Point-Of-Sale And Beyond

Change At MBA Annual

By Joe Bowerbank

This year’s MBA Annual convention in Atlanta last month was a breath of fresh air, almost a mini shot in the arm.  Why?  Compared to previous shows held during our industry’s downturn, attendance was up and so were the spirits of attendees.  I left the show inspired.

Rick Grant recently wrote a post-show column last week in HousingWire where he did a high level assessment of the conference.  The piece is entitled “Three scary things I noticed at the mortgage banker’s convention,” which primarily focuses on low attendance and a hope for a better market.  I certainly agree with Rick that just because we observe signs of life, it doesn’t mean much, other than it makes us feel better.  Rick does make an excellent point:  our industry is so hungry for positive news that we may be reaching at times.  Still, the show’s upbeat tempo did make for a feel good event.  And in my opinion, it doesn’t hurt.

One notable story that transpired at Annual was the presence of the new PROGRESS in Lending Association.  I was pleasantly surprised by the impact they had.  From a mortgage technology perspective, it was hands down the biggest news at the conference, and that goes for previous MBA Annuals as well. Here’s what happened:

Since officially being launched in mid July, PROGRESS in Lending has been laser-focused on delivering much needed thought leadership on the subject of mortgage technology as well as other industry related topics.  Over the past two months, PROGRESS in Lending has assembled a management team stacked with mortgage technology experience that has embarked on a mission to evangelize and grow the association.  Daily thought leadership is delivered via its e-newsletter.  A rapidly increasing number of members are gained week after week.  The level of support shown by advertisers, executive-level experts and a growing subscriber list is incredibly impressive.  That’s right.  I went as far to use the word incredible because what has been achieved in a short period of time is just that. Couple this momentum with the impact they had at Annual and you know this association is here to stay.  PROGRESS is no doubt poised to build upon an organization that is already providing value for the mortgage banking supply chain.

At Annual, the support for the association was quite the sight.  Wherever you looked you were certain to spot an attendee or two or three wearing one of what must have been hundreds of aptly displayed pins supporting the association.  Their foundation is built on getting people to think out of the box, collaborate, innovate and invoke change.  PROGRESS allows for a fluid exchange of intelligent ideas that are shared on a regular basis.  PROGRESS in Lending’s mission is to offer a newfound forum where mortgage professionals are able to come together to share thoughts on process efficiencies, business strategy, technology and more in an effort to drive innovation and advance the industry.  This movement is now well underway and it will ultimately have a positive effect on the way business is done in our industry.

Citable is that while at the show PROGRESS in Lending announced the launch of its monthly magazine, which was handed out at the event.  It is called Tomorrow’s Mortgage Executive Magazine and it encapsulates and centralizes expert opinions on issues plaguing today’s mortgage lending market.

The new magazine is 100% dedicated to thought leadership and innovation in mortgage technology, and I believe the industry is ripe for such a publication. Kudos to the leadership team at PROGRESS and all of those who support the association.  I feel like I’m a part of it.  Let your voice be heard, too.  Get involved with PROGRESS in Lending.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.

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MBA Annual: What’s New With Technology

By Joe Bowerbank

Another year, another MBA Annual Conference.   Do you remember when this show boasted more than 6,000 attendees?   Well, as of October 1st, I counted just over 2,300 pre-show attendee registrations.  Wow.  Quite the delta.

Only the die-hards who are committed to our industry remain; the fly-by-nighters are gone, and I think that’s a good thing.  Who is left?  The folks that are truly committed to our industry.  It used to be that the origination space was constantly in the limelight.  The key technology pieces that fueled the refi boom were pre-qual, automated underwriting, loan processing and secondary marketing systems.   There’s a different story today.  Default management, short sale automation, loan modification solutions and servicing software are now front and center.   That sure shifted abruptly.

MBA Annual has always been a show where the bulk of the players in the mortgage supply chain had a presence, but I noticed that there are a significant number of technology vendors attending of late.  So what does that say about where we’re at with mortgage technology?   It’s important.  Ultra-important.  This space is not all about establishing a heavy flow lending volume these days; it’s about transparency, quality, trust and efficiencies.  Technology plays a role in each of these.

Now, MBA Tech has always been vendor heavy, lender light.  Looking back, the2008 MBA Tech show held in Las Vegas had just over 200 pre-registered attendees.  What a turn this was from the previous year.  I had assembled a panel session on the topic of:  how to stay ahead in a volatile lending environment.  We had a topic of high value and a desirable time slot. I recruited some great thought leaders and one of my favorite moderators, Tony Garritano.  There were about 15 people that showed up.  Pretty dismal.

I expect good things from the Mortgage Banking Association of America’s 97th Annual Convention and Exposition in Atlanta.

Technology vendors are there in abundance.  Companies should take advantage of this overflow of software firms.  They’ve all come together in one location.  See you at the show?  At the Tech Awards?  This is going to be a show to watch.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


Making The Right Decision (Part Two)

By Joe Bowerbank

Now that we’ve defined the different types of decisioning solutions, before engaging with a decisioning vendor, key items to consider are:

Business Disruption
Ask yourself if the time is right to implement a decisioning solution?  Look to operations and production to determine what, if any, operational slippage may occur.

Solution Utilization
How will the solution be utilized?  Have you completely mapped out the degree of functionality that will be offered for your retail or wholesale channels?

And there’s more…

Expectations
What problem(s) do you expect the solution to solve?  Know what your pain points are and the vendor’s ability to solve those pains.

Managed Services vs. Self-Managed
Who do you want to maintain investor guidelines and pricing?  Do you want control internally using your own staff or would you prefer to outsource to a vendor’s Managed Services team?  Make sure you understand what is required to maintain guidelines and pricing with each technology model.

Best-of-Breed vs. End-to-End
Are you looking for an all-in-one solution that includes a decisioning component embedded inside of it, or do you want to evaluate a best-of-breed vendor that integrates with your back-office LOS platform.  There are pluses and minuses to each model.

Integrations
How well does the solution integrate with other vendors that you might use?  Whether it’s an LOS, docs, compliance, settlement services, CRM, leads, etc., make sure you see a demo of how the integrations work.

Costs
There are typically several types of cost models vendors make available.  Some are a flat monthly cost, others are transactional, some are seat-based, while others sell licenses that also accompany an annual maintenance fee—typically of 20%.  Do the math and understand what will work best for your business.

Length of Contract
Weigh your commitment carefully.  What if you outgrow the decisioning solution you select?  You don’t want to be stuck in a contract you can’t get out of.  Make sure you avoid the straight jacket pitfall.

Flexibility
What you need today may change in the future.  Plan for your growth.  Might you need deeper decisioning at a later date?  At some point do you plan on using overlays, custom guidelines, and pricing?  Can the vendor support this?  What about the user interface?  Do you want your own custom user-facing screens and look and feel, or are you okay with a template portal?  Both the user experience at the POS as well as underwriting in the back-office will be affected if/when you make a switch.  Ensure that the solution is flexible enough to accommodate growth.

Implementation
Simply put, how long will it take?

References
The rule of thumb is speak to three references.  Prepare a list of tough questions to ask them.  Ask the reference what they like and dislike about the vendor’s solution?  Do they feel there the system has any significant deficiencies?  What, if anything, could the vendor be doing a better job at?  Are there accuracy issues?  Ask about the level of support and response timelines.  Has the solution made the reference’s organization more profitable since using the vendor, and if so, how much?  Has it significantly cut costs?  By how much?  Again, flush through the vendors’ answers.

Making the Decision
The way lenders evaluate vendors and purchase software is different in this day and age than it was in the past.  Lenders have understandably gone through significant retrenchment since the crash, and as such resources are scarce compared to what they once were.  Further, cost is king and many lenders harness just enough technology to get by.  What used to be a more involved, long, committee-level evaluation process is now often dropped into the hands of just a few people, many of them which are ill-equipped to effectively perform a business-altering decision.   This can hinder adequate due diligence of different platforms, putting the company at risk.

The bottom line is this:  take your time, involve the right people from each functional area, and think through what you truly need. You don’t want to get stuck in a contract with the wrong vendor, and you don’t want to have to scrap technology you invested in and later go through a new implementation. Only you can determine what’s right for your organization—both for the now and the future.  What may seem like an adequate solution upon signing may not serve you well later on.  Don’t be shortsighted. Lastly, don’t buy the sizzle, buy the steak.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


Making The Right Decision (Part One)

By Joe Bowerbank

Selecting a decisioning platform that best suits your business needs and long-term growth strategy is an important decision.  In fact, it can significantly impact your success.  In today’s unforgiving market, what you don’t know can hurt you.  Decisioning at the point-sale-sale (POS) serves as the mouth that feeds the entire organization.  It must be made a priority.

Today I am going to discuss the key pieces that a lender should take into account when evaluating and selecting a decisioning solution and vendor that is right for their organization.  Use it as a baseline and checklist by which to perform adequate due diligence before you outlay money for a solution that may be wrong for lending operation.

Before we dive in and discuss how to select a decisioning vendor, we must first define the different types of decisioning solutions.

Pre-Qual System: Pre-Qual solutions use rate sheet-level rules and a minimal amount of user entered information.  The value in these systems largely caters to brokers, not so much mortgage bankers.  Brokers typically use pre-qual systems in conjunction with a product finder to address initial borrower eligibility questions.  Pre-Qual systems provide a basic summary answer to high level “what if” scenarios.

Product & Pricing Engine (PPE): PPEs use what’s called an “eligibility matrix” to decision loans.  An eligibility matrix resides in a rules engine and maintains anywhere from ten to twenty key data points taken from investor underwriting manuals.  At the same time, pricing is retuned along with eligibility.  PPEs work by using “stated” borrower information to return eligible products and associated pricing that assumes the loan will be approved in underwriting.

Automated Underwriting System (AUS): AUSs decision off of the complete set of investor underwriting guidelines.  The system captures the 1003 data, pulls and parses credit, and then compares relevant data against investor underwriting guidelines to return an accurate decision.  AUSs essentially render decisions that carry the same weight as a human underwriter’s decision.  

Decisioning System:  As defined by mortgage consulting firm CC Pace, a decisioning System combines Pre-Qual, PPE and AUS.  It decisions off of rate sheets, products, complete set of underwriting manual s, tri-merged credit, and returns risk-based pricing.

As mentioned, the utilization of a pre-qual solution is generally most useful to broker shops.  A PPE, however, is well suited to support a mortgage banker, credit union or bank.  The PPE serves as a virtual sandbox for originators to play in to put a potential deal together.   A PPE answers the question: “If everything the borrower told me is true, this deal looks like it will work.”  Lenders that use these systems return product qualification and pricing.  If the deal looks to be good, they then run DU/LP to actually underwrite the loan.  This solution works well for both retail and wholesale.

AUSs are generally provided by investors and the GSEs, but many lenders are beginning to use their own AUSs to decision loans.  Due to mounting GSE transaction fees, the AUS is commonly being used as a “deal filter” before pulling DU/LP, and they prevent around to different investor-operated AUSs.  Having your own AUS centralizes decisioning at your Web portal and cuts costs.

A complete decisioning system simply encompasses a combination of a PPE and an AUS.  A decisioning system pulls and parses credit to render deep, accurate decisions that returns both pricing and an automated underwriting pre-approval.  It answers the question:  “Because I automatically underwrote the loan using the entire set of underwriting guidelines housed in the AUS and a pricing engine with up-to-date pricing, you know that both pricing and underwriting are accurate.

Typically, each of the aforementioned solutions accompanies a loan officer and/or broker-facing Web portal to use at the POS, which can be private brand-labeled. More of this topic next week…

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


The Key To Moving Through The Short Sale Process (Part Two)

By Joe Bowerbank

Last week I shared the story of a homeowner who works with my wife that is going moving through an incredibly slow, painful and disjointed short sell.  This particular situation is unique because the individual works for a default management mortgage technology software firm.  The company offers a Web-based solution that automates a number of different areas involved with the default process, including short sells.  So, this person understands first-hand how technology can help make the short sell process much smoother.

With an unprecedented number of foreclosures, short sells and loan modifications, it is critical to have the necessary technology to efficiently manage an influx of volume.  While some lenders and servicers have taken steps to implement technology, many have not.  For today, I’m going to discuss how a lack of technology makes completing a short sell very difficult and time consuming, and how the right technology can make it a much different experience.

Let’s start by taking a look at the way this particular unnamed servicer and investor operate, and how the realtor, processor, buyer, seller and foreclosure attorney all interface with one another.  To start, my wife’s coworker had to assemble what’s called a “short sell package,” which required lots of information the servicer must review. Once that was done, his realtor submitted it to the servicer, who then uploaded it to an imaging system.  And that’s where it sat.   The realtor then began proactively calling and emailing the servicer on a daily basis to do her best to ensure that nothing fell through the cracks.  The communication between these two parties alone was amazingly slow, let alone involving all parties needed to complete a transaction.

It took the servicer nearly three months to figure out that it had collected and filed the necessary information to begin looking at the possibility of a short sell.  The servicer then took another two months to work with the investor to further evaluate a short sell.  Now we’re at month five, and in all this time the realtor is constantly following up with the servicer to ensure the wheels are still in motion.  Why?  Because of the high probability that if they do not, the file will get lost somewhere and the risk of foreclosure will increase.

Eventually, the servicer told the realtor that the short sell package looked good and that they were willing to move forward.  At this point, the servicer assigned the file to a “negotiator,” which is who the realtor came to interact with directly.  We now have five parties involved in getting the deal done:  servicer, investor, realtor, buyer and seller, all who must communicate well with one another.  During the “waiting game” the first buyer ended up falling out, and the realtor had to then quickly locate another suitable buyer that had loan approval and was willing to “wait it out.”

In that time frame, the NOD (notice of default) was filed, which officially introduced a new party into the equation—the foreclosure attorneys.  At some point, an auction date will be set. Meanwhile, the servicer was regularly requesting additional information throughout this lengthy process, all of which was sent via e-mail from the realtor and then uploaded into its imagining system.  The negotiator at the servicer then began working with one of the investor’s negotiators.  Additional requests for information only slowed the process due to the manner and time frames in which the information was requested, sent and captured—via e-mail.

By and large, the entire communication process involves a countless number of e-mails and phone calls sent back and forth from every party involved.   To manage such a complicated process full of minutia using these types of mediums is clearly a recipe for disaster.  And that’s exactly what transpired.  Lost e-mails, voicemails that are not picked up, documentation that was commonly misplaced, and overall communication that was very challenging.

We’re now at month ten and little has been accomplished.  The homeowner received a notice from the foreclosure attorneys that an auction date had been officially set, and that’s when the panic clock started ticking.  The buyer, seller, processor and realtors all had their ducks in a row; they were just waiting for the servicer to work more diligently with the investor to approve the deal and finally move into escrow.  The file was passed around to a number of different people at the servicer and investor; their documentation was poor at best. Seventy-two hours before the house was to be auctioned, the realtor attained a sixty-day postponement.  But, although the servicer told the foreclosure attorneys they granted a sixty-day postponement, the precise date was not told to the law firm.   As a result, the by-the-book attorneys were still going to foreclose.  Three hours before the 12PM auction time, the realtor drove the service and foreclosure attorney to speak directly, and the auction was stopped. With a documented sixty-day postponement granted, they had another two months to get the deal done.

Weeks later the second buyer grew tired of waiting and the offer fell out.  The realtor then found another buyer and submitted that offer to the servicer.  The new auction date rapidly approached and another extension was secured by the realtor.  It’s now month sixteen and there is still no investor approval of the deal and communication is worse now than ever.  The home will be foreclosed on just before the holidays and there is still no end in sight.  And that’s where this story ends, at least for now.

So what does all the pain come down to?  Terrible communication, tremendous inefficiencies, a lack of visibility, and a disjointed process that’s slower than a mule.  The use of the right technology can help speed up this time frame to successfully get short sales approved in as little as one to two months.  Most servicers use antiquated back-office technology that is ill-equipped to handle heavy volume, but many have implemented newer default management solutions that make available tools to dramatically improve what is generally a poor process.  With a flurry of short sales, old technology or worse yet no technology is a huge problem.

There are mortgage technologies that are commercially available on the market today which bring much needed ease of communication, transparency and data exchange to the short sell process.

Lenders could enjoy the benefits of various mortgage technology providers offer such as short sale processing platforms, business rule-driven workflows, data collection and imaging, document management, priority queues, system-to-system integrations, real-time visibility, automated approvals and more.

There are also borrower-facing portals, realtor-facing portals, servicer-facing portals and investor-facing potals that can be used to exchange data, streamline communication, check status and provide tools to make the process easier.  Some lenders even allow the homeowners and/or agent to log on to a portal and upload their own documentation for imaging and management, thus circumventing a cat-and-mouse telephone/email communication game.  Business rules then move the workflow along, while at any point providing realtor, attorney, servicer and investor with visibility over the tasks that must be completed and in what times.  The end result is more expedient decision time frames, less fall out of offers and a huge cost savings.

The technology is there.  It’s just that some lenders/servicers never implemented it and are thus handling an ongoing influx of short sells very inefficiently.  The bottom line is that the short sell process doesn’t need to be so broken.  Technology can take a sixteen month and counting process down to two months or less. The value of technology is clear-cut.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


The Key To Moving Through The Short Sale Process (Part One)

By Joe Bowerbank

Loan mods, short sales and foreclosures abound.  I reside in what’s left of the old “subprime alley” here in Orange County, California.  Over the past couple of years I have had the distinct displeasure of being privy to the sordid details of my friends and neighbors who have gone or are going through the tiring, highly frustrating short sell process, assuming they made it that far.  Seeing as how California is one of the hardest hit markets in the country, people are pursuing strategic defaults left and right.  I literally know dozens upon dozens of people trapped in the short sell process, and I know the trials and tribulations that differ from lender to lender.  Some good—and I use this adjective loosely —but most are gory, which is what you’re going to read about today.

I’m going to share just one of many disturbing stories I have observed with you.  Stories that, had the lender invested in technology, theses processes would be much quicker, more efficient and transparent. There are a number of factors that are involved with the ongoing disjointedness of successfully completing a short sell, but in part it’s a lack of mortgage technology that causes the pain.

So my wife has a friend who works with her and is currently moving through what I would term an asinine, egregious, endless short sell process.  Notable is that my wife and her coworker are employed at a default management mortgage technology provider, where she is a software engineer and he is a project manager. Both are loaded with mortgage technology experience in the default space  That said, my wife and her coworker understand what can be done to better this process on a number of different levels using technology, which, among other things, is what’s so very frustrating about our industry’s short sell process.

We know that the response times and the overall method lenders manage their loss mitigation departments vary from lender to lender.  Now, in this particular case, here’s how far along this grueling process has been going on:  16 months! It started in October of 2008 when this person sought a loan modification.  He was denied.  The servicer said he had to be at least two months behind before they would even consider one.  He tried again in April of 2009.  Denied again because he was still making his payments.  Come May, he’d had enough.  By design, he started missing payments, and he then got the servicer’s attention, but only to collect the debt.  In August, he gave the loan mod application one more try. Shot down again. He was not told why; only that it was a no go.  He then called an agent specializing in short sells and the process began.  The NOD came in October of 2009.  My wife’s coworker had a buyer, all documentation was in order from both buyer and seller, and according to the servicer the buyer’s offer was completely in line with what the investor would accept.  Now, to complete the transaction, there are six different parties, all who are necessary to get the deal done:  servicer, investor number one (holds the first loan), insurer of the second note (company had to fully pay off the second), buyer’s realtor and seller’s realtor.  And then you have three “negotiators” involved:  one from the servicer, one from the investor and one from the insurer that holds the second.  So why is it taking so long?  We’re in 2010 now!  A lack of visibility, speed and efficient processing, which technology can help remedy.  Next week I’m going to discuss how these entities interface with one another (or attempt to), the problems associated with the fashion in which they do, and the mortgage technologies that can help better an amazingly disjointed process.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


Consumer Direct Lending: Where It’s All Headed (Part Three)

By David Colwell

In the first two segments I summarized that both consumers and lenders now embrace the consumer direct lending channel as an attractive business model and that technological advancements have made it a viable channel. Now we will discuss what lenders need to know to implement a successful consumer lending platform.

Determine if consumer direct lending is right for you. The first question we should ask ourselves is: “Should I be in the Consumer Direct Lending Business”? This question cannot be addressed without performing target market and current customer research to help address several strategy formulation questions. Am I in or am I out? Given the channels I currently lend in, will focusing on Consumer Direct Lending do more harm than good?

Define your objectives and goals for the consumer direct lending channel. A critical success factor for any consumer channel product is to maximize adoption while minimizing costs. A strategic goal could be as simple as wanting to generate more leads for my retail channel loan officers. If this is the case then your consumer direct lending model would differ greatly than the consumer direct lending model for someone that is trying to increase profitability by limiting the loan officer’s involvement in the origination process.

Define the consumer segments that you are going to focus on. Knowing the buying attitudes for each target market will influence the business models that you utilize. For example if I am going to focus on the “highly tech savvy, highly costs conscious” segments then my business model should be a “Soup to Nuts” do it yourself origination model. If the lender is focused on lead generation and a seamless hand-off to an loan officers then their business model should focus heavily on “consumer education”, with a dynamic rules based approach for helping the consumer choose the product that is right for them and needs to be tied their overall financial goals and objectives. The focus is not to process loans online but to capture their attention and do a “warm handoff” to loan originators.

Once the lender has determined the strategic focus and business objectives, the lender needs to determine the appropriate business model to achieve those goals and objectives. The business model is comprised of three components, the consumer user experience flow, the functional process model that supports the user experience and the technology utilization flow that enables the functional process model.

Define the consumer experience model and the functional process model. Starting with identifying the user experience is the most critical element of the business model because having an effective user experience is what drives site retention, which is a key driver of origination volume. The user experience model needs to be aligned with the consumer segment you are targeting and addresses their buying attitudes. For example user experience flow elements to consider include: live chat option, educational components, immediate hand-off to loan officer once application is submitted etc. I personally do not believe that there is a “one model fits all” when it comes to consumer direct lending and trying to be all things to all people is too complex and too costly to implement.

Try to leverage existing legacy platforms when at all possible. Once the user experience flow has been developed then developing the functional process models and technology utilization flows are defined to identify the business attributes and functional requirements required to support the consumer direct model. One critical component to consider is to compare the user experience you want to provide versus the technology requirements needed to achieve the desired consumer user experience. Therefore looking for technology components that can integrate with existing LOS, Compliance, and Servicing platforms is critical. I recommend letting the vendors assist in designing the appropriate solution to meet the consumer experience you desire…without letting the technology they sell sub-optimize the consumer experience model. Technology vendors are partnering more effectively than ever and if you solicit their help and provide them with the list of business requirements they will be more than willing to provide a solution that incorporates your legacy platforms (if at all possible) along with the required additional functionality.

To summarize, the consumer direct channel is here to stay and technology has evolved enough to support this unique model. The most critical element to developing an effective consumer direct lending channel is start with aligning your company’s strategy with the consumer experience that you want to provide.  Start with the consumer and work your way backwards and you will be successful.

David Colwell is currently the EVP of Loan-Score Decisioning Systems, an enterprise-class pricing and automated underwriting solutions provider. He holds more than 23 years of experience in financial services and mortgage banking. David has a deep understanding of mortgage technology solutions and has worked for organizations such as Portellus, Mortgage Cadence, United Capital Funding, Well Fargo, Cap Gemini, Arthur Anderson and others. He can be reached via e-mail at dcolwell@loan-score.com. The company’s Web address is: www.loan-score.com.


Consumer Direct Lending: Where It’s All Headed (Part Two)

By David Colwell

In the first segment of this three part article, I summarized that both consumers and lenders now embrace the consumer direct lending channel as an attractive business model. But knowing that the Holy Grail now exists is just the beginning; having the road map and provisions to find it is another matter. There are two other pieces that drive the success of consumer direct lending: technology enablement and lender know how.

Let’s focus on the technological and industry advancements that have occurred over the past decade in the mortgage banking industry. There are a number of critical consumer lending technology requirements that the industry has already addressed, which includes increased standardization in the mortgage industry (MISMO), electronic signatures and disclosures availability, interview-style applications and integration enhancements that allow lenders to “pull together” the required platforms to provide a seamless, favorable user experience, and the ability for consumers to have visibility over the origination process.

From a lender’s perspective, Software as a Service (SaaS) platforms that focus on the consumer lending channel have made it possible for mid- and small-tier community banks and credit unions to build a consumer direct lending channel and still generate near-term ROI. In this day and age, talk to any banker and they will tell you if you want to get an expensive technology initiative approved by the management team of a bank and it  will not be cash flowing in the first 12 months, then forget about it. Therefore, the days of the large mega system purchases are gone from most banker’s list of “things we should do” because they need immediate ROI and this is why a “rent instead of own” SaaS model is so popular. Have you looked at the technology that is available in this industry lately? It is amazing what get for a fraction of what these systems used to cost. The mortgage technology industry seems to mirror the historical product and cost cycle of the digital watch.

So, to recap SaaS, MISMO and E-Disclosures/Signatures have been critical to making the consumer direct lending channel a viable lender option. But what are some of the future technology and industry advancements that will put this channel on top? Cloud Computing, Financial Service Product Bundling that leverages advancements in Business Intelligence, Pattern Recognition technologies, and the current and future RESPA and Mortgage Compensation reform bills are mentioned as key drivers that will be leveraged by the consumer direct lending channel. Operating in the “Cloud” avoids upfront capital expenditures related to hardware, software, and services, as they pay a provider only for what they use. Consumption is usually billed on a utility basis (resources consumed, such as electricity) or subscription (time-based, like a newspaper) with little or no upfront cost. Other benefits of this approach are low barriers to entry, shared infrastructure and costs, low management overhead, and immediate access to a broad range of applications. Financial Service product bundling has been talked about in the industry for 20+ years because it has been proven that the more products consumers have with one institution, customer retention increases exponentially. The problem has been that all of the different data sources that need to be analyzed to automate the pricing of these “product bundles” could not be accessed by one platform and that traditional decisioning technologies could not accurately analyze the data. Advancements in Business Intelligence technologies allows for cost effective collection and analysis of disparate data sources, and Pattern Recognition software provides a means to perform an accurate predictive model of buyer behavior, risk, etc., which are critical for pricing bundled services/products.  Finally, and arguably, the recent and proposed changes to the GFE, originator compensation, etc., simplify the fees model and product offerings for borrowers so that they better understand, “what do I pay and what do I get?”

Technology advancements have now made the consumer direct lending channel a viable and cost effective option for lenders to take advantage of, and the momentum this channel is gaining will continue to drive channel attractiveness and the innovation to fine tune it. The $64,000 question for lenders is:  “Where do I begin”? We will touch on that in part three.

David Colwell is currently the EVP of Loan-Score Decisioning Systems, an enterprise-class pricing and automated underwriting solutions provider. He holds more than 23 years of experience in financial services and mortgage banking. David has a deep understanding of mortgage technology solutions and has worked for organizations such as Portellus, Mortgage Cadence, United Capital Funding, Well Fargo, Cap Gemini, Arthur Anderson and others.  He can be reached at (623) 693-1237 or via e-mail at dcolwell@loan-score.com. The company’s Web address is www.loan-score.com.


Consumer Direct Lending: Where It’s All Going (Part One)

By David Colwell

For years, lenders have discussed the importance of the online consumer lending channel. However, in practice the market was lacking in demand and consumer commitment to justify the expense of this channel. But the recent market downturn, trends and advances in technology have changed the appeal of using this channel due to several converging factors.

Let’s start by rewinding to the early 2000s. At that time, we witnessed what appeared to be method-of-doing-business phenomena—the rise of the Internet. Even some of the best market analysts felt the World Wide Web would deliver utopia; buying items faster, more efficiently and at a lower cost. But sometimes we can get caught up in the current psychology of the market and start believing there are solutions capable of solving world hunger, for lack of a better description. Do you recall Los Angeles-based PINK dot’s lofty aspirations of transforming the way household groceries are delivered—by a van? All you needed to do was jump online, place your order and within 30 minutes you’re groceries arrived at your door. While the company is still around, the model didn’t exactly take off and never expanded outside of Los Angeles County. And let’s not forget Pets.com, which raised $82.5 million for an IPO offering, but shut the site down when the business model was determined not to be a viable model.

The point is that consumer demand, the business model and its ability to add significant value is at the heart of any successful online venture. Many dot-com ventures failed, but quite a few did become raging success stories. No one ever jumped online and immediately began trading stocks overnight, or doing their taxes, booking airfare, or handling sensitive banking transactions; but, today those are all mainstays for the way business is done. Now, fast-forward to the present as the dot-com bust is yesterday’s news but the financial services industry bust is ongoing. Anyone who’s bought a house in the last few years can attest that the process seems outdated, with the filling out of reams of paperwork and the long, drawn-out, paper-intensive closing, in which the homeowner signs scores of documents without ever actually reading them. One wonders if this might have been a factor in the subprime mortgage crisis.

Well, if you believe the industry lenders they now feel that the tide has turned and the industry is ready to invest in online consumer lending. A survey of 330 U.S. financial institutions conducted in early 2010 by market-research firm Lieberman Research Group, finds that most banks and credit unions are on the verge of adopting online-lending technology. While only 18% of lenders surveyed currently provide borrowers with an online mortgage application, 71% of banks surveyed say they will offer the technology in the near future. Nearly half (46%) of the lenders surveyed are evaluating or planning to evaluate “smart” application solutions, and of those, about two-thirds (63%) plan to implement a solution before 2012. In addition, most lenders feel that online lending will be the fastest growing channel and banks expect their online application volume to triple by 2013.

So why the change in lender attitudes? If you review the evolution of any Internet-based business models that have been successful, there was a common thread which was the convergence of three critical success factors:

*  A shift in consumer attitudes and buying behavior

*  A change in business perspective that utilizing the internet would either increase market share or drive more profitable business

*  Technology enhancements enabled the business to implement a successful model

This convergence has finally occurred in the lending industry. Consumers are becoming increasingly tech-savvy. But what’s really leading the online lending charge is the willingness of consumers to adopt and embrace mortgage originations performed online. With each “generation,” online transactions increase. From the baby boomers to Gen Xers to Gen Yers, we’ve seen a clear increase in online uses among age brackets. And now we have the emerging Gen Z, a.k.a. “Generation I” (Internet Generation).

I believe that what we will began seeing is the Gen X and Yers starting to explore their options to being approved for a loan online. The Gen Xers can already easily afford homes and many of the Yers have built enough savings to do so as well. The negative public perception surrounding the entire mortgage supply chain will help drive this, but moreover it will be tech-savvy users who facilitate what will eventually become a fundamental shift in the way mortgage loans are started.

Lenders have finally recognized that the technology is finally available to drive profitable origination volume via the online lending channel. Online lending is here to stay; and, in my opinion, it will become the dominate origination channel in the next three to five years.

David Colwell is currently the EVP of Loan-Score Decisioning Systems, an enterprise-class pricing and automated underwriting solutions provider. He holds more than 23 years of experience in financial services and mortgage banking. David has a deep understanding of mortgage technology solutions and has worked for organizations such as Portellus, Mortgage Cadence, United Capital Funding, Well Fargo, Cap Gemini, Arthur Anderson and others.  He can be reached at (623) 693-1237 or via e-mail at dcolwell@loan-score.com. The company’s Web address is www.loan-score.com.

The Power of Cultivating Strong Broker Relationships

By Joe Bowerbank

The mortgage industry as a whole has gone through so many changes in the past few years. At one point, many thought that the publicly vilified wholesale space was all but a dying channel. With a multitude of complex regulatory pressures and industry-wide scrutiny, many investors stopped buying broker originated loans and lenders consequently looked to jettison their wholesale business or close their doors altogether. While the wholesale channel did survive and is still a viable model, it is certainly a vastly different landscape than lenders were used to. What was once a massive pool of brokers that lenders had the luxury of cherry picking those to do business with, we now see lenders fighting to earn the business of only the most reputable, profitable and successful brokers.

In order to compete effectively in today’s tough wholesale space, lenders must offer tools that attract top tier brokers that will consistently originate quality loans in an efficient manner. This requires offering various technology tools at the point-of-sale (POS) that helps them to be more successful. In turn, this means more business for wholesale lenders seeking growth. One of those technology offerings is a feature-rich broker portal that empowers originators with the ability to quickly locate best-fit products and pricing and offer an initial pre-qual. If the borrower likes what they hear, then a full 1003 can be completed, credit can be pulled and an automated underwriting pre-approval can be provided along with a lock request. Brokers should then be able to return to the portal to manage their pipeline and provide the borrower with real-time status updates as to what conditions remain and where the loan is at in the underwriting process.

Being empowered with technology to provide borrowers instant, accurate underwriting decisions and pricing while on the phone and then being able to provide borrowers with regular status updates throughout the lifecycle of the deal provides excellence in customer service between borrower, broker and lender. Ultimately, the broker returns to do business with the lenders that have the best service levels and technology to help them close more deals. But, so many of today’s wholesale lenders either have inadequate decisioning capabilities or no functionality at all. It puzzles me as to how these wholesale lenders are able to maintain a steady flow of volume, or even keep their wholesale business afloat.

I can tell you that when I bought our home, I recall sitting down with the broker that our real estate agent recommended. We filled out the application together as he was working in Calyx Point. Because I am in the mortgage industry, I asked if I could look over his shoulder and watch him work. He was proud of his easy-to-fill-out electronic 1003, some of his “neato” CRM capabilities and his ability to pull up the primary lenders he likes to do business with. I tried to explain some of the mortgage technology decisioning tools that are made available by many lenders; he looked at me like a deer in headlights.   When I authorized him to pull our credit, I expected him to receive an instant decisioning result from lenders A, B, C, etc. He quickly responded that he needed to fax our application and make a few calls.  I called and e-mailed him constantly seeking status. Days upon days passed and my wife and I still had no answers.  When he did finally locate a lender that fit our loan motivation and price, I then had to constantly call him for status and he, in turn, had to call the lender, and then call me back, many times getting one another’s voicemail. So, more than a week into this cumbersome cat-and-mouse process, I began to shop him around. In fact, I came very close to doing the deal with a bank or direct lender that was able to give me concrete answers — a program, price and underwriting approval upon my first call to them. The anecdote is this:  had my broker been dealing with lenders that offered technology that returned an instant decision and automated underwriting pre-approval, he would have had me locked from the get-go. Lucky for him that I did not go elsewhere, but it came close.

Despite the negative publicity surrounding the broker community, brokers do serve a valuable purpose. Depending on the strength of the relationships they have forged with key technology-centric go-to lenders, they should be able to quickly find would-be borrowers the best rate and product given their motivation.

The bottom line is that our industry has changed drastically in a very short period of time. Operating in a vastly different wholesale lending landscape has every entity that is part of the wholesale lending supply chain doing things differently. Lenders need to offer brokers powerful POS decisioning tools, and brokers need to be able to take advantage of those tools to better serve borrowers and secure new business. Both lender and broker should be cognizant of this; what you may not be doing can hurt you. Don’t get left behind, as you’ll be at a competitive disadvantage sooner than later, if not already.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


Rethinking The Use Of Automated Underwriting (Part Three)

By Joe Bowerbank

The return of Automated Underwriting is now allowing lenders to do more with less. Multiple business channels can simultaneously grow without the need to add more underwriters. As an example, let’s say there’s a wholesale mortgage banker that is expanding each month and has plans to launch a new retail business line. In order to accomplish this, the company would normally have to scale up and hire more underwriters, but the use of an AUS performs the majority of work at the POS, parsing a detailed tri-merged credit report into an easy-to-read format, providing specific if/then/else logic for selected programs, returning all conditions that must be met, and a provide conditions management workbench for underwriters to utilize. This allows underwriters to underwrite more files, as they spend less time decisioning and conditioning files and more time as reviewers of the loan file. And there’s more.

Mortgage technology analyst Jeff Lebowitz, who releases the annual MORTECH report on industry trends, estimated that the AU systems – LP and DU generate revenue in the neighborhood of $200 to $250 million a year. So, the amount lenders must pay the GSEs for the use of their AUSs results in hefty monthly costs, thus affecting the bottom line. It is for this reason that lenders are increasingly implementing their own AUS to utilize as a ‘deal filter’ to cuts costs. For instance, let’s take a retail mortgage banker that empowers their loan officers to pull DU/LP at the POS just to see if they can do they deal. If it’s ineligible, lenders still incur a transaction fee. This fee could be avoided if their own AUS had been utilized to pre-scrub deals at the POS with the return of detailed pass/fail result. At the end of the day, this cuts down tremendously on unnecessary GSE AUS pulls. In a profit-pinched market where even 5 to 25 basis points makes a difference as opposed to the old days where lenders enjoyed a profit of about 400X-500 basis points on a subprime loan, using your own AUS makes a lot of sense. And there are more ways AU technology can help improve the mortgage space.

Another benefit of having an AUS is that if lenders and banks use their own custom pricing, guidelines, overlays and adjustments, they can be blended with the GSE AU findings, effectively circumventing the time consuming, tangled task of manually applying overlays to loan scenarios. In this situation, relying on GSE AUSs creates a painful waiting game for originators and also risks the possibility of deal fallout. AU engines reflect “true” market standards that take the subjectivity out of underwriting.

And then you have LOs and brokers who gravitate toward lenders that offer robust POS tools and functionality to make them more successful. The instant pre-underwriting approvals that an AUS generates is a value-add that attracts top tier sales talent.  In a highly competitive market, salespeople look for anything that will help them close more deals.

The way business is conducted in this new lending landscape is vastly different than we once knew it. This all starts where loans are originated —  the POS. Lender-operated AUSs have again become important to mortgage bankers and are now being used for a variety of additional functions than they used in the past. They yield more value above and beyond what pre-qual systems and DU/LP offer. Sure, DU/LP almost always needs to be pulled on the back end to satisfy today’s investor requirements, but the bottom line is that the efficient use of AUSs has completely changed due today’s ultra-competitive, highly discriminating and regulation heavy market, making them more important now than ever.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.


Rethinking The Use Of Automated Underwriting (Part Two)

By Joe Bowerbank

In the last edition I provided a bit of a history lesson on the use of automated underwriting technology. Now that you know where we as an industry have been, I think it’s important for you to know where we’re going with this technology. Today AUSs are being used in a much different way, serving a number of different and newly identified purposes.

Consulting firm CC Pace released a research paper in November of 2007, which they dubbed The Future of Automated UnderwritingMore Important than Ever. The firm’s research concluded that AU was more important than ever, and that companies should emphasize the AUS as their most important operating platform. This paper is spot on. We are now faced with intense scrutiny to ensure loan quality and consistency. Drastically tighter underwriting standards along with the use of a credit-focused AUS can effectively address loan quality issues. How so? I’ll tell you.

Subsequent to the mortgage crash, the utilization of AUSs waned. This occurred for several reasons, ranging from a perception that there was no longer a need for lender-owned and operated AUSs due to the fact that they were cost prohibitive to own and given market shifts they were too risky to use. It is worth noting that in-house AU platforms were largely used to underwrite custom subprime products. When investors’ appetite for subprime evaporated and everything turned to agency paper, lenders shelved these applications and began incurring DU®/LP® transaction fees to determine if loans were eligible.

So, automated underwriting remained, but the GSE’s AU platforms now underwrote most loans. We saw first signs of this trend begin to develop in the summer of 2007 and gain critical mass very quickly. Lenders’ loan officers began using SaaS-based product and pricing engines (PPE) as a means to determine if deals “may” fit. And if deals “appear” to fit, the LO often pulls DU to see if the loan is eligible, only to discover it is not. This approach works, but it’s far from ideal. As liquidity in the secondary market began to loosen up, warehouse lines became a bit more accessible and the industry as a whole started to feel better about a gradual uptick in volume. Many lenders grew at rapid rates, and they needed the right technology to manage that growth.

Back office end-to-end loan origination systems (LOS) typically have AUSs embedded within them; but the problem is that lenders need FTEs to oversee guidelines. The total cost of ownership (TCO) to maintain their own rules engines/decisioning platforms is too high, and what’s more, lenders don’t want to be in the business of managing constant changes to complex pricing and guidelines. This is the primary reason that we no longer see lenders paying $500k+ for a self-hosted, self-managed in-house AUS that they are entirely responsible for. That is in part why SaaS vendors quickly gained momentum due to their outsourced maintenance of business rules, pricing and guidelines.

Further, automated underwriting systems are well-equipped to address a number of the changes the industry is currently experiencing and will continue to experience. Because AUSs decision off of the entire set of investor underwriting manuals, the credit-based decision it returns is extremely accurate. In fact, an AUS effectively simulates a human underwriter’s decision — only faster and more exacting for every loan originated. SaaS-based AU vendors ensure that guidelines are strictly adhered to, pricing is accurate and loan quality is consistent. Since using your own AUS can be run multiple times, risk is mitigated as data points may change. Further, the use of an AUS standardizes your decision and conditions management and speeds up turn times, which makes investors and warehouse lenders happy. What else can an AUS do? I’ll tell you next week.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.

Rethinking The Use Of Automated Underwriting (Part One)

By Joe Bowerbank

During our industry’s refi boom, making money was all too easy for the entire mortgage supply chain. Most lenders were so profitable that carefully managing expenses was all but an afterthought. The rush to aggressively market to borrowers, quickly approve them and get loans funded was at the top of every lender’s list. Automated underwriting systems were arguably the most important piece of a lender’s technology stack, which enabled thousands of loans to be originated rapidly, underwritten, funded and sold on the secondary market.

The growth lenders experienced was unprecedented, and they needed decisioning technology to help manage expansion as profits soared. The bulk of lenders had various technology platforms in place, but they were more focused on increasing volume than on risk management, quality or streamlining operations. Simply put, most lenders weren’t strategic and forward-thinking about how they utilized technology. They didn’t care that systems were often disjointed, didn’t talk to one another and that the right arm often didn’t agree with the left, thus hampering efficiency, transparency and accountability. While working at several mortgage technology decisioning vendors during the boom, I regularly observed mortgage bankers outlay large amounts of money in software licensing and implementation fees merely for the promise that this new “silver bullet platform” would allow them to originate more loans at a faster pace. It’s fair to state that the lender processes of yesteryear were volume-driven, broken and had little concern for the long-term impact it would have. Here’s what works now:

Today, however, lenders operate in a completely different marketplace. After the crash, lenders transitioned into a cash conservation mode. Those who didn’t end up on the “Lender Implode” list suddenly had to run their businesses in a much different way, focusing now on quality, visibility, cost cutting and operational efficiencies, all of which are critical to the overall health and sustainability of the business. The use of enterprise-wide technology was all but an afterthought. Survival was king. Some lenders even ceased paying software maintenance fees to stay in the game. Technology just wasn’t a priority.

In March of 2007, the New York Times published an article entitled The Subprime Loan Machine; Automated Underwriting Helped Fuel a Subprime Mortgage Boom. In that article, AUS vendors were targeted as a key facilitator of the mortgage meltdown. To my aforementioned point, whether it was built or bought, AU platforms were used by nearly every lender as a means to pump loans in and out of the door.

Similarly, in May of 2009, the well-respected firm of Rick Grant & Associates (RGA) wrote an article that appeared in Housing Wire magazine entitled The Rise of the Machines, which placed a focus on the AU systems being a contributing cause to the subprime meltdown. Both articles have varying degrees of merit, but the bottom line is that each piece concluded that AUSs were, in fact, largely utilized as speed factories to approve loans. That was then and this is now. Today AUSs are being used in a much different way, serving a number of different newly identified purposes. OK, the history lesson is over. I’ve set the stage to talk about what happens next for AUSs. Are they dead? Heck no, but their role has changed. Next week I’ll tell you how AUSs can actually aid recovery and bring us as an industry back to health.

Joe Bowerbank is SVP, Marketing & Strategic Alliances at Loan-Score Decisioning. Joe has more than 15 years of marketing, communications and branding experience in the technology and financial services sector helping to build brands and grow organizations. Before joining Loan-Score, Joe was the Vice President of Marketing at Portellus Inc. (acquired by NASDAQ: FISV), one of the fastest growing enterprise-class mortgage technology vendors in recent years. Prior to Portellus, he headed the marketing strategy at Commerce Velocity Inc. Joe can be reached via e-mail at jbowerbank@loan-score.com.