide our outputs to others to help us address risks, we open ourselves up to their risks as well. The only way these risks can be managed is through a solid operational risk management program. The traditional approach to control these risks is through a vigorous selection and monitoring system. Unfortunately, the processes necessary for controlling these risks were inadequate or not present at all and these control points failed.

In conducting our root cause analysis of this process it becomes very obvious why. The original controls established made sense and were focused on doing business with only those companies that met the strictest criteria. In addition, the system was designed to evaluate the output they delivered to ensure only products meeting each company’s standards were accepted. This should have resulted in effectively managing the risk.

Unfortunately, these controls, while existing on paper, were not followed or enforced by senior executives. Many times loans from brokers or other lenders were found to contain false information yet these lenders and/or brokers were not eliminated from the program. All too often the refrain of “but they couldn’t be committing fraud, they are one of our best clients/producers” echoed through executive conference rooms. These cries were not based on the quality of the products themselves but on the amount of revenue they generated for these loan officers or account execs as well as for the company. If at any time an underwriter or quality analyst questioned the decision for maintaining a relationship with any questionable supplier, they were repeatedly told that they were not being a “team player” and it was for the betterment of the company that the relationship would continue.

The fact that these risks were not seen as real “risks” was evident in the testimony provided to Congress in the hearings that followed the collapse. The phrase “originate and sell” became synonymous with the failure of the loan origination process, which ignored the third party risks and the controls which were to be in place.

3.) Total Failure of Quality Control

Without a doubt, this was the most significant and devastating failure of the entire crisis. This failure, more than any other, drove the acceptance of loans that were clearly fraudulent and/or inconsistent with the risks defined by credit policy. When as many as 90% of the loans in any RMBS fail to meet the guidelines they are represented to meet, the production process is clearly out of control. Yet none of the quality control processes that were supposed to be in place, such as the review of files prior to purchase by correspondent lenders, the standard post-closing program and/or the due diligence process were effective in preventing or controlling the massive amounts of exceptionally poor quality loans from being sold and included in RMBS deals.

The responsibility for this failure rests completely and solidly on the shoulders of Fannie Mae, Freddie Mac and FHA. These entities have been responsible for dictating to lenders how the post-close QC process was to be conducted since its inception by Fannie Mae in 1985. Even though it was founded on antiquated “auditing” techniques that provided no operational assessments, any effort on the part of companies and/or individuals to change these requirements were met with a stone wall of resistance.

The potential failure of the program was clearly evident beginning with the fact that the methodology was based on what these agencies wanted to review rather than allowing lenders to focus the program on their own risks. Furthermore, the sampling programs “approved” by these agencies were so flawed that it was impossible to conduct any type of reliable analysis. In addition, the process of “rebuttal” of the findings resulted not in better results as expected, but actually resulted in hiding critical issues. Adding insult to injury, the results were not even presented to management until 90 days after the origination process had occurred and the findings themselves were nothing but a data dump that provided no direction to management what so ever. In fact, management itself would redesign the results and reports so that any potential investor could easily be misled into thinking the origination process was working fine. In other words, these programs left lenders operating blind to the risks within the organization and the process.

Additionally, the individuals actually conducting the reviews and running the programs had no educational background in how a proper QC program was to be conducted. Companies, including Wall Street firms, blindly followed these agency requirements, knowing full well that the results were failing to produce any type of information that would identify negligence and improper origination processes. Since they could originate and sell why worry, the issues were someone else’s problems, until they weren’t.

Yet there was one last place to stop these corrupt loans from being included in securities; the due diligence review. Unfortunately, this process was, if possible, worse than QC. Here the sellers of the loans basically dictated to the companies conducting the reviews what they should be looking for and what issues were not of concern. These standards were followed despite the fact that reviewers could find massive amounts of fraud and consistently poor underwriting in the files. After all, if they found these issues, the seller would never again request their services for a due diligence review. Interestingly enough, in trying to demonstrate a much stronger analytic focus on loan quality to one Wall Street firm, they rejected the idea since they had (according to the analytic staff) a much better program. That company was Lehman Brothers. Guess it just wasn’t so!

What has been done?

Based on the results of this analysis a review of changes that have been made and/or imposed on mortgage lenders must be conducted to see if, in fact, the underlying causes of the crisis have been adequately addressed. The review of today’s practices and policies identified some.

1.) The implementation of strong operational controls and executive management accountability for operational excellence. 

While the CFPB has incorporated the requirement for an effective management process as part of its expectations, most companies have spent little time or focus on what this actually means. This situation could be the result of the need to address the numerous other regulations from the CFPB or it could be that executives actually believe they are already meeting this standard. Based on management statements and actions exhibited today it is readily apparent that the latter is more likely the case. However, it is also evident that many of these older “originate and sell” leaders area now exiting the industry and there is hope that the new leaders will be focused on operational excellence.

Probability the issue will create another crisis soon: high

2.) Use of technology

While the use of AUS systems will undoubtedly continue, it is apparent that the remaining systems are being reviewed and updated. Changes in the way credit is evaluated was recently announced and is expected to be implemented in September. This however does not change the risk emanating from the lack of knowledgeable, experienced underwriters creates. There is still a critical need for people with credit analytic knowledge and experience.

In other operational areas, systems such as LoanLogics HD, are being heralded as having the ability to filter loans from correspondent lenders so that emphasis can be placed on reviews of poor quality execution. In addition, lenders are being to recognize that external vendor products may in fact alleviate some of the more specialized areas of risk such as regulatory. Having these programs run standard comparative reviews and isolating the problem loans also allows for specialization in the review process.

Probability the issue will create another crisis soon: low

3.) Control of third party risk

Although loans continue to be sourced through third parties, the processes for approving, monitoring and terminating unacceptable partners has improved significantly. Lenders are using technology to support these efforts and are less welcoming to those that show any activities toward processes and/or programs that reflect the previous proclivities found in unacceptable loans.

This of course does not mean that the risk is gone, only that it has been minimized by stronger operational controls and technology. The industry must stay vigilant that their third party relationships are carefully monitored and alert for any signs of deterioration in loan quality. Consistent with that is the increasing focus of these management groups to develop stronger reporting tools and standards by which they can measure and compare their lender/broker base.

Probability the issue will create another crisis soon: medium

4.) Effective Quality Control and Due Diligence programs

Despite the fact that the agencies have made several changes and added words reflecting modern QC techniques, today’s dictated quality control programs continue to result in an abysmal failure. In reality, they have done nothing that fixes the problems with the previous program. What they have done instead is create a stronger base on which to reject loans that they don’t like without providing direction to lenders on how to utilize these new requirements. Basically what they have done is similar to a piano teacher showing a student some basic key strokes and scales and then placing Beethoven’s 9th Symphony in front of them and saying “now play and if you get it wrong you will be punished”.

While the basic flaws in the program are many there are some that stand out like a sore thumb. For example, they have embedded the terms “Quality Manufacturing” into the program along with the use of the term “defects”. From here they identified what they believe to be defects that lenders must identify in their reviews. Next they must calculate these “defects” to arrive at an “error” rate. Anyone who has any knowledge of actual quality management principles knows that this is wrong.

A.) Defects are process failures that impact the actual performance of the product. When questioned about how they determined the defects were identified as impacting loan performance they responded that “someone must have done it.” Once again lenders are faced with focusing on the issues Fannie, Freddie and FHA are worried about, not their own concerns.

B.) Calculating error rates is another flaw. Quality management and Six Sigma calculate error rates as the percentage resulting from dividing the number of errors by the number of opportunities for error. For example, if there is one possible defect per loan and 100 loans of which 10 have that error, then your error rate is 10% or 10 divided by 100. The complex identification of defects and the equally complex classification system that each lender has to develop leave the results open to manipulations and errors.

C.) The reporting requirements are focused on providing trends to management. However, the flawed sampling parameters, the lack of understanding of statistical control methods, ranges of variation and random errors means that any trending reports are so inaccurate they are meaningless.

D.) The pre-funding review process is a joke. Since they do not understand QM at all, the agencies do not comprehend the uselessness of these inspections. Management on the other hand, and rightly so, see these as another expense with no value added. Rather than try and “catch” mistakes on individual loans, the effort would be much better spent on analyzing the process.

E.) Conducting a “root cause analysis” on each error. This leads to nothing but wasted effort due to the totally flawed sample and review requirements. For example, one lender recently found 11 files with the same underwriting issue but rather than attacking this as a process problem, they conducted a root cause analysis of every one of the findings. Of course, none of the results were the same. At the end of the day these changes have really done nothing but add cost and wasted effort.

Probability the issue will create another crisis soon: extremely high

So what have we learned from this analysis; will there by another crisis in the not so distant future. The answer to that is “probably.” After all, the obvious and overstated issues of the 2007 crisis either still exist and others, such as “no doc” loans, and “stated income” are beginning to re-emerge. Private investors are once again peeking out of the rabbit hole they ran down in 2009 and 2010.

Unfortunately, while there are new requirements in place, many of the truly needed operational controls are still in the hands of senior executives. To prevent even the threat of another crisis these individuals must take on the accountability for something other than profitability within their organization. This means leading initiatives that develop industry wide operational control standards and benchmarks for regulator and investor expectations. As a result, the industry would have comparative analytics to determine conformance to requirements and quality excellence.

They must also individually develop quality control programs based on their own risks and controls to ensure they are getting reports that provide meaningful and useful direction on producing quality products. We must break from the chokeholds that are agency requirements and individually determine what is best for each of us.

Lenders and investors alike must recognize the operational risks in every process that increase the likelihood of financial impact and establish a means to account for it financially. Whether it is a higher price for product excellence, a cost benefit for improvements or an ROI measurement, until this is built in these risks will just be seen as a “cost of doing business” and will continue to increase every year.

Overall our analysis shows that the probability is much higher than it should or could be if executives focused on the operational risks within their organizations. Whether the industry leadership along with each individual executive, take these issues to heart and institute strong operational controls is still an open question. Hopefully it will be answered in our favor.

About The Author

Has Technology Truly Helped?


There was a time in the not so distant past when the technology in the mortgage industry consisted of a word processor, a fax machine and a perhaps a Blackberry for those individuals important enough to warrant owning one. There were even some people who did not want to give up their “trusted” Blackberry once smartphones became more prevalent. In fact, prior to the unprecedented technological growth during the last 10 years, technology was just not keeping pace with the needs of the mortgage industry.

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The change we experienced was slow and gradual, and the systems that were available were not mature nor were they sophisticated. As new technology was introduced during the last decade, such as process and workflow automation, the industry was ready to embrace it, which helped spur faster growth and the much needed added efficiencies. And when the industry participants realized the benefits of technology, the demands increased. New technology providers continually emerged, mindful though that compliance and the ever-changing regulations were top of mind for everyone involved.

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Although the technology has been available, Fannie Mae and Freddie Mac only recently modified their loan origination applications to reflect the digital age. And even this modification is a little short of an intelligent document in the Mortgage Industry Standards Maintenance Organization’s (MISMO) format.

Industry studies have shown that the cost of originating a loan during the first quarter of 2015 was $6,253 per loan, up from $5,171 per loan during the fourth quarter of 2014. Similarly, a report by Accenture in February 2012 found that the cost of servicing in 2011 was $55 per loan per year, and in 2012 the cost had risen to $208 per loan per year or more. The report also noted that it now cost four times the standard amount to service a delinquent loan compared to four years ago. These results raise several questions after 20 years of technology use in the mortgage industry.

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>> Why is the cost of doing business on a steady rise?

>> Does this mean that technology has not been completely adopted by the industry?

>> Is technology not capable of reducing costs in the mortgage industry?

In order to get to the bottom of this, we need to look at this from all three points of view. Let’s first consider what the industry would look like without the use of technology. The loan origination process would be much longer and require significantly more time. To obtain a loan from a bank could take weeks or even possibly months without automation. This in turn would significantly decrease the productivity while increasing the cost of origination.

Loan servicing would also experience similar scenarios involving much more manual processing. Again – lower productivity – higher costs. Delinquent loans are another area that would suffer as tracking those loans would be more difficult and the chances of assisting the borrowers via early intervention programs would be very hard if not impossible.

Although less talked about, loan transfers among servicers would face similar challenges and inevitably be almost impossible to ensure a smooth transaction. By having just a small glimpse into the industry you can determine without a doubt that technology is definitely capable of reducing costs. So then why haven’t the costs gone down? Maybe the answer to this question lies in not at looking at technology adoption as a whole but to take a look at the industry from a completely different perspective. The additional demands that have forced lenders and servicers to update their technology could be the reason costs are not being reduced. Those demands include the costs of attracting millennials to the home buying market as well as the cost to be compliant with the ever-changing mortgage regulations. Two things easier said than done.

In today’s market, Generation Xers and millennials ready to purchase a property and join the ranks of home owners are a rapidly growing population. According to data from the National Association of Realtors (NAR) in late 2015, the aforementioned groups comprised 68 percent of the first-time homebuyer market. This market is, however, underserved as they currently only have a 34 percent homeownership rate. And as time goes on this number will only continue to increase because more of that generation will become eligible.

These generations are accustomed to technology that revolves around them. They expect to have the same seamless user experience as shopping on Amazon; quick and easy with no hassles and no need for actual conversation. Many of this demographic do most, if not all, of their activities, whether it is business-related or pleasure, online without ever interacting with a “live” person. That is just the way they are used to doing business, and it is a fact we must accept. Any company that wants to conduct business with and attract these groups has adapted their technology very effectively.

In the mortgage industry, obtaining a loan via the internet without ever interacting with a loan officer is absolutely possible. Think about or Sadly, there are still many banks that do not have these capabilities. Mortgage companies today are building new portals with specific requirements to meet the needs of this generation. These portals are not inexpensive and can run into millions of dollars to develop. Big banks that have the capital to spare would be able to build them from scratch, but the other smaller institutions will use an outside vendor’s applications. Whichever the case may be, the banks will have to pass the cost of such investments on to their customers or just absorb it in order to remain in the minds of these generations.

Industry regulations exponentially grew after the financial crisis of 2008. Prior to that regulations were not really a major cost factor in the industry. Technology costs since then have continued to escalate on originations and servicing to support all of these changes in regulation.

According to Continuity’s Banking Compliance Index, the compliance cost per bank for the last two years is more than quarter of a million dollars. Lenders and servicers alike have to pass some of this cost on to customers. The interesting or ironic twist here is that lenders and servicers have unfortunately not totally adopted technology as it relates to compliance. Large banks have been able to build compliance systems that can help them avoid penalties and fines. However, small- and medium-sized banks have yet to adopt technology by in large with many of them continuing to use spreadsheets and more manual systems to manage compliance. Fines such as the $10.1 million Prospect Mortgage paid in November 2015 could be avoided with the use of robust technology.

The mortgage industry has adopted enough technology to enjoy some efficiencies in several areas. Until the industry fully embraces all the many facets that technology offers in every area, the costs of using it will continue to lose money. On a brighter note, I think it is just matter of time before the industry embraces a complete solution to cater to the Generation Xers and millennials; one that will help all companies in their compliance efforts. That is when the mortgage industry will be able to maximize profits and benefit fully from the use of technology.

About The Author

A Wave Of New Scrutiny


The servicing market has changed significantly since the mortgage market imploded in the mid-2000s where we saw dramatic increases in loan defaults and foreclosure volumes. These heightened volumes impacted servicers and those companies handling default services, property preservation and REO disposition. While REO, short-sales and foreclosures have existed for quite some time, the sudden influx of foreclosures and rapidly expanding REO inventories lead to significant growth opportunities in a sector that traditionally flew under the radar.

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REO and property preservation no longer fly under the radar. The increases in foreclosure volumes also ushered in a wave of new scrutiny from the OCC, DOJ and CFPB. Servicers were forced to deal with a flood of new rules and regulations on the federal, state, and local municipality levels which resulted in greater scrutiny, higher fines and higher costs to perform the required property preservation and REO services.

Even though we are emerging into a more stable REO market, asset management servicing firms are still being pressed to be able to dispose of REO properties in a timely and compliant manner.

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To improve results, stronger field execution is paramount. Servicers need to look for an REO asset manager with an experienced nationwide network of field service specialists who can act quickly and effectively to optimize the value and marketability of their REO properties. This involves much more than simply securing and maintaining the physical asset. The provider must be staffed with REO professionals – including vendor management specialists and broker specialist teams – capable of working closely with real estate professionals, vendors, title companies, law enforcement officials and attorneys to assure better outcomes at every phase of REO asset disposition.

A nationwide network that includes both brokers and field service professionals provides an up-close, informed view of each property, particularly if the asset manager also provides upstream pre-foreclosure services. This early and ongoing exposure arms the asset manager with the property-specific knowledge and experience needed to apply the most efficient, effective approach for each asset in the lender’s REO inventory.

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The key is rapid deployment of knowledgeable field resources on a neighborhood-by-neighborhood, property-by-property basis that can accurately and compliantly deliver proven results. Providers who can perform at this level are re-defining responsive REO service.

Servicers can expect a number of benefits as they strengthen relationships with asset management companies capable of working effectively across both REO and pre-foreclosure fronts:

>> Shorter Asset Resolution Cycles – Actively managed brokers move REO properties in less time than do unmanaged brokers. Working with asset managers offering direct local monitoring of individual brokers, lenders can expect to move properties in 90 days or less. Re-assigning unsold properties to new brokers – a costly and time-draining process – is rarely needed. In addition, when resources are focused at the neighborhood and individual property level, there is a greater incidence of properties selling above asking price.

>> Reduced Costs – Lower commissions and/or fees, economies of scale, and stronger asset control with fewer compliance problems deliver substantial cost-saving potential.

>> Smarter Property Marketing – Experience-based knowledge of each property and neighborhood leads to smarter valuations and more productive selling strategies. With in-depth REO expertise and proven strength on the ground, well-integrated asset management firms are able to create and apply the right marketing approach for each REO property.

>> Pre-Marketing – With in-depth, experience-based knowledge acquired before a property becomes part of the client’s REO portfolio, asset management companies offering both pre-foreclosure and post-foreclosure services are uniquely positioned to create and apply the right marketing approach for each REO property. This includes recommending auction or traditional sales methods, preparing detailed property/market analysis, as well as providing turn-key auction management or assigning a broker, as appropriate.

>> Marketing – REO asset managers who can offer comprehensive property marketing services are helping REO properties return maximum market value in minimum time. Qualified providers offering direct local execution and oversight can mount complete marketing campaigns, including detailed weekly marketing reports. Most importantly, they can and assume full responsibility for individual broker monitoring/evaluation, a distinct advantage over the arms-length relationships characteristic of many REO asset disposition programs.

>> Closing Services – Well-qualified REO asset management organizations can provide the people and expertise to coordinate and certify closing documents, organize and attend the closing, collect and distribute funds, and disseminate closing information. All in strict accordance with client, legal and regulatory requirements (title procurement, HUD-1 review and approval, escrow/closing coordination). These capabilities and more are well within the scope of forward-thinking REO asset management organizations prepared to excel in the new integrated service environment.

Effective marketing is critical to successful REO asset disposition. However, to be consistently effective, REO Marketing is best understood as part of the overall asset management process, not a substitute for it.

Disposition Alternatives

With today’s REO inventories, not all properties are suited for sale through traditional channels. Alternate strategies, particularly for low-value, high-risk properties, must be identified, assessed and implemented, as appropriate. REO asset management providers with strong field service networks can be highly effective partners in helping to leverage these opportunities, whether bulk transactions, transfers to development agencies or public auction. That said, property-by-property marketing continues to represent the most effective alternative for the majority of REO assets.

Property-by-property optimization of REO assets requires independent process management and localized control. What’s needed is an REO asset management partner, who knows the property and its pre-sale history, can plan and execute property preservation/enhancement services, understands municipal ordinances and code compliance issue, and can objectively assess, select and manage local brokers.

The Right REO Partner

With in-depth, experience-based knowledge acquired before a property becomes part of the client’s REO portfolio, asset management companies offering both pre-foreclosure and post-sale services are uniquely positioned to create and apply the right marketing approach for each REO property. This includes recommending auction or traditional sales methods and preparing a detailed property/market analysis, as well as providing turn-key auction management or assigning and managing a broker, as appropriate

The right REO service provider can deliver maximum REO results in minimum time. Qualified providers offering direct local execution and oversight can mount complete marketing campaigns and property-by-property follow up, including on going detailed progress reports. Most importantly, they can assume full responsibility for individual broker monitoring/evaluation, a distinct advantage over the arms-length broker relationships characteristic of many REO asset disposition programs. Successful REO asset disposition means knowing the property and tailoring a marketing strategy to match; and second, being able to apply independent, on-the-ground monitoring of the disposition process. Integrated REO asset management companies with strong field service networks are uniquely qualified on both fronts.

Comprehensive Solution, One single Source

The fact is, disposition of REO assets is a multi-front affair. Success means winning a series of small but important battles. It takes knowledge of the property and local market awareness to critically assess BPOs and the brokers who provide them. It takes experience and follow through to evaluate and monitor property-marketing activities. It takes strong field presence to assure the grass is cut, trash is removed, interiors aren’t gutted or vandalized, the HOA isn’t ready to enforce a lien, and fines for municipal code violations aren’t accruing. It takes people, skills and know-how to negotiate cash for keys.

Integrated REO asset management providers with proven pre-sale and post-sale capabilities are in the strongest position to help servicers address these and other needs critical to REO asset success.

Improving and streamlining default and REO processes will remain a primary focus of servicers and their field services partners as regulatory compliance becomes more urgent and complex. The field service provider’s first step in navigating these realities will be to become an even more capable and efficient resource – a true problem-solving partner who understands both broad market forces and the servicer’s particular needs and business circumstances.

About The Author

Let’s Change The Conversation


There’s a lot of negativity out there. If you look at the story of the year, the Presidential Election, you have one candidate that became his party’s nominee by insulting his opponents’ looks, mannerisms, etc. That’s all fine and good, but instead of name calling, we should be lifting people up. It’s not enough to insult or even to diagnose a problem if you are not willing to put forth a solution. So, in this issue we at PROGRESS in Lending have decided to change the conversation. We are not going to focus on the negative, we are going to focus on providing solutions.

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For example, there’s a lot of talk about the burden of new regulations. We talk a lot about how those rules are impacting originators, but they are impacting mortgage servicers just as much. So, what should servicers do? Complain about their lot in life? No sir. In this issue, Nickie Badalamenti-Kalas, the President of Five Brothers, courageously points out, “As a servicer and asset manager, you should be focused on maximizing your assets, rather than constantly worrying about these ever-changing compliance requirements. You can’t afford to go it alone, that’s why selecting the right asset management provider is critical to your long-term sustainability.” I encourage you to read what else she said on this topic.

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Also, we don’t think about marketing as a point of contention. However, regulators want to regulate marketing, as well. So, should lenders stop marketing their businesses? Of course not. In this issue, Brandon Perry, the President at The Turning Point, clearly states, “In today’s market with intense competition, mortgage companies cannot afford to stop marketing to prospective borrowers. The key is having the right tools and partner to deliver compliance and control in their mortgage marketing efforts.” To that comment I say: Bravo!

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All throughout this issue you’ll read stories whereby industry visionaries don’t just sulk and moan about tough situations, they roll up their sleeves and look for solutions. If everyone in the industry followed their lead I think the industry would be much better off.

About The Author

Compliance In A Post TRID World


The regulatory environment for today’s mortgage lender has become exceedingly complex. Compliance becomes more difficult each day, as a cascade of new disclosure and lending requirements are imposed by federal, state and local regulators. With this avalanche of regulation it is becoming very difficult for mortgage lenders to gauge whether their internal compliance systems are functioning properly and whether the continuing cost, in both human and financial terms, of adopting and maintaining adequate regulatory controls can be sustained in a volatile origination market.

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At the same time, the absolute risk of non-compliance has become intolerable. Audits by regulators and investors alike are now commonplace and fines, penalties, and loan repurchase demands are escalating. As tough new regulatory standards increase the scope and absolute number of loans that must be evaluated carefully for compliance, investors have become acutely aware that several regulatory changes impose liability on the purchase of a mortgage loan for compliance errors made by its originator. It is no surprise that investors are increasingly demanding, prior to funding a loan purchase, that originators provide loan specific data in an electronic format complete enough to permit comprehensive automated compliance reviews on each loan to be purchased.

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Lenders, in order to cope with these added regulatory compliance risks, are faced with an immediate and compelling need to re-evaluate, and upgrade, the capacity of their internal systems to recognize and incorporate mandated regulatory changes. Static document systems and templates simply will not suffice to keep you compliant. To ensure compliance, mortgage disclosure and documents systems need to be dynamically constructed.

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For compliance professionals “letter of the law” compliance is no longer enough. For regulators, letter of the law compliance is a given. Lenders should be following the rules – period. The new standard for compliance is more rigorous. The CFPB has stated that it wants to see lenders going beyond what’s required by law, addressing the more esoteric aspects of mortgage origination with an eye towards improving the consumer’s experience. They are encouraging lenders to incorporate borrower satisfaction as a key component to their compliance strategy.

Of course, this is easier said than done. After all, so much of the impact of compliance on the borrower’s experience is outside of the lender’s control….or is it? The key to addressing the challenges of this enhanced regulatory compliance environment is to embed compliance within smooth electronic business processes. This enables a lender’s compliance department to manage regulatory risk and foster a culture of compliance across the organization, while, at the same time, enhancing the borrower’s overall perception of a positive consumer experience.

This involves creating and managing real-time software and delivery systems with programmed rules to get the right product, with the right mapping, into the right channel and deployed. If a lender is doing thousands of loans in multiple states and one state has changed its rules, it can be a major undertaking to adjust just a single form. Tools and software designed to completely automate that process, paper out, go paperless, or go e-mortgage are a necessity. Everyone in the lender organization gets the right forms, mapping, stacking order, rules, etc. and the lender can make adjustments to the form or package at any time.

Key elements of any such system involve:

>> The ability to program and enforce business rules and policies

>> Functionality to effectively manage compliance issues and changes in real-time

>> The flexibility to be the first to market with new product innovations

>> The ability to allow growth and improved volumes without adding staff

There will soon come a point when the CFPB begins to seriously audit lenders for TRID compliance. Many of the errors investors are citing, and subsequently rejecting TRID loans for, can be chalked up to lack of collaboration between the three major service providers in the transaction: the Realtor, the lender, and the title/settlement agents. The CFPB has said it will be sensitive to “good faith efforts” to comply, and it can be hoped that errors made due to lack of coordination will not be dealt with as harshly as would more egregious and/or deliberate attempts to circumvent the rules. However, if that overall lack of collaboration results not only in errors, but in a poor experience for the consumer, the CFPB may be less inclined to be lenient.

Consider the CFPB and its range of “Know Before You Owe” efforts. Two key components of their initiative have been TRID and the eClosing pilot. TRID is the CFPB’s attempt to improve the beginning of the transaction by providing consumers with easier-to-understand loan documents and more consistent pricing estimates. The eClosing pilot is aimed at demonstrating how to improve the closing transaction (a process that has remained largely unchanged for 50 years or more) via technology.

It’s clear from the CFPB’s findings after their evaluation of the eMortgage pilot project that eClosing provides consumers a better closing experience. Thus, eClosing adoption is a simple way to signal to the CFPB that customer satisfaction is a lender’s priority and, thus, earn the bureau’s goodwill. Furthermore, the functionality inherent in eClosing platforms can provide compliance professionals with much needed process efficiency and audit support.

So – what is an eClosing? On its website, Fannie Mae describes an eMortgage as one that entails electronic promissory notes, SMARTDoc Format, and other execution processes. The GSE exhorts lenders to consider eMortgages for their automation delivery, paperless trail, and reduced impact on the environment. The more radical notion is the all-digital eClosing. This involves a process that contemplates the electronic delivery, execution and recordation of all documents involved in consummation of the mortgage. Its mainstream adoption isn’t so far-fetched. Many lenders anticipate they’ll be closing mortgage loans entirely online in the next several years.

Compliance measures like TRID will tend to drive migration to electronic and virtual platforms. With the Federal Housing Finance Agency set to compel electronic delivery of the Uniform Closing Dataset next year, it’s all the more likely that lenders will want to manage its bureaucratic requirements with a virtual data solution involving all of the documentation generated in the closing process.

A complete eClosing anticipates at least the following lender driven elements:

>> Mismo 3.3 compliant XML data and doc exchange metrics

>> Bi-directional integration with leading LOS systems

>> Integrated eDelivery of borrower LEs and CDs

>> Continuous compliance and TRID tolerance monitoring for all disclosures and closing packages

>> eSignature architecture for all closing docs and CD

>> Automated event logging and audit train throughout the disclosure and closing process

>> Real time chat and instant message portal for Lender interaction with both the borrower and realtor, as well as doc prep and closing staff.

Regardless of whether one is simply contemplating a basic eMortgage or a complete eClosing, there are a wide variety of processes involved. For the purpose of this explanation, discussion will be limited in scope to the requirements to create documentation and apply electronic signatures. For the most part, the industry has adopted the eMortgage format and guidelines developed by MISMO as the accepted means of creating eMortgages. Fannie Mae and Freddie Mack have each published eMortgage Handbooks or Seller’s Guides which document their requirements for sellers of eMortgages.

Documentation Requirements:

Requirements surrounding the documentation are relatively straightforward. In the case of an eMortgage, Fannie and Freddie require that the Note (eNote) be in the form of MISMO SMART Document Category 1 (xml document) and that specific language is included in the eNote. MERS eRegistry requirements must also be met in order for the eNote to registered with the MERS eRegistry, as both GSE’s require this. Additionally, these investors require the Consumer Consent disclosure to have been provided to the borrower identifying the transaction as an eMortgage and obtaining their consent, and Freddie requires this document be retained as an electronic document in the file. The GSE’s permit the rest of the loan file to be paper based, resulting in a “hybrid” eMortgage, which are the most common form today.

Process Requirements:

The process requirements for an eMortgage are more complex. The basic process flow is:

1.) Electronically present and sign the eNote or other documents to be electronically executed

2.) Apply a tamperseal to the signed documents

3.) Close the transaction

4.) Package all the electronic documents in a form suitable for delivery, typically a “MISMO package”

5.) Register the eNote with the MERS eRegistry within 24 hours

6.) Transfer the eNote to a secure, approved “eVault” for storage

7.) Eventual transfer of the eNote to Freddie/Fannie (eDelivery)

At the highest level, a “click through” signature of the eNote, which satisfactorily meets the requirements of the law, is also sufficient for both GSE’s. At a lower level, each of the GSE’s has specific requirements, with some overlap, for applying a signature on an electronic document. Freddie is more specific in its requirements. Some of the requirements on how the signature must be applied include the following:

>> Not effected by means of video or audio recording

>> Not effected by means of object signatures such as biometrics or specialized signing pads (Freddie only)

>> Meet all ESIGN and UETA requirements

>> The signed documents/records must be “self contained” meaning all information necessary to reproduce the signed document is present

>> Some additional representative Freddie Mac specific requirements:

A.) Each document must be individually reviewed, signed, and modified by affixing all required signatures prior to moving on to the next document

B.) All signing parties must be physically present in the electronic closing location at the time of signing

C.) Signers must validate their credentials in the closing system by entering their user IDs and passwords

In Summary

TRID has dramatically changed the real estate closing process. Roles and responsibilities have shifted, the average time to close has risen significantly, and there is increased pressure from the Consumer Financial Protection Bureau (CFPB) to put the consumer first in the transaction. In order to meet the CFPB’s consumer-first mandate, real estate service providers need to adopt and implement “state of the art” digital closing platforms and conduct fully electronic mortgage closings (eClosings). It will provide ease and cost efficiency for the borrower, more accurate data management for the lender and an auditable electronic ability to examine the transaction and see what actually happened if a regulatory audit occurs.

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Yes, You Need A New Website


You’re probably thinking: No lender is going to give me their business based on my website. You’re probably right, but every lender that is considering giving you their business is going to check out your website and if it’s outdated you will not get that deal. Lenders are relying more and more on their vendors as the regulatory burden grows, so if you can’t even maintain an up-to-date website, why should a lender trust that you have want it takes to keep them both competitive and compliant?

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In the article “7 Glaring Signs You’re Due For A Website Redesign” by Jon Feagain, he says that your website can say a lot about your business. For your users, it’s not merely a place of information and engagement, but also a reflection of your values and philosophy. If you think revamping your site is only necessary to make it “pretty,” you’re definitely mistaken. Business websites can gain a lot more from a well designed website with a good user experience. With the right strategy, your business website can capture audiences on every level of the marketing funnel.

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Now, redesigning your company website is a huge but necessary undertaking. How do you know when you should embark on revamping your site? Here are seven glaring signs you’re definitely due for a redesign.

1.) Your Website Has An Outdated Look

Website design trends and innovations change ever so often. From narrow panels to wider ones, 2D to 3D to flat, and so on and so forth. It’s basically like the fashion industry — your site could have been wearing the trendiest outfit 5 years ago but looks out of place and dated now.

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While it’s important for businesses of all kinds to keep up with the times in terms of product innovation, brand perception is just as (if not more) important. It only takes a few seconds for new prospects looking around for the type of service you offer to consider whether or not you’re a formidable and quality brand worthy of their business.

Seth Godin puts it best, brand perception is ultimately owned by your clients. Regardless of your message, product, or service, your brand is whatever your clients think, say and feel about you. Least to say, if you have an outdated shabby looking website representing your brand, your clients may perceive you to be the complete opposite of innovative and definitely not the leading business in your industry.

2.) You Have Recently Revamped Your Brand

If you’ve recently refreshed the look or messaging of your brand, you should definitely take a look at revamping your website. The most important aspect of branding is cohesiveness. The message of your brand packs a punch when all of your brand assets (especially your website in this day and age) conveys a uniform look and feel and reflects your value proposition. This enables you to attract your target audience to a tee.

3.) Your SERP Rankings Are On the Down Trend

If you find that your search engine ranking is dropping, it’s time to redesign your site. Search engine algorithms change constantly not only to provide better results for searchers in terms of content but also for better user experience.

In fact, according to Search Engine Journal, 93% of online experiences begin with a search engine. If your ranking poorly on search engine results, you’re definitely missing out BIG TIME on potential clients.

When your search rankings drop, it’s time to reassess the content structure and usability of your site. Can searchers easily get to what they need? Is the information clear and is it visually organized with user experience in mind?

4.) Your Website Sucks On Mobile

One of the biggest factors in search engine results these days is mobile responsiveness. With the ubiquity of mobile data devices everywhere around the globe, your site has to be able to cater to users on the go with no snags. If your site isn’t mobile responsive yet, then you’re definitely overdue for a redesign.

Redesign your website to accommodate users using smaller mobile devices. Are your CTAs clickable and easily seen on a phone or a tablet? Is the text on your site well-segmented, concise, and readable? Are image banners sized right so that they are intuitive to space and don’t require a lot of real estate? There are plenty of other considerations to make to ensure you site can be just as effective on mobile devices as it is on desktop. If you ignore mobile responsiveness, you might as well hand your clients over directly to your competitors.

5.) Your Analytics Are Dipping

How are your visits and conversions looking? If you think redesigning a B2B website is all about the looks, you are heavily mistaken. Redesigning a poorly performing website is good practice. Half the time it’s about user experience, the other half SEO structure. Maybe your landing page could be more effective, or your home page does not convey your value proposition at a glance, maybe your navigation is unorganized, or maybe your site is just too shabby to look trustworthy. Whatever the reason may be, when your visits dip, take a look at what’s going on in the pages of your site. Apps like HotJar will help you determine where visitors tend to drop off on your site to determine how and what needs revamping. Once you have a wireframe and design, it’s best to A/B test to find out which design, framework, and wording variations are most effective for your site.

6.) Your Website Is Still Using Flash

Ah yes, this one is pretty straightforward. If your site is using flash, stop reading this and redesign your website NOW. Flash is practically unreadable for search engines and has been declining in usefulness for some time. As if that’s not bad enough, here’s the kicker — Google Chrome has completely blocked flash entirely because it’s problematic and considered an outdated technology.

7.) Your Website Loads Slooooooooooowly

How’s your page speed on mobile and desktop? You can go to Google’s Page Speed Insights Tool to check how long it takes for your site to load and if your score is generally good or bad… Or really, really bad. Page speed is one of the factors that affect SERP algorithm. If your site loads like a turtle and even the most patient driving users away, you’re going to tank on search results. Redesign your site to improve its speed. Maybe you should replace your existing media assets with compressed ones, for maybe certain scripts should be reformatted. A thoughtful redesign can fix this problem easily.

Well, now for the obvious. If you want to be the best, you simply HAVE to be the best. Human beings are impressionable by nature. If your competitor has a sleeker, more intuitive, better put together site than you, you’re not going to get that business. Even your most loyal clients can change their mind about you if someone else simply looks better. So, stop procrastinating and up your game by redesigning your site to set a whole new standard for your industry.

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