The Industry’s Next Frontier

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TME-Paul-WetzelIncreasing efficiency while decreasing costs is an ancient mortgage industry topic. We dealt with it at the turn of the century and made substantial gains only to watch them all roll back under the twin tides of the housing crisis and the regulatory onslaught. Operating costs are reaching the highest levels in history, challenging us to do again what we did more than ten years ago.

This time around we have better tools as well as new strategies for tackling tough profitability problems. While there are a number of ways lenders will drive costs lower towards pre-recession levels, at least two have not been leveraged to the extent they should. The first is linking all third parties in the origination cycle for easy, efficient flow and use of information and data. The second is paying close attention to lead generation and management.

Linking All Third Parties “On-Platform”

Linking — historically recognized as integrating — lenders and service providers is also an ancient topic, though it is well established that lenders need vendor service integrations in a single platform to help re-achieve previous efficiencies. Linking is not ‘integration’ as we know it. It means housing every connection necessary throughout the mortgage process in a single platform, or, as we characterize it, ‘on-platform.’ The old integration paradigm of separate login points, manually transcribing data and/or manually importing/exporting files represents a significant loss of efficiency at best and increased risk due to human error at worst. ‘On-platform’ is not the option it once was. More to the point, it will be an important component of competitive lending strategies.

The definition of on-platform is evolving rapidly towards a more complete integration with full functionality between all mortgage origination parties. Lenders need to operate in one system that truly acts like a single system regardless of the origin of the underlying functionality. High cost loan testing, an integral component of the Qualified Mortgage (QM) Rules, is a pertinent and timely example. For efficiency and accuracy sake, third-party vendor services that support the test should be integrated with the lender’s LOS with single sign on, bi-directional data transfer and document reports that include data usage. A more advanced definition that goes above and beyond the basics would include automating service orders through a rules-based approach using any and all loan criteria. The order is then returned, also in a rules-based manner, interrogating the data in such a way that eliminates the need for staff intervention. Real automation happens when special workflows are initiated only for exception cases — or when hard stops only occur as needed. Turn times improve, and the need to increase staffing for volume spikes diminishes. Looking across other vendor service connections like flood, appraisal, credit, fraud, etc., there are similar examples of how automation can be put in place to decrease the number of touches on a “happy path” loan, reserving staff time for exceptions. This requires close coordination between your platform provider and third party vendors in terms of best practices workflow vis-a-vis each and every service.

Imaging and disclosures provide another example.  Step one, having imaging and document preparation on-platform, is well established. Step two, however, hasn’t been as clear until recently. No-error imaging systems that automatically recognize 100% of documents created by the disclosure system is important now and will become essential with Know Before you Owe (KBYO). When one part of the platform creates a document, all other parts of the platform must recognize the document and have access to the data used to create it.

A third, and very timely example of linking, is the borrower self-service portal. Today’s purchase borrowers have great ‘digital’ expectations. They are demanding, fickle and better educated than their pre-recession counterparts. They want self-service options. They expect a high level of transparency in the form of regular, online updates throughout the process on whatever device they have on hand. This is true both for the application itself and also for what happens after, continuing throughout the process until the loan is closed. A notable borrower experience requires deep integration and is defined as being able to provide a pre-underwriting decision at 2 am without staff assistance; credit, fee collection, AUS and initial disclosures all which happen automatically. After the application is submitted, the borrower should be able to check loan status, securely message with lending staff, receive and upload additional imaged documentation, and electronically sign documents.

Here’s a short, though important, list of capabilities. Once deeply integrated, they will help increase efficiencies as well as decrease costs:

  • Borrower-facing self-service application portal
  • Disclosure platform
  • Vendor service integrations (credit, flood, appraisal, compliance, fraud, title, etc.)
  • Imaging platform
  • Product Pricing & Eligibility (PP&E) Engine
  • Customer Relationship Management (CRM) system
  • Automated Marketing Solution

That’s just for starters. As borrowers become savvier and as the purchase market evolves, the interconnectivity of all mortgage industry players will increase.  Your LOS is one of those players.

New Demands on Vendors

Assembling these capabilities into a single product portfolio, investing in real integration between them while also investing significantly in integrations with third parties, requires substantial resources. Making this more challenging is the investment required to support the ongoing stream of requirements for regulatory compliance.

This is one reason for recent consolidation among LOS vendors. The bar to keep a seat at the table rises continually. Vendors must have a roadmap that includes not just meeting or exceeding compliance requirements but also moving their platform toward deep all-capability integration as well as the resources to actually accomplish it.

A technology vendor becomes a true solution vendor when they merge disparate systems and make buying and using them simple and efficient. Vendors that push the envelope even further will be able to offer different systems as your business evolves as well as different solution delivery paradigms such as licensing vs. software as a service vs. business process outsourcing.

Reducing Friction

Friction is rampant throughout the mortgage origination cycle. At no point is the process smooth. Generating applications, closing as many as possible, then delivering loans to either the balance sheet or investors is a rocky road rather than a smooth highway. This has to change because as much as it impacts lenders, borrowers may notice it even more.

Generating and nurturing leads wasn’t much of an issue during the last five years. Refinance borrowers show up, application taken, loan processed, loan closed, loan delivered. Inefficient processes did result in longer than necessary process times. They also resulted in greater than acceptable fall-out. Now that the industry is transforming to purchase lending, ignoring fall-out is not an option. Lead generation, and its counterpart, lead nurturing, are two new success strategies. Purchase borrowers have options, and they can be mercurial. Identifying them as early as possible in their homeownership quest, educating them and making them feel comfortable and regularly informed will separate winning lenders from all others. It won’t be enough, however. Once their application is in hand, everything possible must be done to close their loan. Fall-out was the elephant in the room during the refinance binge. All lenders knew it was a problem; few wanted to talk about it — let alone address it. It is not as if nurturing leads hasn’t been important; it has, though now more so than ever as loan application numbers retreat to volumes not seen since the mid-1980s.

Loan delivery is another source of friction regardless of lending channel. The time it takes to move a loan from closing to portfolio or investor can likely be shortened, and should be, for profitability’s sake. The vendor consolidation mentioned above is leading to an extremely promising side benefit. More often one technology vendor serves both the seller and the buyer of a loan. In other words, the seller’s LOS is the same as the buyer’s LOS. Why does this matter? It blows wide open the paradigm of how mortgages are bought and sold. Data and documents can be transferred real-time both for due diligence (with appropriate security controls) and settlement. Workflows, including both manual and automated steps, can be facilitated by the platform that include buyer, seller, then seller again and so on with similar efficiency to purely internal workflows.

Like water finding the path of least resistance, these types of efficiency gains between organizations are likely to create measurable impacts on where loan volume flows in the industry as cost per loan decreases. Risk decreases, too, since the transaction is highly transparent.

So what does all this mean for lenders making technology decisions to support business viability and growth? It means concurrently considering existing needs while looking to the requirements of the market ahead. To best position your business for success, choose a technology partner who:

  • demonstrates a product roadmap of deeply integrating a wide range of on-platform capabilities;
  • invests strategically and consistently in their products while meeting or exceeding the continuing wave of compliance requirements; and
  • helps reduce the friction at your front and back doors through borrower experience (think CRM/AMS) and a credible roadmap for integrating institutional buyers and sellers.

It’s clear. Technology, and the right technology partner, are success strategies for today and tomorrow’s thriving mortgage lenders. Self-service at the point of sale, deep on-platform integration and diligent lead generation and nurturing are no longer optional. The result? Happy borrowers and efficient, profitable lenders.

About The Author


Paul Wetzel

Paul Wetzel has led Product Development and Product Management activities through most of his 20-year enterprise software career – over the last 10 serving the Financial Services industry. In his current role, Paul manages both customer and industry requirements to drive product enhancements while also ensuring Mortgage Cadence leads the way in innovative loan origination technology. Paul began his career with Accenture in software development where he rose to the level of Director, Business Development for an Accenture subsidiary. Before joining Mortgage Cadence in 2009, Paul spent several years with FICO in product marketing and corporate strategy roles.

Make The Shift

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DawnMarieDayToday’s lending environment puts intense pressure on community banks. There has been a significant influx of new rules and regulations, CFPB requirements, enforcement and the potential for costly penalties and fines for non-compliance. In addition, the market is experiencing fluctuating rates, origination volumes that are declining, refi’s that have diminished and a shift to the purchase market is in full force. These current conditions provide a daunting task for community banks as they look to navigate these challenging mortgage market conditions.

Compliance poses probably the biggest challenge to community banks. In testimony to the House Subcommittee on Financial Institutions, William B. Grant, Chair of the American Bankers Association Community Bankers Council told members that a conservative estimate of the cost of compliance to community bankers was approaching 12% of operating costs, and that was in 2012. With that big of an impact on the bottom line, it is imperative that community banks partner with knowledgeable service providers for help to keep them ahead of the compliance curve without incurring fines or paying extravagant legal fees.

Add in a highly volatile market where origination volumes are declining and margins are tight, that makes it challenging to sustain profitability. In spite of the predicted lower origination volumes, all is not doom and gloom for community banks and their lending departments in 2014. Due to the nature of the relationship that community banks have with prospective borrowers in their community, they are in the perfect position to capitalize on the shift from refis to the purchase market.

In our case, Chelsea Groton Bank is an independent, mutually owned, community bank serving Eastern Connecticut. We are deeply committed to delivering on our promise of providing the highest level of customer service to our clients and to the community. In part, that meant lowering lending costs, speeding delivery and offering timely loan products that are both borrower and market friendly. To be able to deliver on that promise and to effectively respond to today’s market conditions, we outlined a plan to achieve our goals.

The first step was to develop a strategic partnership with a technology provider who could help us successfully navigate the shifting market challenges that included an increasing compliance requirement and a shift in origination demand. The second step was to employ technology solutions that provide flexibility to proactively adapt to changing markets while promoting efficiencies and improving customer service levels.

So what does the right strategic partner look like? For Chelsea Groton, first and foremost, the right strategic partner had to offer a level of commitment well beyond the vendor offering mere software and help-desk services. The right strategic partner had to deliver a flexible, refinable lending platform for all types of loans, proactive compliance solutions and an exceptional commitment to support and service.

For a community bank, having one common platform for consumer, residential and small-business lending can deliver a tremendous competitive advantage. This alone significantly increases efficiencies throughout the entire enterprise. One platform eliminates the need to switch between systems and saves time and increases quality by eliminating the need for redundant data entry. The need to train and maintain multiple lending systems is gone and cross promotion of loan products is simplified. This allows for key bank resources to spend less time preparing loans and more time increasing the customer service levels that their customers have come to expect.

Compliance is now a business imperative for all lenders. Community banks understand that they need a proactive, responsive, and most importantly, a collaborative compliance approach and often look to their strategic partners for help. The strategic partner should provide extensive lending and compliance expertise that closely monitors all regulatory actions, including the GSEs. Having a partner that has extensive insight and on-going relationships with the GSEs along with a proven history of delivering fully tested and advanced solutions prior to regulatory deadlines provides risk mitigation for the community bank.

The ability to easily customize and make changes in the lending platform is critical for today’s community banks. It is necessary that their technology provide the ability to rapidly respond to constantly changing market conditions. Capabilities such as customized workflow, the use of data-quality checks, and creating special loan products ahead of market changes result in loans delivered more quickly for less money. Enough cannot be said about how the endless possibilities offered in a flexible lending platform helps increase the level of customer service that can be delivered.

For community banks to truly deliver the support and service that their customers demand they, in turn, must have a strategic partner that not only delivers a high level of support, but they must have an understand as to what community banks need to thrive in today’s market. Their knowledge of your operation, your requirements and the business world around them is vital to a successful relationship. The strategic partner has to have a skilled, highly trained and experienced staff of professionals who are there to help every step of the way and are available at any time.

While there are many challenges in today’s lending environment there are also significant opportunities for community banks such as ours as the market shifts from refinances to the purchase market. To be able to do that is takes a strategic partner that shares the same belief and commitment to serving the needs of its clients.

About The Author


Dawn Marie Day is Vice President, Retail Lending Operations Manager at Chelsea Groton Bank. She develops and manages Chelsea Groton Bank’s retail operations, closing and secondary marketing areas to increase market share and system efficiencies. Chelsea Groton Bank employs the PowerLender Loan Origination & Processing System by Associated Software Consultants, Inc.

Navigating The New Mortgage Maze

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JimMorinMany lenders are struggling as they try to reassess their business in the face of rising rates, new regulation and increased cost to originate. Finding the best way to navigate this maze of obstacles to get safely to the other side is surely a challenge, but it’s also the new reality.

As a full-service lender here at Norcom, we understand what our fellow lenders are going through. Regardless of what lies ahead, we at Norcom feel like we are well situated to succeed. How do I know that? From corporate philosophy, it all really boils down to our customers and being consumer-centric. Our corporate identity is based around our service levels. From our very beginning, our founder was an originator so we tout ourselves as an originating company built by originators.

What do I mean by that? Everything we do has the consumer and the originator at heart. We have a collaborative environment. We try to foster the relationships between the different departments and keep ourselves tightly knit as one big happy family. We feel that this strategy makes the decision-making process easier and cultivates partnerships within the building.

We have more of a horizontal hierarchy structure, rather than the traditional vertical structure.

As a company, we’re big enough to have access to sell into Fannie, Freddie and Ginnie, so we can operate and execute from a secondary perspective; yet we’re still small enough to be nimble and agile, thus maintaining our service levels, while remaining compliant. If we’re honest as lenders, in this day and age, compliance and technology dovetail together more than ever as a business imperative.

To this end, we take technology very seriously. Lenders that don’t do so act at their own peril. For example, we are now entering our second year with The Turning Point. The Turning Point is the mortgage industry’s most advanced marketing automation solutions that compliantly address every aspect of our lending business from prospect, to in-process, applicant, and closed loan marketing programs. We see our engagement with them as a core part of delivering on our philosophy of being a lender that is customer-centric.

We want everything we do to enhance the consumer experience, and at the same time, automate a lot of our processes. We are taking online applications, which automatically get pushed to our LOS system, which allows for documents to get drawn electronically.

Turning Point has really helped us at the back end of that process by automating our marketing process. For example, The Turning Point helps us with our five-year post-closing automated marketing campaign. We’re staying in contact with our borrowers for five years after their loan closes, and we’re actually in the process of deploying in-process marketing campaigns with videos to existing borrowers.

But the successful lender has to be about more than marketing campaigns and emails blasts. One of the reasons why we chose to go with The Turning Point and to use their award winning Mach3 system is compliance.

New rules and regulations are constantly being implemented, they are everywhere these days. And on the marketing side of every mortgage company’s operations, as much as any other, it means that our management has to take a much more active role in ensuring our brand and our products are correctly and compliantly represented in the marketplace. Communications with prospects, customers and even referral partners – whether driven from corporate or by our loan originators – must be controlled, but without inhibiting genuine creativity and individual initiative.

One of MACH3’s most distinctive features is that it establishes a controlled environment in which ingenuity and enterprise are able to flourish. It does this by providing our management with five levels of control over the players in the marketing process. All you have to do is decide what degree of control you want to exercise in relation to each of the system’s key functions. For example, you can make sure that Loan Officers are unable to edit company information or upload unacceptable graphics or run on-demand campaigns that breach corporate guidelines.

We have to make sure that every marketing piece that goes out is compliant. The Turning Point automates the marketing compliance process and does all the content management, as well. Through the system we are able to track open rates, and the actual content.

It’s funny that a lot of our lender peers are afraid of getting audited. We are not because we know that we have the technology from The Turning Point to prove that everything we do is compliant. How do I know that? We just had a regulator in our offices and they wanted to see all of the marketing pieces that we sent out in the last year. It was great to go into our The Turning Point’s Mach3 system, pull up the actual marketing pieces that went out, and just hand them over. Everything was fast, transparent and easily accessible, which made the audit almost a non-event.

Prior to using The Turning Point we had a marketing staff and they were just doing on-demand marketing. Since we started using The Turning Point, our marketing has all changed for the better. MACH3 enhances the Marketing Genius in our organization to drive business through increased efficiency with a custom company marketing library. Consistent, relevant communication can easily be sent to all our contacts companywide through each milestone in the loan process including the lead and post close stages.

But as any lender knows, it’s not just about marketing. We use Ellie Mae for our LOS.

In reality, between our front end website portal, we have a fully paperless automated system from start to finish. We have a client portal set up that allows the borrowers to go in and get real-time updates through a company called Lending Manager. We push messages back and forth; push documents back and forth, which then integrate with the LOS system. From there, within the LOS system, we’re pushing out automated updates to the borrowers and to the originators as they’re going through the process. Ellie Mae has been a wonderful partner because they seamlessly integrate to both The Turning Point and our website front end.

Our ownership, myself, and our compliance attorney are heavily involved with the MBA and spend a lot of time in D.C. going through these regulation changes. However, Ellie Mae certainly helps, especially with some of the lenders that may not be as tuned in to the compliance changes. In our case, Ellie Mae built out the QM and ATR functions that we employ.

Right now 85% of our business is purchase and first-time homebuyers are getting younger and younger, so we decided to go with yet another vendor to automate our front end. Our society in general is becoming much more comfortable and willing to take advantage of the Internet. People are more tech savvy. Today 79% of all of our online applications come outside the traditional business hours. Folks these days want to be able to do things at their convenience, in their own homes, at their own time, they’re on the fly, and they’re taking applications on iPads.

When we make these technology decisions, we have an IT department that presents options, or even some of the sales people will see or identify something that we should consider. So, basically someone comes up with an idea, sees it and then it gets presented to what we call our management staff that kick it around and make decisions. Any technology decision should be made collaboratively and have full buy-in from management.

For those remaining lenders that have opted not to automate, I think you better get started. The paperless mortgage is the future. We looked at several marketing vendors, LOS vendors and website vendors before making any decisions. Lenders need to be thorough in evaluating their options.

As we move more and more to a purchase market, we at Norcom are never going to get away from having a local presence. I think being in certain marketplaces is going to be important. However, the online channel is also booming. Borrowers are willing to shop online, buy things online, look at houses online, fill out mortgage applications online, etc.

If we put everything into perspective, if you look back just 10 years ago people wouldn’t even put their social security number online. Now we’re receiving hundreds of applications online everyday. Borrowers are filling out full 1003s online. As a society, we want instant gratification and technology helps us achieve that. In the end, you want to take advantage of the technology that’s available.

Bottom line, the next-generation lender needs to have the ability to be a dynamic thought leader. You have to have a willingness to continuously improve your processes. You have to be tenacious. More than anything, you have to be able to keep one eye on the present and one eye at the future at the same time. You have to be a forward thinker. You have to be willing to make change and change for the better.

Technology is a big part of what we do because it helps us fit all the pieces together. We have 25 years of lending experience. We have people here that have a lot of mortgage experience, yet we’re also young at heart. That inner youthfulness enables us to be dynamic. We are willing to embrace new technology. I think there are a lot of lenders out there that are still shying away from automation, but they shouldn’t. The new mortgage market is changing and the best lenders will change with the market.

About The Author


James Morin is the Senior Vice President of Retail Lending at Norcom Mortgage, headquartered in Avon, CT. Since joining Norcom in 2009 he has helped grow the company to a Regional Lender that is now licensed in 18 states and was recognized as one of the “Fastest Growing Lenders in New England.” James has been instrumental in leading the strategic expansion of Norcom production and is in charge of Norcom’s retail platform, including the inside and outside sales departments, marketing, strategic planning, and product development, as well as training and overseeing the sales staff.

Tomorrow’s Lending Strategies

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There is no denying that it takes a very savvy lender to stay ahead of market conditions. And being savvy means investing in technology according to industry veteran Rick Roque. Rick recently joined LendSmart Mortgage, a national retail, non-depository mortgage lender headquartered in a suburb of Minneapolis, Minnesota. With lending centers in Minneapolis, Phoenix and St. Louis, and offices across the United States, LendSmart is growing its retail production presence in local markets through strategic market acquisitions in target markets. The company places a priority and focus on compliance and local fulfillment in their operations. Their model serves employees and referral partners uniquely allowing for direct access and communication with staff members supporting the underwriting, closing and funding functions within the market itself. Rick explains what will make LendSmart and other lenders successful going forward.

Q: Why did you get into the mortgage space to begin with?

RICK ROQUE: I grew up in the mortgage and housing industries because my father owned a real estate agency up in Vermont. In the late ‘80s and early ‘90s I was exposed to the family business. From there, like many kids who worked for their fathers, you want to carve a separate path. So, I got my undergraduate degree in electrical engineering and I intentionally left the mortgage business and left the housing sector to focus on the high-tech boom from 1995-2001, 2002. At that point, I had started a company that focused on custom CRM solutions. I sold that company in 2003 to my business partner and it caught the eye of one of the top ASP hosting providers in the country, a company called Wizmo. They had raised $30 million dollars or more in venture capital and they were really on the rise. However, they were significantly hindered by the dot-com bust in 2001, 2002, so they had scaled back to focus on hosting Calyx Point. When I sold my company in 2003, they tapped me to head up their business development because I knew the mortgage business, and I had a strong technology background, as well. That was how I got back into the mortgage business.

Q: How do you think the industry has changed since you first got involved?

RICK ROQUE: We’re in what I would consider the third generation of mortgage lending. As I see it, the first generation started with the creation of the GSEs. At that point, products were fairly simple, and the applications were fairly simple. The second generation started when the industry expanded from 200 to 2008. Loan products and technology applications became very complex during this period. I think the third generation started with Dodd-Frank.

Today mortgage lending is being reconstructed to include a banking foundation. Many of the requirements put on banks like capital requirements and liquidity are now being put on mortgage lenders, as well. What we’re seeing is this shift is created a significant cultural challenge. The very first challenge it posed on the non-depository space, mortgage brokers and mortgage banks alike, is in capital requirements.

Q: You’ve been on the technology vendor side, and you are now on the lender side of the business. Which side do you prefer and why? And how do the disciplines cross?

RICK ROQUE: I started on the mortgage side and branched out to the technology side. When I started Menlo I focused really on warehouse lending and mergers and acquisitions, just production growth strategies. I’ve worked with probably more than 15 investment banks between New York and San Francisco in identifying the appropriate firms both in the retail origination side and the technology side, that would be good investments for them to put money into. Regardless of what side of the business you’re in, you have to have an understanding of the way technology can drive your production, can increase efficiencies, can decrease costs and can increase your revenue. From there, as you scale your business, you need access to capital and you need to identify the appropriate growth strategies that would scale your business safely. We’ve recently seen some lenders like RFC grow in a very un-sustainable, unsafe manner to a point where they had a peak of a thousand employees, on July 1, 2013, and now they have under 200. They had almost 60 branches and now they are down to two or three. My hope is to continue working and applying my skillset in all three of those areas, capital, technology and production or retail growth strategies. I want to add value in all three of those areas as I move forward. I don’t want to pick a side because I think it’s too narrow to do that.

Q: You recently joined LendSmart Mortgage. Why did you choose this career path and what do you think separates this lender from others in the market today?

RICK ROQUE: I have had a lot of opportunities to run retail mortgage companies and I have turned down a lot of those offers for a couple reasons. One of those reasons is culture. Second was lack of capital. And the third reason was a lack of good management. Those are the three reasons why I chose LendSmart. When the opportunity presented itself the first thing I looked to was their management and their culture. They have a high employee retention, number one. They don’t have serial turn over by loan officers in branches. Number two, they have a culture of investing in their branches. So, there are actual systems and people in place to help their branches grow. It isn’t just a talking point or a marketing slogan, it genuinely is a systemic focus of the company to help their offices grow.

Also, a lot of the bigger companies have central underwriting and processing, so you end up getting an underwriter in Milwaukee writing a decision on a property in Miami and they don’t really have local market knowledge to be able to assess a borrower’s income circumstance. For example, if they have never looked at a Union borrower and they don’t know how a Union Shop works, they tend to make mistakes in how they evaluate their credit decisions.

LendSmart has agreed to build out their fulfillment platform, underwriting, closing, funding, in the local markets themselves. So we’ve carved out the country into various regions and we’re pushing regional lending centers. In each of our regional lending centers there is underwriting, closing, and funding functions to support the loan officers in those markets in a very local way.

Q: You talk about mergers and acquisitions and I know that’s one of your responsibilities at LendSmart Mortgage. What are the major M&A trends?

RICK ROQUE: I think the branches and/or independent companies that are doing $5-$30 million a month are the most vulnerable today. Obviously the lower in production you go, the more vulnerable you are. Even companies doing $30 million a month or so, might be in jeopardy these days. For example, I was talking to a company yesterday that does $25 million a month in Orange County. They have a net worth of $6 million, $5.5 million in cash. So, they are moderately capitalized, but for them to make the money they’ve made in the last year, they’ll have to double their production because margins have compressed. So, that’s a challenge.

For me, $5-$30 million a month is really the sweet spot right now. There are some bigger plays out there, but those that do $70-$120 million a month in volume, don’t want to be sold. Also, if you are in that $80-, $90-, $100-million a month category they’re kind of faced with the same kind of decision. They are asking themselves: Do I expand or do I sell? The problem is when they sell, they want too much money for the company. So, that’s why my sweet spot right now is in that $5-$30 million a month space.

Q: What’s the biggest problem that mortgage lenders face and how can it be fixed in your opinion?

RICK ROQUE: Number one, they pay their loan officers too much. I think we’re going to see significant compression on LO compensation. You still see a lot of mortgage lenders paying their loan officers 130, 150, 180 base points a deal and that, I believe, will go away. I think that’s going to fall to more industry norms of 100 basis points, 110 basis points. The second big problem is that a lot of lenders are desperate for production because their executive salaries were too high when rates were low. Let me give you an earmark. There should be no manager that makes more than $200,000-$240,000, $250,000 a year, unless you’re tied to production. I believe that lenders need to be reinvesting in the mortgage company. The point that I’m trying to make is that compensation in our industry is completely out of line when compared to most other industries. I believe that until that falls in line, lenders won’t invest in things like technology and attracting quality people that will help them grow that business.

Q: Last question along those lines is, how would you describe the lender of the future?

RICK ROQUE: I’m afraid that the CFPB has an unchecked mandate to relate and to impose both rules and regulations on our industry, and fines for that matter. In the end, that’s going to increase the cost of doing business. As a result of these new rules, lenders will be forced to operate just like banks and other depository institutions. Now, without a serious commitment to technology, which means you spend probably 20-30 basis points on technology, I don’t see how you maintain a healthy mortgage lender.

The next-generation lender needs a real technology roadmap for their company that will integrate sales and operations. Unfortunately, right now there’s such poor technical leadership on the mortgage side. Lenders have to be more sophisticated when it comes to their thinking about technology, simply put.

Also, sales management is grossly lacking, grossly lacking in mortgage lenders today. I believe that you need to have weekly meetings and pull weekly reports. Lenders need to think: Am I drilling down as much as I should? How are my loan officers really doing? How many appointments are they booking? How many Realtors are they talking to? How many loan applications are they generating? The next-generation lender should be asking these questions and they should have the technology to answer these questions at their fingertips.

What am I really getting at? The next-generation lender should have a full understanding of technology and use it to create a fully integrated business that works regardless of new regulations or shifting market conditions.

Insider Profile

Rick Roque is VP of Corporate Development at LendSmart Mortgage and Managing Editor of MortgageCompliance Magazine. Before starting his consulting firm MENLO Company in 2009, Rick was on the management team for Calyx Software where his focus was Sales and Business Development. Today, MENLO Company works directly with mortgage banks and depository institutions on capital fund raising efforts, production expansion goals, mergers & acquisitions and technology adoption planning. He is a national speaker on mortgage market trends, industry forecasts and emerging technologies that best serve consumers.

Industry Predictions

Rick Roque thinks:

1. We’ll fall short of the $1 trillion in originations that the MBA is predicting. I think we’ll come in at $0.8 trillion this year. I also think that rates will hit 5.5%.

2. In my view, there will be 30% fewer mortgage banks operating by the end of this year as compared to those in business right now. We’ll have under 1,500 lenders out there by the end of 2014.

3. I think the costs of compliance will increase by another 10 basis points over and above what lenders are paying today.

4. Lastly, I think Ellie Mae will be sold and will once again become a private company.

Enhance Data Security Through E-Mail

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The key is having a solution that is easy and simple to not only implement, but use for everyone involved in the e-mail transmission. This approach ensures greater traction and compliance. Cyberthreats in mortgage affect your entire business. Are you protected? PaperClip’s eM4 protects customers’ personal information from unwarranted access and the accountability for its use. This significantly mini mixes your exposure to compliance and reputational risk. Here’s how it works:

Until now, the industry has lacked a truly compliant email solution, which by industry definition requires that a disinterested third party maintain both the keys used to encrypt the data and a “chain of custody” audit of the emails themselves. eM4, which fulfills both of these requirements, documents the secure life of the e-mail across the Internet and provides the industry with a bar-raising solution that ensures the highest level of fully auditable confidentiality.

eM4 captures e-mail metadata and stores it so that all subscribers can reconcile and reproduce the information for necessary audits. A secure web portal provides access for interactive auditing and period reporting. eM4 subscriber service is so easy to use that it requires no user training. The system does all the work behind the scenes, with the user barely detecting any difference from usual e-mail activity. Simple encoding rules secure e-mails across the Internet in a compliant manner, and no user keys are required, which eliminates the cost of keys and their associated management. Non-subscribers can also use eM4 to reply to subscriber e-mails in secure and compliant way.

eM4, which stands for “e-mail 4 Compliance,” is a unique service providing a level of true e-mail compliance without undertaking the more cumbersome option of secure electronic document delivery. Unlike standard secure electronic delivery in which messages must be retrieved at a secure location, with eM4 users simply send e-mail as usual. The system deploys in less than one day, requires no user training, and is affordable by an individual user to even the largest enterprise customers.

If you want to be protected just PaperClip it.


Quick-Response Technology

You Can Download This Article As A PDF HERE

joebadalamentThe financial services market is constantly changing at a disruptive pace. New rules and regulations are continually being introduced, market conditions are unceasingly fluctuating (foreclosures are increasing/decreasing, rates are rising, REO is in a state of flux) all putting intense pressure on servicers to effectively respond to these conditions. The changes are so rapid and far reaching they pose an immanent and substantive threat to businesses trying to navigate them. In these circumstances, time is the enemy: Technology solutions must be pursued with a heightened sense of urgency while avoiding unintended consequences and costly missteps. In a time of accelerated market and regulatory change, mortgage servicers can benefit from solutions that are:

>> Scalable and adaptive. New technology tools must be able to quickly scale up or down with respect to unexpected or unplanned variations in financial industry market conditions, user demand, business goals, database capacity, performance metrics, and the like.

>> Opportunity based. Technology tools must be carefully matched to risk assessment, operational change, financial industry market conditions and productivity deficits. The question to ask is how does the technology address current industry conditions and how flexible is the technology in adapting to future industry changes?

>> Task focused. Effective quick-response technology solutions are solution focused, minimally disruptive, intuitive and provide an enhanced user experience. Think specific solutions that respond to current market conditions (vacant property registration, municipal code compliance, REO management, ETC,).

>> Compatible and complementary. Overall system coherence must be preserved. New technology tools must integrate smoothly with legacy platforms and existing technology and servicing ecosystems.

>> Operationally integrated.  New technology tools must provide seamless support for existing processes, new regulatory requirements and functional responsibilities shared across internal and external user groups.

The Right Delivery Model

When speed is an overriding issue, delivery model is important. Software as a Service (SaaS) and other cloud computing models provide applications over a network (usually the Internet). By their nature, Cloud solutions offer infrastructure flexibility, faster solutions deployment, improved cost control, immediate-needs matching, and improved productivity across the enterprise. The most important benefits:

Rapid Response

SaaS applications are a smart choice for servicers under pressure to respond quickly to market and regulatory change. Companies can start using these applications in days, rather than months so that they can efficiently and effectively respond to regulatory changes and avoid costly penalties and potential fines.

Lower Costs

SaaS applications typically bundle the management of software, network and data center into a single offering paid for through recurring charges over time rather than outright purchase. As a result, companies experience lower investment and implementation costs, as well as shorter learning curves. In addition, frequent updates are the norm, including regulatory requirements and changes, minimizing strained internal IT resources. In some cases, an application may be a value added service of the provider, delivered at no direct cost to the user.

Faster Deployment

SaaS and other on-demand applications can be deployed faster, since there is no need for new hardware and virtually no installation requirement. Thus, on-demand applications largely eliminate the time and complexities associated with traditional software deployment. This allows servicers to more effectively respond to changing market conditions.

User-Group Integration

Because they can be accessed via the Internet, on-demand applications provide simplicity of access across inter–organizational and intra- organizational boundaries, facilitating efficient and effective collaborative environments. This allows the sharing of industry specific knowledge and expertise.

Providers of best-in-class cloud applications have proven adept at unlocking explosive growth in adoption of SaaS applications. According industry expert Siemer & Associates—an investment company that provides funding advice for IT companies—the SaaS market will continue its pattern of double digit annual growth, reaching $21.3 billion by 2015.

Choosing a Provider

Many users find it difficult or impossible to upgrade their software fast enough to keep pace with changing risk environments and regulatory requirements. Traditional “Shrink-Wrap” solutions, as well as more ambitious and lengthy on-premises delivery models, can be equally problematic.

In contrast, applications from experienced third-party service providers — whether utilizing cloud–based or traditional delivery models — can be a highly effective source of change-friendly technology solutions. This is especially true where the application is one aspect of a wider service offering, such as those of field service companies and other providers of outsourced business functions. The reason: Because these providers depend on ongoing business relationships rather than one-time up-front license fees, they have greater opportunity and incentive to maintain value and thus are far more likely to provide frequent upgrades to their applications.

Of course, many third-party service providers are neither interested in, nor capable of, developing the highly specialized software solutions needed to meet the test of accelerated change in today’s financial services market. They simply do not have the requisite resources, industry specific knowledge and expertise or internal technical staffing. However, those who do have these capabilities present servicers with a powerful resource and highly valuable technology partner.

Third-party business partners who posses keen industry experience enjoy another advantage: they are on the front lines of industry change. They gain understanding of new business realities and regulatory requirements, not just through organized and insightful intelligence gathering, but by experiencing them in the course of daily interactions with the industry. They are first-responders, if you will, providing the raw input needed to create and maintain responsive technology solutions for financial services clients.

The housing market is improving, with major implications for business mix, volume and profitability. At the same time, servicers face the most complex regulatory environment in history, making compliance a multi-level risk whose implications are yet to be fully understood and measured.

In these conditions, quick-response solutions are an important component of a sound business strategy. SaaS and similar cloud applications provide important advantages in terms of targeted response, lower cost, key industry insights and faster deployment. Highly skilled, industry specific third party service providers—who are stationed on front lines of the financial industry change—are in an especially strong position to help servicers unlock the potential of quick-response technology solutions.

About The Author


Joseph Badalamenti (Joe Bada) got his start in the default management industry in 1967 as a HUD contractor. Now, 43 years and over 5 million inspections later, Joe has built Five Brothers into a highly successful and respected industry leader offering a full range of default management services and technology solutions. His strong belief in client-centered partnering has spawned a nationwide network of highly effective customer and field service professionals. Advanced technology solutions created under his leadership the industry’s first web-based workflow management system, FiveOnline, a complete document management and processing system (MARS), state-of-the-art loss mitigation software (MOTZ), which allows quick and efficient loan modifications according to FDIC and HAMP guidelines, automated document storage/workflow management software (IntelliStorage) and HUD claims processing system (ClaimSys). Joe remains an advocate of client-specific business solutions, an approach he believes is Five Brothers’ most important competitive advantage.

A 10-Point Checklist

You Can Download This Article As A PDF HERE

Jennifer-MillerTackling the new third-party oversight requirements in your appraisal operations can seem like an insurmountable task. Whether you’re using multiple AMCs, or you let branches select their own regional AMCs, or you order directly from appraisers, there are now multiple parties you’ll have to monitor for compliance.

The OCC and CFPB recently issued third-party oversight requirements, so the issue is at the forefront of everyone’s mind. We all know you already have enough on your plate, but really digging into vendors is always good practice and with technology, it doesn’t have to be as difficult as it may seem.

Regulatory and Investor Requirements

We won’t go into a full discussion of all the relevant regulations here, but you can find more information in a full white paper at As of this writing, these are the three critical recent announcements driving the push for strengthened oversight of all third party service providers:

>> CFPB’s Third-Party Oversight Bulletin 2012-03, March 2012:

>> OCC’s Third-Party Oversight Bulletin 2013-29, December 2013:

>> Fannie Mae’s Lender Letter LL-2013-10, December 2013:

From investors and regulators, it’s clear the demand for third-party oversight is increasing and the burden will be on lenders to maintain safeguards and to select the highest quality vendors that can comply with the requirements set forth. But how do you do that? What should you look for in a reliable valuation service provider?

A 10-point checklist for the oversight of valuation providers

Most lenders we work with at Mercury Network use a variety of either a single AMC, a panel of AMCs, or order directly from appraisers using a vendor management platform. This checklist is meant to help you with a starting point for your oversight efforts, regardless of the entity you’re overseeing. An expanded version of the checklist is also included in the download mentioned above at, but these ten key points will help you get started.

  1. Consider visiting your vendor operations in person. If the vendor is critical to your institution, especially if they are a technology provider like a vendor management software platform, I always recommend touring their facility. With an on site tour, you’ll see first hand how security and redundancy are handled, how they’ll handle your software development requirements and the support of your staff. You will also be able to verify if they can handle your transaction volume in compliance with all the regulations.
  2. Ask for client contacts for references. If you’re involved in hiring internal staff for your own institution, you already know the importance of references. With all the vendors you’re considering, go the extra step and actually call the references. I’ve been surprised many times by what a reference will tell me about a candidate, so don’t always assume the contact given to you by the vendor will offer a glowing endorsement. A page with a long list of big lenders is impressive, but call them and find out what they really think first hand.
  3. Get full audit trails on every valuation product you order. It won’t matter how compliant you are if you can’t prove it to examiners later. With any valuation service provider, make sure you can get an end-to-end audit trail on the full transaction from initial order to completion and sending to the borrower, and make sure it’s stored so you can provide it to regulators and investors later if needed.
  4. Avoid relying on a company to provide technology if that’s not their primary business. If your valuation service provider’s primary business isn’t technology, consider a technology platform to simplify your oversight burden. You can still use the same valuation service providers, but we recommend you handle the technological backend from one source. That way, you’re only overseeing one technology platform and the burden for integration is on your service provider. Otherwise, you’ll be auditing the technology capabilities of several vendors, instead of just your sole technology vendor.
  5. Don’t give up your essential quality control in exchange for compliance. For appraiser independence requirements, you don’t necessarily have to randomly round robin your appraisal assignments. There are compliance concerns with round robin assignment in that it can sometimes be easily predicted. Instead, you can assign orders based on your own business requirements, and distribute to AMCs or appraisers based on percentages of your overall business, their regional or product expertise, and even their turn times and load levels. If you have a documented and consistent process for appraisal order assignment, you don’t have to sacrifice quality for compliance.
  6. Verify that your vendor’s tools are compliant. Make sure your vendor’s tools have automated compliance safeguards. Here are a few common pitfalls to avoid:
    1. The new ECOA Valuations Rule: Make sure your AMC or platform is delivering the valuation to borrowers within the time frame required, but don’t skip the critical step of E-Sign Act Compliance. To send an appraisal report electronically, you must first get the borrower’s acknowledgement that they can receive a PDF and open it, so check that your solution is handling these acknowledgements if you’re delivering electronically.
    2. Gramm-Leach-Bliley Act: If an AMC or service provider attaches your appraisal as a PDF or XML in an unencrypted e-mail message, they could be in violation of GLB. The steep penalties for non-compliance with GLB are calculated on a per-occurrence basis, so this risk should be avoided by selecting service providers with built-in safeguards for consumer non-public information.
    3. PCI Compliance: If your vendor handles a borrower’s payment information for the valuation services ordered, you must verify their PCI compliance. Are credit cards handled in a PCI compliant fashion or are they vulnerable to hacks?
    4. Pre-funding appraisal quality control measures: Make sure your vendor can leverage quality control technology and that it’s consistently applied to all appraisal reports you receive. If you use multiple AMCs, you can institute a QC process that you’re your service providers adhere to, so your reports are checked thoroughly and consistently, regardless of their origin.
    5. Make your LOs happy, but still maintain your compliance: Your sales team wants to have some control over the appraisal process, and you can give originators secure, permission-based access to tools that give them peace of mind. Make sure they can log in and get status updates, and send messages and requests for changes. You can also make sure your valuation service providers are integrated with your loan origination system (LOS) so your sales staff doesn’t have to rekey data or log into different programs. This will eliminate mistakes and helps keep your sales staff focused on originating rather than data entry.
    6. Have vendor performance reporting at your fingertips: Whether you’re using a single AMC, multiple AMCs, or managing your own fee panel, the third-party oversight requirements mandate that you monitor and report on the performance of all vendors. With a single technology platform, you can monitor performance across all channels and you’ll have the infrastructure to quickly make vendor changes as you need to.
    7. Choose a partner with a history of innovation and customer-focused evolution. The one constant in this environment is change. Your service providers should have a history of successful and rapid innovation, as well as a solid history of releasing new compliance or efficiency features or services as requested by their customers. With compliance deadlines, there’s very little room for error so choose a company with a history of meeting those deadlines for their clients.
    8. Get the support and service your team will need: If the relationship is critical to your success, as most valuation solutions are, it’s important that your vendor is accessible to you any time (24x7x365) and that they provide the training your staff will need to ensure compliance and efficiency. Good support will help you avoid underwriting and closing delays, and help you deliver excellent service to your borrowers.

It’s painful, but in the end you’ll be glad you checked into your partners.

The new vendor oversight requirements can be seen as a hassle, adding extra problems to an already challenging industry. But examining your valuation vendors can also have a dramatic effect on your bottom line.

With better vendors, you’ll find efficiencies that will reduce your overhead.  You can deliver better service to your borrowers, reduce underwriting and closing delays, and make loan originators happier. Your report quality and turn times can dramatically improve, too. Plus, with vendor performance comparisons, you can easily and quickly make operations changes so you can grow when origination volumes pick up again. Compliance may be the reason you dug in, but unreliable vendors are definitely affecting your profits. Vendor reviews are time consuming, but you’ll get far better results in the long run.

As more lenders start their third party oversight initiatives, we’ll uncover more warning signs and best practices, and we’ll continue to add to this checklist. You can download a full version anytime at

About The Author


Jennifer Miller

Jennifer Miller is president of Mercury Network, a web-based software platform used by more than 600 lenders and AMCs to manage compliant collateral valuation workflow. Jennifer can be reached at

Don’t Sit Back

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TME-TGarritanoYou know what they say: quitters never win. Sure, the compliance burden is increasing. Sure refinances are decreasing. Sure the cost to originate is increasing. To some this may all be bad news, but to the opportunistic lender this is a chance to grow.

How you might ask? First, you have to find a way to capitalize on the purchase market. “We’re looking at the evolution of technology from a marketing standpoint,” said Robin Blatt, the Director of Marketing at St. Louis-based Mortgage Returns, a provider of database-driven, CRM and automated marketing solutions for the mortgage industry. “When you think about it, technology can enable lenders to thrive in a purchase market. Here at Mortgage Returns we are trying to recommend to our clients to focus on their past customers as a great source of new business, both purchase business and for referrals.”

To this end, late last year Mortgage Returns enhanced its technology and services to enable mortgage originators to maximize their return on investment by marketing more effectively to their customers, prospects and referral partners. Enhancements enable mortgage originators to automatically upload new customers and prospects from the LOS directly into Mortgage Returns; order direct mail straight from Mortgage Returns’ new Storefront marketing solution; reach Spanish-speaking customers with one-to-one direct mail and email marketing; create company, branch and loan officer websites; and gather valuable feedback on the mortgage company and its loan officers through a post-close email survey for borrowers and realtors.

“We are trying to keep our clients really laser focused on the business they can get from the clients that they currently have is a big part of succeeding today,” added Blatt. “And with technology you can use methods like one-to-one messaging so you are marketing directly to a particularly clients about their loan, with unique messages sent directly to them. In the end, strategies like this are helping strengthen that relationship and a sophisticated technology enabled that to happen. You need to get more business from your past customers and keeping them close.”

A clear challenge for most lenders is knowing when it’s time to embrace new technology like a CRM solution, a new LOS, etc. “What we see happening in the market today is that lenders chose a given technology solution in order to solve a specific problem,” noted Steve Wiser, CEO of Cleveland-based Specialized Business Software, a provider of custom software solutions for insurance, mortgage and financial services companies. “At the time that’s great, but we all know one thing about problems, is there are always new ones popping up and old ones are continuously changing. In the any industry, problems continuously evolve and it can be hard for software systems to adapt to so much change over time. I think that’s a big issue that you run into when you are using older technology.”

Specialized Business Software experienced a lot of growth last year. Specialized Business Software attributes this growth to increased awareness within the financial and insurance industries about the benefits of automated custom software and a large number of repeat customers who value being able to reduce the time it takes to complete basic business processes by as much as 90 percent.

Specialized Business Software also released two new products in 2013. Docunym 2.2 is an enhancement to its Web-based document management and workflow solution, which helps users manage and retrieve mortgage loan documents faster and more efficiently. The X12 EDI Translator is a Web-based solution enabling mortgage servicers and insurance tracking companies to translate insurance policies from the X12 format into a more readable form, which eliminates the need to develop and maintain an internal electronic data interchange system.

“Another force that we’re seeing in the mortgage space is that lenders are looking to incorporate technology that they can roll out to the consumer,” pointed out Wiser. “Borrowers are used to dealing with their apps and their websites. As a result, these borrowers are expecting ease of use and they’re expecting that from all of their business partners, as well. And if you can’t provide that as a lender, you’re going to get left behind. I see this as a new phenomenon. Borrowers are evolving with new technology and that’s something that is never going to change.”

Another way that lenders are growing their business these days, aside from incorporating new technology and reaching out to borrowers more, is by acquiring new branches. “We are seeing a fair amount of growth coming through branch acquisition, and actually technology can play a major role in helping the lender the battle for those branches, “part of that is that the technology can help you win that battle for those branches, there’s a lot of that going on out there for branches.,” reported Brian D. Lynch is the Founder and President of Irvine, Calif. -based Advantage Systems, a provider of accounting and contract management tools for the mortgage banking and real estate development industries. In this position Lynch is responsible for managing the company’s day-to-day operations, and guiding the company’s strategic direction.

“With technology you can put real power in the hands of the branch person, and that’s attractive to them,” continued Lynch. “A lender can offer things like Web-based reporting, which might make the difference in terms of that lender’s ability to get that branch’s attention. There’s a lot of competition for good acquisitions today, so lenders have to stand out.”

From a lender’s point of view, growing in this market comes down to competitiveness, according to Dan Jones, Vice President of Technology for Churchill Mortgage Corporation, where he manages their enterprise technology infrastructure, operating platform, programming and web initiatives. Based in Brentwood, Tenn., Churchill Mortgage is a prominent and financially sound leader in the mortgage industry, providing conventional, FHA, VA and USDA residential mortgages across 30 states.

“I think competitiveness sums it up,” he says. “You can attribute growth to multiple things, whether it’s competitiveness to bring new people on board or competitiveness to retain your top performers, whether it’s your business and your market share, whether it’s bringing new customers on board or retaining customers, it’s really all the same in the end. Unfortunately sometimes it’s the pretty things that people latch on to, so we ask distracting questions like: Is my app prettier than your app? Is my website prettier than your website? So, as we as lenders move or don’t move to new technologies, a lot of times it comes down to training our people to use these new tools effectively. If you don’t get your people excited to use the technology to get that competitive spirit going there will always be another lender out there ready to pay that staff member more money and offer them a prettier technology to work with.

“The bottom line is that if lenders want to grow, they have to figure out how to enable their folks to engage better, whether it’s figuring out how to enable customers to do business with us better, whether it’s how to enable our operations staff to work more efficiently, that’s the key. The successful lender should always be looking for new ways to enable its business to get better across the board. Don’t be content to stay as you are today. That just won’t work,” Jones concluded.

About The Author


Tony Garritano

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

The New Electronic Document Exchange

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Schmidt_RandyThe time to send, receive and sign documents electronically has arrived. Recent regulatory and agency changes have brought the electronic document exchange discussion back to the forefront. Regulatory changes requiring lenders to provide additional documents to borrowers prior to closing have renewed lender interest in electronic document delivery. Market changes, requiring lenders to be more competitive, have them looking for better ways to communicate with their borrowers through document exchange. And the Internal Revenue Service and the Federal Housing Administration recently announced their acceptance of electronic signatures paving the way for more lenders to implement electronic signatures.

Let’s start with electronic document delivery. Electronic delivery has been around for a long time. It gained momentum after the tragedy of 9/11 when airlines were grounded and lenders were forced to find alternatives to overnighting packages. In the years since, most lenders have adopted electronic delivery of their closing packages to their attorney and closing agent networks. But with the recent changes to Regulation B requiring lenders to provide borrowers a copy of appraisals or other written valuations promptly upon completion, many lenders are starting to look at delivering electronic documents directly to the consumer.

Delivering electronic documents to the borrower was made possible on June 30, 2000 when President Bill Clinton signed the Electronic Signatures in Global and National Commerce Act (ESIGN) into law. The ESIGN Act allows the use of electronic records to satisfy any statute, regulation, or rule of law requiring that such information be provided in writing as long as certain conditions are met.

ESIGN requirements specifically state that applicant must affirmatively consent to receiving their documents electronically. It also states that prior to receiving this consent that the lender must provide the consumer a clear and conspicuous statement informing them of:

>> Right to have documents made available in paper form

>> Right to withdraw consent and any conditions, consequences or fees in the event of withdrawal

>> Whether the consent applies to a particular transaction or to an entire category of electronic records

>> Procedures for withdrawing consent

>> Instructions on how to request paper copy and whether any fee will be charged

>> Any Hardware and/or Software requirements necessary

If a consumer consents electronically, it must be done in a manner that reasonably demonstrates that the consumer is able to access the information in the electronic form that will be presented. The lender must also assure that once presented, the consumer has the ability to retain a copy for their own records.

ESIGN however did not change any of the timing requirements required of lenders. Initial disclosures must still be sent three days after application, appraisals must be sent promptly upon completion and final disclosures must be received by the borrower three days prior to closing. Fortunately, one of the benefits of electronic delivery is that an audit trail of the entire delivery process is created. Each step along the way is recorded with a date and time stamp making sure that you stay compliant.  Rule sets may be created alerting you to any packages that need special handling.

But document delivery is only the first piece of the puzzle. While many lenders have done an excellent job of making information available to their customers, all too often it is a one-way street. Document Exchange allows for two-way communication with your borrower. Not only can you deliver documents to them safely and securely, but document exchange allows them to send documents back to you just as easily.

Many times documentation will be needed from a borrower. Perhaps you need a copy of their most recent paystub or W-2. Or maybe you need to request their last few years of tax returns. Unfortunately, many lenders have been asking borrowers to send this information via e-mail putting their customer’s personal information at risk.

A recent survey published by HALOCK Security Labs of Schaumburg, Illinois found that many mortgage lenders allow practices that put their customer data at risk. In their survey of 63 U.S. mortgage lenders, they found that 45 lenders (over 70%) permitted applicants to send personal and financial information over unencrypted email. Even large lenders were not immune to this practice as their survey indicates that eight out of the eleven top lenders surveyed, again over 70%, allowed for the same unsecure transmission of customer data.

While it may be the most convenient way to communicate with today’s always on the go borrowers, both lenders and consumers need to rethink this practice.  As Terry Kurzynksi, Senior Partner at HALOCK Security Labs, states: “Any type of weak link in a system involving sensitive information exposes people to unnecessary risk.  It takes months to recover from an identity theft and minutes to log into a secure portal.  Do the math.”

Fortunately, creating this two way document exchange portal is relatively easy. There are many vendors offering document exchange on a Software as a Service (SaaS) or cloud platform making the barrier to entry quite painless. By using cloud services, lenders can get started with a minimal investment. They don’t need to invest in multiple servers or expensive software. Scalability is also taken care of as computing power can be scaled up or down as needed. Infrastructure costs such as redundancy, disaster recovery, virus scanning, intrusion detection and others are all handled by the provider. By spreading the cost of the infrastructure among its many clients, SaaS providers allow companies to make use of a much more robust security shield than if they were to provide it themselves. Couple that with per sender, loan level or transactional pricing where you only pay for the services that you use and document exchange makes even more sense.

The final piece of process, and the one getting the most news lately, is having your documents electronically signed. Last year the Internal Revenue Service began accepting electronic signatures on the 4506-T income verification form. And most recently, the Federal Housing Administration has widened their acceptance of electronic signatures on documents associated with mortgage loans.

With the new QM rules and lenders needing to verify the borrower’s ability to repay, income verification with the IRS has become commonplace. By accepting electronic signatures, the entire process can be speeded up.  Instead of sending a document out to be wet signed and waiting for its return, lenders can now request the 4506-T be electronically signed and then sent directly to the IRS or their IVES vendor saving days in the verification process.

On January 30th, 2014 the Federal Housing Administration announced that it is granting expanded authority to lenders to accept electronic signatures on documents associated with mortgage loans. According to their announcement, the new policy allows e-signatures on origination, servicing, and loss mitigation documents, as well as FHA insurance claims, REO sales contracts and related addenda. Previously, FHA only allowed for electronic signatures on third party documents like sales contracts or other documents on controlled by the lender.

As part of their announcement, FHA has defined certain standards that mortgagees who wish to use electronic signatures must comply with. These standards include:

>> Associating an electronic signature with the authorized document

>> ESIGN Act compliance

>> Intent to sign

>> Single use of signature

>> Authentication

>> Attribution

>> Credential loss management

>> Integrity of records

>> Quality control

>> Record retention

>> Information collection requirements

More information regarding these standards can be found in the U.S. Department of Housing and Urban Development’s mortgagee letter 2014-3. Many people regard FHA’s acceptance as a significant milestone which will become the tipping point of widespread use of electronic signatures in the mortgage industry.

So what exactly is an electronic signature? The ESIGN Act defines an electronic signature as “an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.”

And just like document exchange, the process for adding electronic signatures to your documents is relatively easy. There are many vendors available that have solutions that will walk both you and the signers through the entire process. A typical signature process starts with the creation of your documents. Once the documents are electronically printed, signers are defined and signature points are placed on the document. The document is then delivered to a signing room where an invitation is sent to each signer. Once the signers enter the signing room and authenticate themselves, the document is presented to them for their review. The signers are taken to each individual signature point, where they can affix their electronic signature. Once all signature points have been signed, the signer is presented with a final notice that they are creating a legally binding signature and by acknowledging such they are proving their intent to sign. Once all signers have completed the process, a tamper proof seal is affixed and the e-signed document is complete.

So whether you are looking for document delivery, document exchange or electronic signatures, there is no time like the present. When it comes to electronic documents, you can finally say signed, sealed and delivered!

About The Author


Randy Schmidt is President of Data-Vision, Inc. and is responsible for overall operation and strategic planning for the company. Randy became involved in the IT side of mortgage banking almost 30 years ago and has been involved in numerous projects on both the origination and servicing side of the business. In 1993, Randy co-founded Data-Vision, Inc., in Mishawaka, Indiana as a Web design company. He then combined his previous mortgage experience with Internet knowledge to bring the speed, power and availability of the internet to the Mortgage industry. He can be reached at

A New Way To Reach Out

You Can Download This Article As A PDF HERE

TME-MHammondThe switch to a purchase market is hitting everyone hard. Lenders are seeing their volume decrease and their cost to originate increase because it’s more costly to originate a purchase loan vs. a refi, of course.

But lenders aren’t alone. Technology vendors are feeling the pinch, as well. Many technology vendors switched to a pay-per-transaction model over the past few years. What does that mean? With fewer loans/transactions, vendors are seeing their revenue decrease. As if that isn’t bad enough, many of these technology vendors are the sole source of compliance for their customers and are forced to continually update their products to keep up with all the new rules and regulations. How can they afford to continually reinvest in their offering when their revenue is falling?

In order for lenders and vendors to be successful they need more prospects. In a research report called: “The Hidden Gems: The Ultimate Strategy To Finding Prospects” by Jill Konrath, she points out that this is no easy task. She says:

Prospects today would “much rather go online, research their problems and search for options before talking with a salesperson. Recently CEB found that nearly 60% of the buying decision transpired before making contact with potential vendors.

“That sure doesn’t help you. Your quota keeps getting higher. It takes more and more effort to connect with a prospective buyer. And even when you do, they try to quickly brush you off like a pesky mosquito. It’s enough to drive you crazy. And working harder isn’t getting you results either.”

“But the truth is your prospects will stay with the status quo for as long as humanly possible. It’s not because they love their current situation. It’s simply that making no decision is easier than changing. And, when they’re crazy-busy, that’s their default setting.”

“So what’s the answer? Timely sales intelligence. The kind that helps identify high value opportunities shortens sales cycles and minimizes competitive battles.”

Konrath has some simple advice. It all starts with knowing who you want to do business with, she points out. Specifically, which companies you’d like to land as clients and which borrowers you want to lend to. Then, it’s about being smart and knowing when they might be most amenable to taking action. The key? Leveraging trigger events to find these hidden gems.

If trigger event thinking is new to you, it’s important to broaden your understanding of these catalytic agents first. That means we need to take a look at the plethora of “trigger events” that can create a ripple effect within an organization. Here are just a few of the major categories:

New Leadership. Anytime a new executive is brought onboard, they’re expected to deliver results quickly. Change is always in the air. Depending on what you know about the organization and position (e.g., CFO, VP Marketing), you can infer what might be forthcoming.

Financial Announcements. If an organization has missed their earnings expectations or sales growth is lagging, expect to see big changes in the upcoming quarter. Conversely, if growth was better than expected, watch for new initiatives to support their expansion.

Mergers, Acquisitions, Partnerships. With these types of activities, organizations re-evaluate many of their existing relationships to determine what works best for the new direction.

Strategic Initiatives. When new corporate directives become a priority, there’s a shift virtually overnight in what decision makers are concerned about. They need to quickly determine if their status quo is sufficient to help them achieve their new objectives.

Market Challenges. This broad category can include competitive activity, changing customer demographics, economic turbulence, rising gas prices and a host of other factors that can both positively or negatively impact future business.

Legal/Compliance. Any changes in government regulations or corporate litigation

can cause an organization to undertake immediate action.

Reorganizations. Tumultuous restructurings change priorities and shift alliances virtually overnight. Existing business relationships are all in jeopardy too.

As a technology vendor you need to be on the lookout for these and other trigger events when engaging with a lender. For lenders, you also need to be getting to know your borrowers better as you try to engage with them. You have to be informed about your prospect so you can be ready to serve them.

How do you find out about these trigger events? Many trigger events are newsworthy announcements. Companies share much of this information via press releases. They want to be visible. Sometimes the media writes about what’s happening. Or, people on LinkedIn, Facebook or Twitter spill the beans about what’s going on. All this is online, waiting to be found. But you don’t want to be inundated with information. Instead, it’s crucial to limit the sales intelligence you receive to the following:

Your Territory

Whether you have a geographic territory or sell to a vertical market, you want to be notified whenever one of these newly identified triggers occurs. With this info, you can:

>> Proactively reach out to a new prospect with a relevant and timely message.

>> Engage in an initial conversation with a person who has potential need.

Existing Customers

Stay up-to-speed on what’s happening with your important clients:

>> Ensures you’re aware of anything that could impact your current business.

>> Enables you to bring your clients helpful ideas to address their changing needs.

>> Deepens your relationship, builds trust and establishes more credibility.

Targeted Accounts

These companies meet your ideal client profile, but you aren’t currently working with them. By tracking what’s happening in their organizations, you’ll be able to:

>> Initiate contact when you identify trigger events that could alter their satisfaction with the status quo.

>> Demonstrate that you’re a potentially valuable resource by contacting them with ideas that could be helpful to their organization.

So, what do you do once you hear of a trigger event? Once you’re alerted to a status-quo loosening trigger event in your territory, it’s time to move into action. Start by deepening your research right away.

Then ask yourself: What impact could my products or services have on their business? How could I help them address these changes? What value could I provide? And think about other similar companies you’ve worked with: What stories could you share? What difference have you made?

Savvy sellers use trigger events to start conversations. That means that you need to put all this info into context so that when you initiate contact, your message is relevant and you sound like a credible resource.

In the end, selling via trigger events is not meant to replace your existing prospecting process. It’s imperative that you still target and go after your ideal customers.

Instead, think of trigger events as an ideal augmentation strategy to find those hidden gems. It creates more opportunities for you. And, if you set up a system to do the work for you, your technology partner will alert you when something happens that could create a need for your products or services.

About The Author


Michael Hammond

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