An LOS Innovator Steps Forward

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As industry consolidation continues to happen both among mortgage lenders and mortgage technology vendors, choosing the right loan origination system (LOS) is very important. Further, with lending volume declining and regulation increasing, the LOS is a lender’s literal lifeline these days. So, what makes for a good LOS? Binh Dang, Founder and President of LendingQB discusses how the LOS space has evolved, what’s to come and what makes an LOS unique.

Q: How has the LOS space changed over the past five years?

BINH DANG:Certainly there has been a lot of carnage. The players who were dominant like DataTrac for example, are obviously no longer dominant. In fact, DataTrac is likely to go away at the end of the year. Pretty much there’s one large LOS and there are other players still competing in the marketplace.

Q: What do you expect the LOS space to look like five years from now?

BINH DANG:Personally I break the LOS space into two models, two philosophies or two kinds of clients. You have the client who wants to build an LOS without having to do a lot of the building. The lenders that fall into that camp go for the LOS that gives them the ability to customize. Those lenders will always exist and those LOS companies that cater to that type of client will always exist.

The second type of lender wants something that works more or less out of the box. So, they will go with something like an Encompass or LendingQB. When all is said and done, I think there will be just two LOS players left that cater to those lenders. It’s not uncommon for most markets to eventually reduce themselves down to two key players.

Q: On a separate, but related note, there have been a lot of LOS mergers and acquisitions. How do you think it’s impacting the space?

BINH DANG:From a lender’s perspective, I think the PC Lender acquisition is good for lenders who are counting on PC Lender to have a product that will be maintained and enhanced. From a competitor perspective, we typically do not run into PC Lender in our market-space, so that acquisition doesn’t have an impact on us. Regarding Mortgage Builder, from a lender’s perspective, if I was a lender I’d be uncertain of my future on that platform. Altisource is a large company and they bought Mortgage Builder for a very specific purpose. I don’t think their reason for buying that technology is to provide it as a separate platform to the client. I think their goal is to use that as a tool to provide a bundled BPO service offering, meaning you use it to do your processing, your underwriting, your closing, etc., and by the way here’s a tool, Mortgage Builder, that you use for that purpose. Also from a competitor perspective, again we typically do not run into Mortgage Builder in our market-space, so it has a very limited impact on us.

Going forward, the LOS has to be much more aggressive when it comes to using the latest technology in order to survive and keep the faith. There’s a lot more work to be done these days, you can’t really have a 2- or 4-man shop running an LOS like was the case 20 years ago. There will probably be more LOS consolidation. I don’t know how many LOS players are left. Last time I checked it was probably like 10 that fall into the out-of-the-box category. In the end you’ll have two or three independent LOS players left standing. When I say independent, I mean a company that is not owned by a larger company like Altisource, or CoreLogic, or a company like that.

Q: Rules changes are happening at a staggering pace. How does LendingQB stay ahead of these changes?

BINH DANG:First, we have to maintain awareness of the changes. We work with a law firm to help us be aware of those changes that come down the pike. From there, we just make sure we allocate sufficient resources into our pipeline to address them. I’m sure it’s the same approach that every other LOS vendor has. Client compliance is a big deal, and every LOS vendor recognizes that they have to make sure that their technology can help their lenders comply if they want to have the better product out there in the market today.

Q: What is LendingQB’s biggest differentiator as you see it?

BINH DANG:Our biggest differentiator is our view of the mortgage industry in terms of what we see lenders doing, or more importantly what they are not doing. We see lenders reinventing the wheel a lot. They are trying to create the “most efficient” process. In our view, if there are a thousand different lenders, we do not think that we need to have a thousand different products or processes in the market. Most likely you need about a dozen. We believe in lean lending and industry best practices. I think that sets us apart.

For example, our competitors may choose to go down the route of trying to be all things to all companies. As a result, they are adding third-party services to their system like docs for example. That will be their approach, but our approach is different. We recognize that different vendors out there have certain expertise, so we want to be very careful to not assume that a single service provider will be able to meet all the different needs of all the different lenders in the market. We have to incorporate technology into our system that makes those integrations to best-in-class service providers seamless. Our competitors will have similar integrations, but they won’t be as tight because they want the lenders to use all of their services for everything.

Q: When lenders ask about the ROI associated with migrating to LendingQB, what do you tell them?

BINH DANG:Clients tell us that the ROI associated with LendingQB is up to 37% in terms of reducing their cost of labor. More importantly than the ROI is how quickly they get up and ready on the system. With our unique approach, we have a process where we can get the lender up and running with our LOS within six months. We provide a solid methodology combined with industry best practices to guaranty ROI.

Q: As lenders look to get more purchase business, how can LendingQB help them capture that business?

BINH DANG:Purchase business obviously comes from Realtors and Realtors are looking for lenders that can provide them with certain tools to make their business go faster. So that is where we come in. As an example, we are the only independent vendor that can deliver a pre-approval 24 hours a day. With other LOS systems you can go online at anytime to apply, but you have to wait until the next business day to get a pre-approval.

When the Realtor needs to get the pre-approval letter to package a deal, they know that they can get it at any time if the lender uses our system. Realtors want to deal with lenders that offer borrowers the ability to self serve. Realtors don’t want to have to wait for the lender. As a result, the faster lenders will get more of their business.

Q: How would you define an innovative LOS?

BINH DANG:An innovative LOS is an LOS that gives the lenders what they want. Lenders don’t want technology, lenders want a solution that will help them increase customer service levels. So, when I use the word “solution,” I use it in a more holistic stance. The good LOS offers a process, not just a platform. The LOS vendor that is just focused on technology is missing the boat.

Q: Why would you say that LendingQB represents the LOS of the future?

BINH DANG:Because we recognize what it is truly that lenders look for. We recognize the nature of lending. We know the character of lenders and what sets them apart. We know how they think. And because we have this deep understanding, we can offer a true holistic, industry solution.

Industry Predictions

Binh Dang thinks:

1.) There will be more consolidation among mortgage lenders. The cost to do business has gone up and volume has gone down.

2.) The door will open for more aggressive loan products. It won’t be a return to subprime or alt-a, but there will be different products.

3.) I see more consolidations in the LOS space. I truly think that within five years there will be maybe three LOS players in total.

Insider Profile

Binh Dang is founder and president of LendingQB. His vision is to develop LendingQB into the dominant loan origination software provider, delivering customer solutions that combine technology and good business practices. LendingQB is a provider of 100% web browser-based, end-to-end loan origination software that offers residential mortgage banking organizations faster closing time and reduced costs per loan. To learn more visit www.lendingqb.com or call 888.285.3912.

Progress In Lending
The Place For Thought Leaders And Visionaries

The Industry’s Biggest Compliance Concerns

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LeonardRJuly 2014 marks the fourth anniversary of the Dodd-Frank Act and the third anniversary of the Consumer Financial Protection Bureau (CFPB). In some ways, not much has changed since July 2010 and 2011; the industry is still plagued by rule announcements with monthly adjustments until their effective date and even quicker implementation deadlines. Lenders and vendors are still scurrying to adopt and update procedures and quickly refocus on the next state or federal regulation. But the devil is in the details, which are always changing. These details continuously cause headaches for lenders and their vendors, and compliance concerns have only increased since the CFPB’s inception.

Since 2008, compliance software provider, Laguna Hills, Calif.-based QuestSoft, has surveyed lenders on their top compliance concerns. The cumulative results of the past seven years paint a picture in which lenders must focus solely on the next imposing deadline, pushing off other compliance needs and productivity processes just to meet a new rule.

The QuestSoft customer satisfaction survey has been conducted using the same methodology after each year’s Home Mortgage Disclosure Act (HMDA) reporting deadline since 2007. The company sends an email survey through Survey Monkey to each person authorized to download the company’s HMDA RELIEF or CRA RELIEF software. In 2014, the HMDA deadline fell on Monday, March 3. Therefore, the survey was conducted between Tuesday, March 4 and Friday, March 13, 2014. A total of 3,512 surveys were distributed and the company received 520 completed surveys (14.8 percent return rate).

Lenders’ Laments Change With Deadlines

According to QuestSoft’s 2014 survey, which surveyed credit unions, banks and non-bank lenders, an astounding 62.2 percent of respondents to the recent survey still cited the Qualified Mortgage (QM) as their most demanding concern due to the novelty of the regulation and internal adjustments to loan programs. Compare that to when the initial proposal for QM was released in 2012 and only 22.3 percent of lenders considered this year’s most pressing issue a significant compliance concern.

As regulations to protect consumers and provide industry transparency continue to expand, the one constant since 2010 is that the CFPB fuels the most pressing issues of the day. This year, 58 percent and 57 percent of lenders respectively, ranked upcoming Home Mortgage Disclosure Act (HMDA) changes and Ability-to-Repay (ATR) violations as significant concerns to round out the top three 2014 compliance anxieties.

Flash back to 2008, prior to the Dodd-Frank Act and the CFPB, and lenders were concerned with one regulation, the Real Estate Settlement Procedures Act (RESPA) fee tolerances and changes. With many years to handle the implementation under their belt, RESPA fee tolerances came in sixth place in the 2014 survey; with only 45 percent of lenders ranking it as a top concern.

Looming HMDA Changes a Growing Concern

Surprisingly, one exception to the “impending deadline” theory is the high number of lenders concerned with HMDA reform. With no implementation date set, the bureau’s changes to the reporting requirements under HMDA are already on lenders’ radars; fifty-eight percent claimed it as a high concern in 2014. Lenders have not cited HMDA as a major concern since 2009 when 54 percent of lenders regarded it as a future compliance burden.

What specifically about HMDA is stressing lenders? The CFPB is considering changes to the rule that will require lenders to report additional information, data that will be under greater scrutiny from regulators. Lenders will also face fair lending claims from not only regulators but also consumer groups with new data that allows them to more quickly sue lenders to fund their livelihoods. Additional data points in HMDA currently under consideration by the CFPB include: mandatory reporting of denial reasons, debt-to-income (DTI) ratio; QM status of loans; combined loan-to-value (CLTV) ratio; automatic underwriting systems results; total origination charges; discount points; interest rates; and risk-adjusted pre-discounted interest rates. Contingent upon the CFPB’s implementation date, vendors will soon need to update systems (again) and gather proposed new data points to address lenders’ HMDA concerns.

ATR Violations Keep Lenders Up at Night

Under the CFPB’s QM rule, lenders cannot originate a loan without making a reasonable and good faith determination that the borrower has a “reasonable ability” to repay the loan over the course of the mortgage. Lenders ranked ATR violations as the third highest issue facing them, with 57.2 percent expressing the regulation as a high concern. Chief among concerns is the fear that regulators will bring a heavy hammer of scrutiny and cause the bureau to make lessons out of violators, resulting in massive fines or loss of reputation.

All borrower information must be verified through third-party documentation and the creditor must consider a minimum of eight underwriting factors. ATR liabilities that creditors face will influence their decision to issue QM or non-QM loans, which may serve as a more significant compliance pain point in the future.

Disclosure Reform Remains High on the List

The bureau’s integrated “Know Before You Owe” disclosure forms do not face implementation until August 2015, however, lenders are already concerned about this specific regulatory overhaul. In the 2014 survey, 55 percent of lenders agreed that the combined Loan Estimate and Closing Disclosure documents will be a significant and expensive undertaking in an already burdensome regulatory environment. Lenders’ concerns about the upcoming disclosure change, date back to 2012 when 48 percent deemed the regulatory change a high concern, up to 59 percent in 2013. The consistency of this particular concern is unprecedented compared to other CFPB rulings: all mortgage lending participants are affected.

Where Do Past Compliance Concerns Stand Now?

The CFPB has only been scrutinizing lenders for three years, so what compliance concerns were at the top of lenders’ minds prior to 2011? The aforementioned RESPA fee tolerances were lender’s top compliance obstacle from 2008-2010 until Dodd-Frank changes bumped the regulation from the top spot in 2011. Lenders’ feelings toward RESPA only intensified over the years: 74 percent of lenders cited it as a top concern in 2008, followed by 75 percent in 2009 until it reached its peak in 2010 when 81 percent of lenders regarded the regulation as their top concern for the year.

According to the Federal Reserve, “tolerances” associated with the RESPA Reform Rule were implemented to limit the amount of actual settlement charges at loan closing; which subsequently made closing time stressful and somewhat of a gamble. Forty-five percent of lenders ranked RESPA fee tolerances as a top concern in 2014, with unannounced CFPB issues ranking higher than RESPA, OCC and state regulatory concerns.

The bureau’s regulatory announcements cause lenders’ other compliance challenges to take the proverbial backseat until compliance with the bureau’s alphabet soup of regulations is achieved. As more guidelines come through the pipeline, lenders are still struggling to rework decades-long processes and implement new solutions to meet compliance standards in a heightened regulatory environment. By leveraging outside compliance vendors and technology, lenders can cope with the influx of regulations and achieve compliance.

About The Author

[author_bio]

Leonard Ryan is president of Laguna Hills, Calif.-based QuestSoft, a provider of automated compliance solutions and geocoding services to the mortgage industry. He can be reached at 800-575-4632 or leonard.ryan@questsoft.com. For more information, visit www.questsoft.com.

Calling On Thought Leaders

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TME-RGudobbaThis article is not about the mortgage industry, per se, but continues the theme of the previous articles in which I’ve talked about different industries focusing on consumer expectations regarding the use of technology to enhance their selection and use of their products. We are going to look at two unique individuals, who encountered a stressful situation on their personal quest to make a change for the better.

First, it all began when John Kanzius was diagnosed with a rare form of leukemia and consequently set out to find “a better way” to treat the disease. After his cancer diagnosis in 2002, Kanzius became distressed by the painful side effects of chemotherapy as the drugs wipe out healthy cells alongside cancerous ones. One sleepless night, Kanzius, a broadcaster by trade, wondered: Could radio waves kill cancer cells? Then he wondered: Could doctors tag cancer cells and deploy radio waves — which are otherwise harmless — to heat and destroy them?

The answer, backed by years’ worth of data, appears to be yes. When researchers inject gold nanoparticles into cancer cells, the radio waves heat the metal and kill the cells. The nanoparticles are attached to antibodies that swim through the body seeking out genetic markers that some cancers emit. They ignore the healthy cells.

This all sounds great, but taking an idea from concept to market is no easy task, especially when you are trying to beat cancer. He was relentless, but despite that resolve, time was against him. John created a for-profit company to take the technology and device to market and sought community support to fund the clinical research to “prove’ the concept. Each dollar went to nonprofit institutions conducting the research, never to John’s company or family.

In 2008, a group of community leaders and friends started the Kanzius Foundation, a 501 (c3) non-profit organization to keep the dream alive. The Foundation’s charter was written with the ultimate goal to complete the pre-clinical work and “go out of business” — a rare non-profit model. Following John’s passing in 2009, Mark A. Neidig Sr. was hired as the foundation’s first executive director and given a succinct goal: fund all necessary research. Utilizing multiple communication platforms, the Kanzius Foundation shared a new concept with the world: Destroy the cancer cell, not the patient.

More than $16 million was contributed to make essential research possible. This resulted in more than 25 peer-reviewed, published manuscripts in scientific and medical journals, a key element in securing FDA approval for human trials.

Dr. Steven Curley, the principal investigator, expects to meet with FDA officials by the third quarter of this year. At that meeting, the agency could green light the project for human tests, but more likely will ask for additional studies to assure patient safety. If that’s the case, Curley hopes to start clinical trials in 2015 or 2016.

But the story doesn’t end here. Meanwhile, in her winter home on Sanibel, Kanzius’ widow, Marianne, reflected on her own difficult decision last fall to sell intellectual property rights to the radio wave treatment to AkesoGenX, a Colorado-based firm that she believes has a stronger chance of raising the funds needed to shepherd the project through the FDA trial process. Now Marianne Kanzius is concentrating on her husband’s other great discoveries: That radio waves have the potential of desalinating water and of turning ordinary salt water into a clean energy source.

A researcher had approached her husband believing that the same radio wave principle used in the cancer treatment theory could be used to target salt particles in water, making it drinkable. John Kanzius tested the theory, exposing a vial of salt water to a radio field. In the process, he discovered something incredible: Salt water burns. Early observers had derided it as some sort of trickery, but Kanzius had found support among researchers such as the late Pennsylvania State University materials scientist Rustum Roy, who called the finding the greatest discovery in the field of water in the last 100 years, according to Marianne Kanzius.

“He felt every human being had the right to fresh water,” said Kanzius, who is working to generate scientific and financial support for the water research. And that’s what she wants people to remember — her husband’s humanitarianism and his pledge to find a better way.

The second interesting individual that I want to talk about is Jack Andraka, a Maryland high school sophomore who at age 15 invented an inexpensive and sensitive dipstick-like sensor for the rapid and early detection of pancreatic, ovarian and lung cancers. After a close family friend died of pancreatic cancer, Jack (then a ninth grader) became interested in finding a better early-detection diagnostic test. He learned that the lack of a rapid, low-cost early screening method contributed to the poor survival rate among individuals with pancreatic cancer. After thinking further about the problem, he came up with a plan and a budget to put his ideas in motion.

He contacted about 200 research professionals at Johns Hopkins University and the National Institutes of Health about his plan. He got 199 rejection letters and then finally got an acceptance from Dr. Anirban Maitra, Professor of Pathology, Oncology and Chemical and Biomolecular Engineering at Johns Hopkins School of Medicine, who became his mentor. It was at Dr. Maitra’s lab where Jack developed his test.

The diagnostic method he developed is more than 90 percent accurate in detecting the presence of pancreatic cancer’s biomarker protein called mesothelin, and earned him the grand prize $75,000 Gordon E. Moore Award – named for Intel’s co-founder – after competing with 1,500 other young scientists from 70 countries. He also won other prizes in smaller individual categories for a total award of $100,500, which he will use towards college. He has formed a company and has applied for both national and international patents.

Since then Jack has won the Smithsonian American Ingenuity Youth Award and has spoken at the Clinton Global Initiative, FutureMed, Chicago Ideas Week, Singularity U, TEDx MidAtlantic, TEDx Redmond, TEDx Orange Coast, TED New York Talent Search, TED Salon London and soon at TED @Long Beach . He has been featured in several documentaries including Morgan Spurlock’s Sundance Film Festival entry “You don’t know Jack”, Linda Peters’ award winning film “Just Jack” as well on ABC World News with Diane Sawyer, CNN, BBC, Fox, Rede Record de Televisão and many radio, newspaper and magazine articles around the world. Jack is a member of the National Junior Wildwater Kayak team, a Life Scout and has won numerous awards in national and international math competitions. Quite an amazing story!

I know that you’re asking yourself right about now: Why is he telling us these stories? Here’s why: I see great people achieve great things every day because they took the time to think outside of the box to solve major problems and I think to myself: Where are all the technology evangelists in the mortgage industry? Why don’t we have people like this in our industry stepping up in new and creative ways to improve the mortgage process?

About The Author

[author_bio]

Roger Gudobba
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 rgudobba@compliancesystems.com.

Flexing With Today’s Market Fluctuations

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rsz_anne-politisThe mortgage industry is and will always be cyclical – interest rates fluctuate, creating challenges to manage a compliant and profitable business. In fact, the last several years have proven to be incredibly challenging, testing even the most experienced mortgage bankers. In this ever-changing industry, lenders are searching for ways to gain greater agility to better flex with market conditions while maintaining profitability. The answer: outsourcing.

Today, we continue to face the aftermath of the mortgage crisis, forcing the industry to transform. Rising interest rates coupled with a new and heightened regulatory environment have created arguably one of the most challenging businesses in recent history. But there are opportunities.

Quantitative easing is coming to an end as the mortgage industry recovers, largely due to the government taking significant measures and spending billions of dollars to add liquidity to the market. The result has been rising interest rates and a shrinking refinance market.

Also, housing starts and purchases are increasing. After a 40-year low in construction, we are now seeing a strong return. In fact, the National Association of Home Builders (NAHB) estimates that total housing construction over the next few years should return to just under 1.7 million combined single-family and multifamily starts on an annual basis. New-home sales are also expected to climb 29 percent from 431,000 in 2013 to 557,000 this year. Despite these improvements, the overall decline in refinance originations has shrunk the market significantly.

In addition to the government taking measures to add liquidity, it also created the Consumer Financial Protection Bureau (CFPB), which resulted in significant costs to origination and servicing from substantial regulatory changes.

As a result of these drastic changes, the industry has completely transformed. What the industry looked like before the crisis, including the competitive landscape, has changed. Most of the major banks have exited wholesale lending and the top five wholesale lenders before the mortgage crisis are completely different than the top five wholesale lenders today. Additionally, those top five only control just over 30 percent of the market versus more than half before the crisis.

Correspondent lending has also faced significant changes. Over the last two years, a number of non-bank correspondent lenders have made significant gains in market share. In addition, the top five correspondent lenders controlled nearly 70 percent of the market before the crisis. Today, it has fallen to just slightly over half.

But servicing has endured the hardest blow. Before the crisis, the top five servicers controlled more than 65 percent of the market. Today, that number has fallen to 45 percent as market share has spread throughout the top 15 servicers.

These challenges have greatly impacted originators and servicers, but outsourcing can help them deal with the ever-changing demands as well as offer a highly relevant method to gain a competitive advantage.

Why Outsourcing is Critical

In such a volatile environment, outsourcing is quickly becoming critical for capacity management, compliance and profitability.

Because the mortgage industry is cyclical, organizations must be able to quickly grow as well as minimize resources as necessary. The industry is constantly shifting, and originators and servicers must be able to shift with it.

Compliance has also become a top priority. According to Thomson Reuters’ Cost of Compliance Survey 2013, more than half of the 800 compliance professionals surveyed at financial institutions cited that their compliance budget will substantially increase this year. As a result, many of these organizations are heavily investing in technology and staff to remain compliant.

Finally, organizations are facing profitability challenges due to industry hurdles including compression on revenue and increased compliance costs.Currently, the mortgage industry has little profitability. The solution will require systemic transformation using technology, analytics and a cost-effective outsourcing model.

Selecting the Right Partner

While it is clear outsourcing can effectively and efficiently support originators and servicers through a volatile market, the challenge now is selecting the right partner.

Historically, outsourcing was leveraged to lower costs only, but no improvements to the process were made. Today, outsourcing providers have realized that in order to differentiate themselves, process improvements paired with cost savings is critical. The result has been a new wave of providers to choose from. With new outsourcing providers appearing every day, originators and servicers must be aware of vendor selection best practices and management. The reality is that not all vendors are created equal.

First, originators and servicers must look for an outsourcing partner that has a vision for the industry. The provider must also have an ability to execute and the structure to provide transparency into its services. Equally important, never rely on vendors that cannot show you success. If they cannot illustrate results, they are likely not a good choice.

Second, look for a partner that has strong industry expertise and proven experience in providing the service. The changing regulatory environment has proven that the mortgage industry is not for amateurs, and the ability to transform a business model requires expertise. In addition, never rely on a provider that relies on one individual to deliver results. You must have a strong team.

Third, look for vendors that offer a suite of services rather than selecting multiple vendors. Working with fewer vendors who can provide more services is key to mitigating vendor risk.

Fourth, do not work with vendors that put you at risk for compliance. Select a partner that can demonstrate their qualifications and clearly show how they manage quality and compliance on an ongoing basis.

Finally, look for partners that can quickly adapt to an ever-changing market. With an industry that is constantly evolving, your partner should be able to adjust to allow you to provide the right service.

Working with “Specialty” Providers

Outsourcing with a “specialty” provider – one defined by the value they provide and the expertise they deliver to bring transformation to create a competitive advantage – has become a common strategy to help originators and servicers manage through a volatile market. With a strict regulatory environment that continues to evolve, executing a process requires licensing. As such, these specialty providers tend to have both a domestic and global presence because of the significant level of expertise required. With a domestic presence, originators and servicers benefit from highly experienced U.S.-based talent. With a global presence, they benefit from cost-savings and around-the-clock support.

These providers focus on strategic business outcomes, including: creating new business capabilities; enhancing change management capabilities; expanding operating capacity; improving lock to fund cycle times; improving quality and compliance; increasing customer retention; optimizing working capital; and transforming cost models. But the overall goal is to gain efficiencies while remaining compliant.

In addition, specialty providers leverage data and analytics to provide recommendations to enable process improvement. An example would be reducing lock to fund cycle times by gathering data downstream that can be used to improve origination times and avoid costly and time-consuming delays. This is typically done by leveraging BPM technology to capture data and identify areas of improvement. Industry experts then analyze the data and ensure that the recommended improvements are compliant.

Outsourcing Mistakes to Avoid

In an industry that is both dynamic and complex, outsourcing can be a highly effective solution. By leveraging the right outsourcing partner, originators and servicers can better manage change and move towards a more flexible operating environment necessary to remain competitive.

But select your vendor carefully. Stay away from those that focus solely on cost and execution. Instead, look for a specialty provider that can demonstrate their mortgage credentials and provide collaborative solutions that drive efficiencies and strategic outcomes. A specialty provider will have expertise across multiple business verticals and can create complex, custom solutions to support your changing business needs – critical in today’s marketplace.

About The Author

[author_bio]

Anne Politis is Executive Vice President of Mortgage Fulfillment at ISGN. She joined ISGN in 2009 through its acquisition of Fiserv’s Fulfillment Service division, where she spent 11 years. Politis was the executive responsible for operations, including valuation services, title, closing, outsourced mortgage processing and home retention. With the completion of the Fiserv integration into ISGN, Politis is focused on providing consultative support to sales, solutions architecture and product development. With more than 28 years in the mortgage industry, she has experience across origination, servicing and secondary markets.

The Secret To M&A Success

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TME814-Rosalie BergEach year, hundreds of companies in our industry fail to grow. Others only see small gains. Very few, on the other hand, strike it rich. This article is about one company that struck it rich – really rich.

Recently I had the opportunity to talk with Jay Meadows, the former CEO of Rapid Reporting, a one-time small verification company that, with the right vision, strategy and steadfast execution, grew wings, took off and was sold to a large conglomerate. Jay shared with me his story and tips on achieving this kind of success.

Let me tell you a little bit about Jay Meadows. Jay is a hardcore Texan from the old school, where everything is bigger and therefore better. He is anything but quiet, as all who know him can attest. He’s renowned for his outgoing personality and does everything with passion, including riding and roping on his ranch, a trademark Stetson shading his eyes against the western sun.

So when Jay built his company, Rapid Reporting, he did so with flair, spreading the word like a prairie wildfire leveraging two essential tools: public relations and marketing. A few years later, the investment paid off in a very big way when he sold his company to Atlanta-based Equifax for a Texas-sized price.

Here’s how he told me he did it.

Step #1: He Prepared to Hit the Big Time in Order To Achieve It

Rapid Reporting was in the business of verifying a borrower’s identity, employment and tax returns. Prior to the mortgage crisis, verifications were considered important, but not yet a deal-breaker for getting loans funded and sold.

Jay anticipated a day when things would change. But he also understood that he needed help to spread the word about his company in order to maximize its potential. For a while he used a big public relations agency in the mortgage industry, but he was under-impressed. “They were just not generating the results we needed,” he remembers. After asking around, he heard consistent raves about my company, Strategic Vantage, a boutique marketing and public relations agency focused on the mortgage industry. “Everyone seemed mighty pleased with the results they were getting. So we lassoed Strategic Vantage like a bull at a rodeo and let them do their work,” he says.

Step #2: They Became the Recognized Life Vest

Strategic Vantage launched into a proactive marketing and publicity campaign that included branding, lead generation, and a heaping portion of PR for the company. Soon Rapid Reporting became a trusted household name in the mortgage industry. When the mortgage crisis hit, and lenders suddenly realized the critical importance of verifications, they knew where to turn.

“Everyone’s needs changed when the bad stuff hit the fan,” explains Meadows. “By late 2007, no one could afford to be without our services if they didn’t want to leave unsalable loans in the pipeline. In less than six months, we grew from 30 employees to 150, and went from running 10,000 verifications per month to 10,000 per day.”

Jay told me Rapid Reporting’s verification services suddenly became a “life vest” for the industry. “The thing is, people don’t look for a life vest unless they are sinking,” he said. “This is why companies need to be promoting themselves all the time, especially in an industry that changes as quickly as ours.”

A Texan-sized Sale to Equifax

In 2007, Rapid Reporting grew by 1,600 percent. “Our company became a raving success,” Jay said. “We not only captured the attention of prospective clients and referral partners, we also caught the eye of potential buyers, which was part of the plan.”

In 2011, Jay sold his company to Equifax in a monumental deal. By age 48, he had built the firm, established prominence in his niche, provided outstanding service and raised the bar for competitors before selling the company, all according to a master plan. Strategic Vantage was proud to have been a part of that journey, an epic one by any measure and an instructive tale of the value of effective marketing and public relations.

Jay’s Advice: Invest in Promoting Your Vision

When times get difficult, marketing and PR are often among the first areas companies eliminate. Yet few companies ever make it to the big time without a strong marketing and public relations push. In fact, neither Jay nor I could think of one exception.

But the devil is in the details, and in marketing and public relations, this always applies. The precise strategy, tactics and execution of Rapid Reporting’s marketing and PR campaign made all the difference. Here are the three steps we took.

We created a solid, recognizable brand image

The key was to not blend in. We created a unique, professional look for all Rapid Reporting marketing, so that when anyone saw anything from the company, they instantly knew who it was before even seeing the logo. For Rapid Reporting, that meant a uniquely Texas theme, since Jay and his staff carried the spirit of Texas everywhere.

We heavily publicized the business

Prospective buyers look for companies that stand out. We made sure Jay and Rapid Reporting were constantly quoted in the press, being profiled in publications, speaking at conferences, and winning awards. Wherever you looked, they were there. Jay became a pseudo-celebrity in our industry.

We marketed proactively, with humor—and a touch of fear

Good outbound marketing creates leads, grows revenues and draws the eyes of investors, so that was a huge priority. The goal was to invest wisely on mediums with the greatest ROI. We focused on selective advertising, webinars and direct mail, and each marketing piece carried the trademark Rapid Reporting branding.

But that was not all. Our advertising and direct mail pieces were funny. Yet, they also gave people a reason to be fearful about not using verifications—in other words, a reason to pay attention. Our favorite campaign featured the photo of a bare-chested, hairy man wearing only overalls and a cowboy hat. The caption read, “His application says he’s a CFO. Employment misrepresentations account for 20% of mortgage fraud.”

rapidreporting-postcard

At the time, verifications were considered optional, so our job was to create fear in the minds of lenders. We needed to make readers aware of the risks of not verifying a borrower’s identity. And that we did, doing so in an entertaining way.

The campaign was such a huge success, others tried to copy it. But it was too late—Rapid Reporting had already established its brand and communicated just the right message. The groundwork had been laid, and the onslaught of demand ensued.

Making it to The Big Time

Some companies seem to be shy about marketing and public relations. They believe that if they build it, people will come – but in most cases, they won’t. People come when they are being called.

The biggest names in our industry and in the world didn’t get big because they kept quiet; they got big because they had vision and a plan, and PR and marketing were an essential part of them. Early on, Rapid Reporting made the commitment to become a well-recognized, trusted name by leveraging marketing and PR. When demand for its services spiked, this recognition completely transformed the company’s fortunes.

Rapid Reporting is a perfect example of how a small company with vision can make it to the big time. Just ask Jay Meadows – you’ll get an animated earful, Texas style.

About The Author

[author_bio]

Rosalie Berg is the president of Strategic Vantage, a public relations and marketing agency serving lenders, servicers, vendors and technology providers in the real estate finance industries. The agency provides a full spectrum of services, including writing, publicity, branding, direct marketing and collateral development services. Rosalie can be reached at Info@StrategicVantage.com or (305) 971-5352.

Managing Risks To Data Integrity And Security

You Can Download This Full Article As A PDF HERE

Sanjeev-MalaneyToday’s lending environment is far different from that of even just a few years ago. Heightened regulations, increases in unannounced audits by the CFPB and an ever more-complex economic environment have forced originators to change the way they do business. But even with the myriad of changes that have taken place over the past several years, there’s one threat to lenders that has remained constant: the inability to maintain data integrity.

The mortgage industry has long struggled to ensure the quality, transparency and auditability of loan information. Lenders struggle with data entry errors, conflicting information that requires risky judgment calls and untold hours spent trying to complete and reconcile data after a loan is funded. As a result of the part “bad” data played in the recent financial crisis and recent litigation, quality initiatives are taking hold across the industry. Regulators are working to ensure that proper oversight is in place to authenticate loan information throughout the loan process.

Some common practices and beliefs contribute to a lender’s inability to ensure data integrity and security, including the reliance on paper-based processes, the mistaken belief that the LOS is the source of truth for loan data because it is the system of record and the use of insecure methods to share loan documents with others involved in the loan transaction.

Paper-based processes should be a thing of the past

While the printing, copying, and shipping of paper documents should be a thing of the past, for many lenders, it is still at the heart of the origination process and contributes to the inability to maintain data integrity. A typical loan captures thousands of pieces of data, and the potential for error is huge.

The reliance on paper also poses a huge security risk. Visit any lender with a paper-based process, and it is obvious that keeping confidential information secure is a losing battle. Paper files with confidential borrower information are stacked on desks and on tables in clear view of anyone who might be visiting the office. Account numbers, social security numbers and other personally identifiable information is in the clear, available to anyone who might have bad intentions.

Once the loan is funded, it is still very common for a lender to retain all paper loan files in a storage unit or warehouse, to be searched through manually whenever necessary. By doing this, however, they put the files and confidential borrower information at great risk. Anyone who has access to the files has access to a treasure trove of confidential borrower information. If the warehouse or storage facility is broken into or damaged by fire or inclement weather, there is no insurance policy that can keep the confidential information from criminals or that can replace the lost information. Third-party document storage services are often seen as good alternatives, but are expensive and often located far from the lender’s office, resulting in an inconvenient, inefficient, and costly search and retrieval process.

Moving to a paperless process improves data integrity and increases overall data security. Today’s imaging and document management solutions replace paper mortgage folders with electronic loan files that are processed electronically from beginning to end. Using a modern document imaging solution, lenders eliminate the manual entry of loan data which introduces inaccuracies, and lenders have a reliable online workflow that results in better protection for loan information, as well as higher productivity, reduced costs and higher quality loans.

In addition, paperless technology guarantees an easily accessible audit trail for a loan file, enabling lenders to collect information quickly and have all corresponding communications relevant to that loan available within seconds. In the case of an audit, rather than scrambling to gather paper files that may be difficult to locate, lenders have complete electronic loan files available to them with a couple mouse-clicks.

Your LOS is not the source of truth for loan data from documents

While relying on paper exposes vulnerabilities in and of itself, the central issue affecting data integrity is the potential for inaccuracies when data is entered, or overwritten, in a lender’s loan origination system (LOS). Many lenders mistakenly believe that an LOS is a “source of truth” for loan information. In fact, an LOS is primarily a “system of record”, capturing, storing and listing information, which can be mistyped or manually changed over the lifecycle of a loan.

While the best source of data associated with the loan is the original documents used in the loan process, LOSs don’t provide the lender with the appropriate tools to easily locate the data on the original document and compare it with what is in the LOS.

Today, lenders invest a lot of time and resources playing the “stare and compare” game, in which a human being compares information across multiple loan documents to spot discrepancies, and also compares the information on the source documents to the information in the LOS. Whether the lender uses in-house staff or outsourced labor to complete the task, this practice is time-consuming, error-prone and costly. In most cases, this quality control (QC) is done late in the process, or even after the loan has closed, limiting any possible corrective actions. With more comprehensive document management technology, lenders are able to implement QC throughout the lifecycle of a loan, not just at the end, which leads to better quality loans and better business decisions.

An advanced document imaging and collaboration platform also provides the ability to extract data from loan documents and to validate that data across any number of loan documents, while always maintaining a link to the original source document. This technology makes it easy to compare data in the LOS with the data on the original document and alerts the lender of discrepancies in the data, as well as missing data or missing documents immediately.

Maintaining the link to the source document is critical. An LOS system can extract data for rules engines and other purposes but loses the connection between that data and its source document. If multiple versions of the same document are submitted for a loan, which version of the document served as the source for the data value that is in the LOS? With best-of-breed document management technology, the lender is always able to link from the data to an electronic image of the source document, so the source can be verified and is never in question.

What’s more, a comprehensive audit trail is created for any changes made to the data values, while always maintaining a link to the source documents. An LOS creates an audit trail of changes made in the system, but, again, the link to the original document is lost.   If a regulator were to request an audit, lenders should have the confidence that the tools they use to run their businesses will help see them through an investigation rather than send them to a warehouse to sift through stacks and stacks of yellowing documents and possibly never find the source document required to validate a business decision.

Sharing Isn’t Always Good

During the life of a loan, many parties are involved in the transaction including lender representatives, real estate professionals, title insurance agents, closing officers, and many others. Moreover, each of these parties is accustomed to different workflows, technologies and protocols when handling loan files. Today, much of the communication between these parties is done via fax, email, or the transport of paper files back and forth. The insecure channels used by the parties to collaborate on loans not only introduce the risk of human error, but significantly increases the security risk of lost or stolen files.

A document management platform gives lenders the ability to securely collaborate with co-workers and third-party service providers as the loan moves through the process. An LOS system may provide collaboration capabilities, but not secure “workspaces” where lenders can invite co-workers, or trusted service providers, to exchange documents and collaborate through the loan process. Using a document management platform for secure collaboration also speeds the transaction because electronic communication is instantaneous, and days aren’t wasted resending lost or poorly transmitted faxes or mailing paper documents back and forth. Emailing faxing, and shipping documents that contain sensitive information in the clear should be a thing of the past, and a best-of-breed document management platform offers a secure, more efficient alternative.

The mortgage industry has seen more changes in the past several years than in the past few decades. As a result of these changes, lenders must be prepared to change the way they do business by investing in technology that ensures loan data integrity and security.

By using a software solution designed to ensure data integrity, lenders improve the consistency and quality of loan information throughout the lifecycle of the loan, not just after a loan closes, when it is often too late to remedy. Technology also increases the security of loan information, as it replaces paper-based processes with secure, electronic channels for document management and collaboration. In today’s increasingly competitive and complex lending environment, the focus should be on delivering high-quality loans. With a focus on data integrity and security, lenders will be better able to meet both their operational objectives and financial goals.

About The Author

[author_bio]

Sanjeev Malaney is co-founder and chief executive officer of Capsilon, a provider of comprehensive cloud-based document management solutions that enable mortgage lenders and investors to increase productivity and lower costs, while ensuring compliance. The company’s flagship product, DocVelocity, is an imaging solution that provides document capture, collaboration, delivery and retention, eliminating the inefficiencies inherent in paper-based processes. For more information, visit the company’s website at www.capsilon.com

Wells’ HELOC Revamp Is Long Overdue

You Can Download This Full Article As A PDF HERE

NEW-GeorgeYThe Wall Street Journal broke the story that Wells Fargo last November had begun requiring most of its customers to start paying principal – not just interest – on their home equity lines of credit (HELOCs).

This prompts three questions: First, what took the financial press so long to find this out? Second, what took Wells, the biggest residential mortgage and home equity lender in the country, so long to do this?

And third, why did the bank feel that it had to keep such a good and long overdue idea such a big secret?

The collapse of the housing bubble was devastating to the HELOC business, previously a fast-growing, low-risk, highly profitable business for the vast majority of retail banks and credit unions who offer the product. But since the peak year of 2009, lines of credit outstanding have dropped 26%, from $714 billion to $526 billion in the first quarter of this year, according to the Federal Reserve.

Even worse, lenders have lost billions on soured HELOCs they’ve had to write off. The delinquency rate on HELOCs stood at 3.37% at the end of the first quarter, down from 4.69% at the peak in early 2012 but still more than 10 times the 0.37% rate in 2003, before the housing bubble burst.

HELOCs used to be one of the safest consumer loans banks made, with delinquency rates well below 1% industry wide. But that figure skyrocketed during the recession as lenders made loans in anticipation of continued high home prices.

That was the same bet millions of homeowners made, taking out bigger and bigger HELOCs to build swimming pools, borrow more on their credit cards, and make additions to their homes they didn’t really need. The banks should have known better, of course, but they didn’t.

Until Wells made its historic move, the vast majority of HELOC borrowers have only been required to make interest-only payments for the first 10 years, during which time they can continue to draw down their lines, up to their maximum. Starting in year 11, but only then, borrowers are required to start making principal payments, too. Before then, of course, borrowers had the option of making principal payments.

When the housing market crashed, too many homeowners couldn’t make those higher principal payments.

It’s not clear yet how many lenders will follow Wells’ lead, although two of the banks’ biggest national competitors, Bank of America and J.P. Morgan Chase, have said they’re considering it. But other smaller lenders say they will continue to offer I-O HELOCs for the first 10 years to differentiate themselves from Wells.

For example, Navy Federal Credit Union, the nation’s largest credit union, says it has no plans to change or eliminate its I-O options on both its fixed-rate home equity loans and HELOCs, although it acknowledges that only a “small percentage” of its members choose interest-only loans.

It’s not like Wells has priced itself out of the market by demanding principal payments from day one instead of 10 years out. Typical monthly payments for most Wells HELOC customers will rise, of course, but not as much as you might think. For example, the interest-only payment on a $30,000 HELOC at the current 4.875% APR would be about $121. A fully amortizing payment including principal would be $158.83, a difference of less than $40 a month.

However, by doing so, the homeowner will pay off his loan and build equity in his home faster, or free up more equity to borrow against.

It’s clearly a more borrower- as well as lender-friendly idea. You have to wonder why it’s taken this long for a lender to make the move.

Yet while Wells is making this more responsible change, both for itself and its customers, a growing number of lenders are once again starting to make HELOCs up to 100% of the value of the property, one of the main reasons for the collapse of the housing bubble and the demise of the HELOC product.

Proving once again: Too many people in the mortgage business just never learn from their mistakes. It’s good to know that at least one lender has, if a few years late.

About The Author

[author_bio]

George Yacik has been a financial writer for more than 30 years. After working 12 years at The Bond Buyer and American Banker as a reporter and editor, he joined SMR Research Corp. as a vice president, where he was the lead research analyst and project leader for SMR's studies on residential mortgages and home equity lending. Since 2008 he has been writing for a variety of mortgage-related and financial publications. George is based in Stratford, CT, and can be reached at gyacik@yahoo.com.

The Trick To Mastering Blogging

You Can Download This Full Article As A PDF HERE

As more people in the mortgage industry adopt blogging as a way to get more leads, questions remain about how to blog correctly. Keep readers coming back to your blog by regularly serving them generous portions of hearty content.

The following infographic by LinkedIn offers content ideas from the various blogging “food” groups: whole wheat and grains, vegetables, meat, desserts, and condiments.

The whole wheat and grains group includes how-to posts, repurposed content, and third-party posts. “Hearty and filling, you can quickly dish out this basic content daily,” suggests LinkedIn.

Strategic research and analysis, large content pieces, and leadership articles are part of the meat group. “These valuable time-consuming projects leave your readers begging for more,” LinkedIn claims.

Not all content needs to be so hearty, however. Content can also be lighter, “easily digestible” pieces, such as videos, graphics, and stories, which are part of the desserts group.

To find out more about the various blogging food groups and a blogging meal plan for your week, check out the infographic:

the-blogging-food-groups-a-wellbalanced-diet-of-content-infographic

Progress In Lending
The Place For Thought Leaders And Visionaries

LOS Leaders Are Emerging

You Can Download This Full Article As A PDF HERE

TME-TGarritanoI always used to wonder how the mortgage space could support 50, 60 different loan origination system (LOS) providers. I guess when you operate in a loosely regulated space with lots of investors, lots of volume and lots of mortgage bankers and brokers, there’s enough to go around for all of these LOS companies to survive. Today all of those conditions have disappeared so we’re seeing a lot of shifts in the LOS space.

So, who are the leaders in the midtier LOS space? A slew of recent acquisitions has brought three LOS companies to the front of the line in my view. The LOS in first place has to be Ellie Mae. In a move to bolster its content and services offering, Ellie Mae signed a definitive agreement to acquire AllRegs, an information provider for the mortgage industry.

AllRegs information management solutions are used by more than 3,000 companies representing every facet of mortgage banking: major lenders and investors, regulators, Federal and State agencies, brokers, mortgage services vendors and law firms. AllRegs product offerings include education and training, loan product and guideline data and analytics, and the AllRegs online reference library that includes investor underwriting and insuring guidelines, federal and state statutes and regulations, Mortgage Mentor “how to” guides and plain language interpretation and analysis.

“AllRegs has built a strong reputation as the industry’s source for investor guidelines, compliance resources and education,” said Sig Anderman, chief executive officer of Ellie Mae. “With the acquisition of AllRegs, Ellie Mae will expand its customer base and add a broad array of content and services that complement our portfolio of product offerings. This strategic acquisition enhances Ellie Mae’s compliance leadership and furthers our goal to be the company that powers the entire mortgage industry.”

AllRegs extensive content library spans nearly every aspect of the mortgage industry. Relied upon by virtually all of the top 100 lenders in the country, AllRegs is the exclusive electronic publisher of underwriting and loan product guidelines for Fannie Mae, Freddie Mac, Wells Fargo Home Mortgage, Citigroup, JPMorgan Chase, the Federal Home Loan Bank of Chicago, U.S. Bank Home Mortgage and Flagstar Bank, N.A.

The transaction is expected to close within 90 days and is subject to customary closing conditions. Under the terms of the agreement, Ellie Mae will acquire AllRegs for $30.0 million in cash, subject to certain purchase price adjustments, including for working capital.

So, who can challenge Ellie Mae? The Altisource acquisition of Mortgage Builder puts them in strong contention. However, several times in the past we’ve seen good midtier technology companies that offer quality service and have a decent market share get acquired by larger companies. What happens next? The midtier company loses its identity and struggles in most cases. Is this what’s in store for Mortgage Builder now that they have been acquired by Altisource?

I don’t think so. The Altisource acquisition of Mortgage Builder has the beginnings of a great success story. For Altisource, they are getting more involved in the mortgage space. They want to have an end-to-end LOS. They want to control the entire mortgage lifecycle. That’s a good thing for Mortgage Builder because they will be the only LOS in the Altisource portfolio and Altisource doesn’t know much about the LOS, so Keven M. Smith, Chief Executive Officer of Mortgage Builder, will remain a big player. He’s not looking for an exit strategy.

“I built the company from the ground up,” he said. “Being privately held has been great, but some of the acquisitions that we want to do and the extensions to our product require that a bigger company be behind us. There are also offerings within Altisource like Lenders One, for example, that we look forward to being more involved with.

“This is not a cash-out deal, this is the next step in the lifecycle of Mortgage Builder,” Smith continued. “All of the staff are being brought over. As time goes on we are looking to expand. We will add more staff and look to get more entrenched in Altisource offerings. Altisource doesn’t have an LOS so the fact that we would be here long term running the company was a selling point for them.”

In fact, if you look the Equator acquisition, Altisource has a clear track record established. The Equator staff and corporate identity remains in tact. The company was acquired for its expertise in loss mitigation and its involvement with Altisource has enabled the Equator staff to grow their business.

“It’s harder to grow as a privately held LOS,” noted Smith. “We at Mortgage Builder are looking to be a larger company and grow. I don’t have a rich uncle to go to and get money from to do the acquisitions that we want to do. We want to be the premier LOS player.”

Mortgage Builder recently acquired a PPE/CRM provider and a servicing software provider. Now that the company has Altisource behind it more acquisitions will undoubtedly follow. Mortgage Builder will also be able to accelerate plans to improve its existing technology to prepare lenders for what comes next in the world of mortgage lending. All indications are that the acquisition was a good fit for a larger company looking to offer a complete lending technology solution and a solid midtier LOS looking to grow.

Lastly, PCLender, LLC has acquired the PCLender loan origination system back from Black Knight Financial Services and formed a new company that will focus on providing turnkey mortgage technology solutions for midsized mortgage bankers. No sale price was disclosed.

PCLender, LLC has been heavily capitalized to expand the system functionality and implement automation solutions for lenders requiring increased compliance and workflow efficiencies. The system currently supports banks and credit unions with consumer point-of-sale, loan processing, automated underwriting, loan closing, integrated imaging, secondary marketing, trade management, warehouse management and interim servicing. PCLender’s retail and wholesale platform will now be expanded to support correspondent lending and include automated loan audit and post-closing review support. Additionally, an emphasis will be made to refine vendor integrations and build out fulfillment services that streamline lender operations.

Lionel Urban, president and CEO of PCLender, LLC said the management team will initially focus on strengthening customer relationships and pursue customer collaboration to speed the pace of design enhancements. “I believe the PCLender customer base has some very valuable feedback and we intend to implement that into our development road map. I think that was a strength of the organization early on and we are excited to reengage with the customer base in a collaborative manner.”

PCLender, LLC will continue to build on the scalable architecture and security that is currently inherent in the system. PCLender, LLC anticipates the development and support resources dedicated to the LOS will increase by over 60 percent in the next 12 months to support the new growth initiatives.

PCLender, LLC will focus on workflow and configuration defaults that will enable lenders to implement the LOS within 30 days using industry best practices. Mr. Urban believes that the small to midsized mortgage lenders are an underserved market and plans to offer a more robust solution that will require less administrative support by the lenders.

All three of these companies have emerged as LOS leaders that will be around for the long haul.

About The Author

[author_bio]

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 tony@progressinlending.com.

Online Training Vs. Traditional Classroom Training

You Can Download This Full Article As A PDF HERE

TME-Becky-BarbaraOne of the least discussed requirements of the CFPB is training. As part of the new regulations, a lender must have training programs and training materials provided to the staff on an ongoing basis so that they can be used to educate them on the regulatory requirements. Part of these education requirements is a thorough knowledge of the organization’s products, procedures and consumer service standards. It is no longer acceptable, at least according to the CFPB, to fail to provide accurate and timely information to a consumer.

Of course, the industry has never lacked for training programs. Numerous vendors, including the MBA, have offered training programs on any number of topics. In addition, the MBA provides various certifications for specialized areas that are deemed to meet their expectations. Today, most of these training activities are provided through online training programs that are designed to provide the necessary education when and where individuals have the time to participate. But is it effective training? Did the student retain the information and can they apply it to everyday activities? Is it sufficient to meet the complexity of dealing with consumers and other members of the industry on an ongoing basis? If the CFPB or even an investor asked to test your staff as part of a review, would they be able to pass the test? In addition, as lenders know all too well, training programs can be expensive, so it is important to ask whether you are really getting what you paid for. Are online courses giving the dollar for dollar value that face-to-face training does? In other words, are we really educating the staff or are we going through the motions and paying a high price in exchange for little value?

What is Education?

Education is defined as “a change in behavior” meaning that once a participant has become aware of or has knowledge about a subject, they will incorporate that knowledge into their actions and/or daily activities. Take, for example, someone who needs to use a spreadsheet in their work activities. If they begin working on it without any education, they may be able to work through the basics and produce some results. However, the time spent accomplishing this task will more than likely be lengthy and result in possible poor outcomes. If the individual takes a class specifically on spreadsheets with the objective of learning how to use them, the time spent producing good information will shorten and the quality of the result will be much improved. This is the value of education. In the example above, the objective for this class is clear; to learn how to work with spreadsheets. Without understanding and/or identifying the objective of the class, there is no way to determine if the expected change in behavior has been achieved. In other words was it effective? So how is senior management to know if today’s programs are working or not?

Today’s education process in the mortgage industry is a combination of online training and face-to-face instruction, with the emphasis on face-to-face instruction decreasing at a rapid pace. Management knows that staffs need to be able to take classes based on their availability and timeframes and online training accomplishes this at a much lower cost. Yet there is a belief among many that face-to-face instruction is the best approach for ensuring that the training is effective. So is it better to have paid less for training that is not effective or spend more time and money on more traditional approaches.

Therefore the most important question to answer is how does the effectiveness of online learning compare with that of face to face instruction? Most individuals in the industry would answer that if the approach used in giving classroom instruction was instead given in an online format, the level of learning that occurs would be the same. While there is some research that supports that statement there are many other facets to the education process that have to be considered. If we are truly concerned that the staff actually learn something we have to explore what is the most effective way to conduct training?

In researching these questions we came across a study conducted by the U.S. Department of Education that focused on these very issues. This study looked at the effectiveness of online learning compared with face-to-face instruction while considering what practices, such as whether or not there was an online course facilitator, and conditions, such as student demographics or the instructor’s qualifications, influence the effectiveness of online learning. In addition to just online training or face-to -face instruction, the researchers included one of the newest trends in education, “blended learning” programs. Blended learning combines elements of both the face-to-face approach and online study and adds new methods of involving students in the learning process. According to Christine Cadena, in the Yahoo Contributor Network, “what makes blended learning so unique is the dynamic by which the subject material is delivered.”

What the research tells us

In conducting this study the researchers included several critical questions regarding the conceptual framework for online learning while comparing the results to actual face-to-face instruction. One of the most basic questions was determining whether the results were different when the online activities were a replacement for face-to-face or an enhancement to it. Another dimension considered was the way students actually acquire knowledge. Is the material presented to the student in a lecture or via written material manner, or is it an interactive approach in which the student has control over the content and nature of the learning while the focus of the training emerges as students and teachers interact among and between each other.

It is important for our purposes to recognize that technology can support any of these approaches. In the lecture focused approach the technology delivers the content. An example of an inactive approach would be a taped lecture that students watch on their computer or attend in a classroom. This presentation may also allow students to include digital material to address questions such as having the ability to select and read related documents as they proceed through the lecture. In interactive learning, the technology allows inaction between other students, teachers and material as well as the ability to identify material and artifacts related to the topic both while the lecture in on-going or afterward. One additional benefit to this approach is that the interaction does not need to occur at the same time, but one student can pose a question to all others in the class and have it answered by them whenever they sign in to the program. Each of these issues was taken into consideration during the course of the study.

A study conducted as part of the research compared two groups, one of which received lectures face-to-face and one that watched narrated Power Point slides shown online. Neither of these groups was given access to other online material but had access to e-mail, online chat rooms and threaded discussion forums. Upon completion of the lecture the students were evaluated to determine if the process had been effective in teaching the students. The results found that the students in the purely online section scored eight percent lower than those receiving face-to-face discussions. While this study, according to the researchers was the only one to show this decrement in performance for online programs, it is important to note that many classes and webinars in use today in the industry are presented using this very approach.

Other research, outside this study, has also supported this finding. An article, written by Arleen R. Bejerano, a doctoral student in Communication Studies at the University of Nebraska, Lincoln, evaluated the effect of such variables as peer and teacher interaction as well as the possible misinterpretation of meanings and messages when studies are offered courses online. One of her findings indicated that there was a decline in the retention factors that occur when students do not have access to other students and faculty to support the learning activities. A second problem identified was the lack of self-discipline found in some students when involved in online education. This shows up as a failure to take the initiative to access and learn the material. Overall her studies indicate that students involved in online courses may not have the support they need in order for the course to be considered effective. Many classroom instructors will tell you that the most important part of their job is knowing when the student has really grasp the ideas and concepts being presented to them which, they believe occurs when you can see it on their faces or in their eyes. This cannot occur in an online training program.

So what methods do work best?

Does this mean that if we really want the training to be effective we should abandon online sessions and revert back to classroom instruction? The answer to that is no. There is other research, some of which was identified in the Department of Education study that shows there is no significant difference in the effectiveness of online education and face-to-face instruction. The study of pure online versus pure face-to-face education leaves many critical factors untested.

This research included various independent studies on such aspects of learning as types of media that were incorporated into a program as well as how much control individual students had over the use of the media. Other studies focused on the approach of the activities that were part of the face-to-face sessions. Studies which evaluated active versus inactive learning were also incorporated into the research as were the type and level of educational material to be learned.

When the research was completed and the various studies analyzed and compared to others, the key findings were this:

1.) Students in online conditions performed modestly better, on average, than those learning the same material through traditional face-to-face instruction. It also has to be noted that the online and face-to-face conditions generally differed on multiple dimensions, including the amount of time that students spent on task. In other words, students using online classes actually took a longer time working on the material and inculcating it into their knowledge base that those attending lectures. Having access to the educational material and taking the extra time to work on the material appears to influence this result.

2.) Instruction combining online and face-to-face elements had a larger advantage relative to purely face-to-face instruction than did purely online instruction. When using the blended approach, which incorporated materials and/or artifacts found online, the education was more effective that allowing students in online classes access to this material. In other words, combining a face-to-face lecture with the ability to research material and collaborate with other students and teachers was more effective than allowing online students to do this alone.

3.) The positive effects were larger for studies in which the online instruction was collaborative or instructor directed than in those studies where online students worked independently. Once again this finding supports the effectiveness of the educational experience that provides for the option for students to work with others and collaborate in the educational process.

What does this mean for training in the mortgage industry?

Based on these studies it is obvious that the most effective learning is not necessarily whether it is online or face-to-face but instead, effective learning occurs best when there is access to various material and an interactive collaboration with other students and educators.

For individuals in the industry charged with ensuring that the training programs required by the CFPB are met, this means that just signing up for programs may not be sufficient to ensure that the funds spent are the most effective way to educate the staff. Rather it tells us that interactive sessions among the staff, whether online or in person will result in ensuring a broader more effective knowledge base for the company.

For senior management it means that rather than just picking online courses or allowing staff to select any related sounding program, there should be work done to evaluate these programs and imbed them in a comprehensive educational approach.

Does this ultimately mean that more money will have to be spent? That is really up to each executive to decide. However, there is one study, conducted at the University of Maryland, University College that compared the cost-effectiveness of online versus traditional classroom costs and found that while the start-up costs were basically the same the incremental costs of online courses increase at a much slower rate than traditional course costs.

Unfortunately there is no clear cut answer to the question which type of classes should the industry offer to obtain the best results. However, it does tell us that in all likelihood, what is being offered today in many of the programs is really not effective and that it is time we focus on getting our money’s worth for the education we must provide. A good question to ask oneself is “what is the most effective training style we need in order for staff to understand and comprehend what they need to know?”

About The Author

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Rebecca Walzak is a 32 year veteran and Industry Expert on Operational Risk Management and Organizational Control. She is a leader in developing Operational and Control automated assessments for lenders, rating agencies and investors. Walzak has expert knowledge in all areas of the mortgage industry including production, servicing and secondary. Barbara Perino is a Certified Professional Co-Active Coach guiding her clients who are executive leaders and their staff. Barbara has been trained through The Coach Training Institute (CTI) located in San Rafael, CA. She completed a Coaching Certification Program through CTI and the International Coaching Federation (ICF). Prior to becoming a coach, Barbara was a 16-year veteran of the residential mortgage industry.