It’s About The Consumer Pt. 2

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TME-RGudobbaLast month, we looked at how the automotive industry as a whole responded to their challenges. They made improvements to their process and required their third-party suppliers to adhere to the same standards. They made improvements to the overall quality and efficiency of their product offerings. They made major commitments to enhance safety. They focused on the consumer and leveraged technology in ways not thought about just a few years back. Certainly, some of this was driven by government intervention and regulations. But, you can’t ignore the fact that the automobiles today are significantly better in all areas then what was produced in the past.

What can we say about the mortgage industry? Let’s start with an overview of the current market conditions. Doug Duncan, Chief Economist at Fannie Mae recently said, “The housing recovery continues to proceed in fits and starts. Rising mortgage rates and a lack of supply have dampened housing market momentum. Those who still harbor doubts about housing, tend to point to economic conditions as the primary issue.” The National Association of Realtors (NAR) annual survey showed the top response was the consumer’s desire to own a home and the desire to own a larger home came in a distant second.

What can we say about homeownership? According to Redfin, National home prices have experienced double-digit increases the past two years. In contrast, inflation-adjusted median household income is nearly the same as it was 25 years ago. “I don’t think people have necessarily stopped dreaming about homeownership; I think many are facing a nightmarish set of marketplace realities making that dream hard to realize,” said Rick Sharga, former mortgage company president and current EVP at Those harsh realities can be boiled down to two key structural challenges, according to Sharga. “Wage stagnation, particularly in the middle class, and stringent new lending rules.” In three recently completed focus groups, Tom Ward, founder of Path2Buy Homeownership Coaching Program, discovered their top two home owning concerns are the status of mortgage interest and real estate tax write-offs and uncertainty about whether the value of the housing market will ever appreciate as it once did. Historically, the first-time buyer accounted for nearly 40% of all residential purchase transactions. But that number is trending downward.

First-time homebuyers are concerned: Do I buy or do I rent? A recent series of articles in The M Report covered this segment. Analysts at compiled a list of cities across five categories that have the biggest impact on buyers new to the market: list price affordability, time on market, employment rates, supply of inventory and location. Steve Berkowitz, CEO, explained how these market economies can expect to benefit from the crucial first-time buyer. “First-time buyers have a widespread impact on the local housing markets. In transitioning from renters to owners, new buyers pay property taxes and other fees and taxes associated with homeownership that benefits local services and services.”

“The focus needs to shift back to what it was when our parents made the decision to buy a home. Shelter and a place to raise a family were the primary concerns. If house prices go up, then it’s a bonus; it’s not automatic. Build equity the old fashioned way, one month at a time. If you take a 30-year fixed-rate loan, eventually your payment will be less than your rent, since that increases every year.”

Looking at loan origination in a new light. I have known Garth Graham, from the Stratmor Group, for many years and always found him to be very insightful, imaginative, inquisitive and entertaining. His recent article, “Why Can’t Mortgages Be More like College Admissions?” is a great example. His article states, Today, college applicants have something called the “Common App,” which allows the applicant to put in all of the pertinent information, your rough GPA, your class rank, extracurricular activities and then it automatically pulls in your SAT scores, in one place. Any college that accepts that is one click away from your application. Imagine what it would be like if mortgage banking worked that way. You could put all of your information into a common online app—your income, your assets—and the system then pulls in your credit score. So, in the perfect mortgage application process, the borrower could press a button and send out all the data, saying “I want to apply to these specific lenders.” Those lenders would then, through whatever process they choose, provide an answer. And we, by the way, are nowhere near that at this point in the mortgage industry.

In a follow-up article, Garth wrote, “Several folks commented that we already had automated decisioning in the form of the agencies’ automated underwriting engines (DU and LP) and therefore that my concept was not that radical.While it is true that we have a standard data set that we use for automated decisions through DU, what we don’t do is allow consumers (with or without help) to fill out one data package and submit it to multiple lenders. Instead, consumers are being forced to use a different interface for each lender, who then creates a single data file to submit to the AUS for a decision.”

Looking at the technology of the future homebuyer. Garth goes on to say:“The common application method used by colleges is not their only impressive use of technology.First off, every school uses email and text to communicate status, and encourages you to create an online account to monitor your status. I am still amazed at how many mortgage companies still don’t do this, or when they do they use mortgage jargon instead of real worlds to describe your status. Of course, many of these colleges are competing for the attention of a different generation of users, so they use email, text and social media to communicate. And guess what happens when this generation graduates, gets jobs, saves up money and wants to buy a house? They are going to expect that lenders are going to communicate with them this way, too.”

There are some positive signs that the industry is moving in the right direction. A recent article in the M Report stated, “According to the JD Power 2013 U.S. Primary Mortgage Origination Study satisfaction across the industry increased for the third year in a row. The study ranks originators by taking into consideration four factors: application/approval process, loan representatives, closing and contact with lenders.

Of note is the fact that Quicken Loans earned the highest ranking for the fourth year in a row.” Personally, I believe it is because of their focus on the consumer. Next month, we will continue this discussion.

About The Author


Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader 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

Change The Way You Think

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TME-RGudobbaOrganizations are facing a multitude of challenges forcing them into making more decisions, and faster, every day. The ability to recognize complex situations and resolve them is a critical skill. The best decision makers accept the challenge and face it head on rather than avoid it. Most of us believe we are capable and impartial decision makers. Unfortunately, the research indicates otherwise.

In ‘The Design of Business’, Roger Martin offers a compelling and provocative answer: we rely far too exclusively on analytical thinking, which merely refines current knowledge, producing small improvements to the status quo. To innovate and win, companies need design thinking. Roger Martin unveils a new way of thinking that balances the exploration of current knowledge (innovation) with the exploitation of current knowledge (efficiency) to regularly generate breakthroughs and create value for companies.

The Four Stages of Design Thinking: In ‘Designing for Growth’, Jeanne Liedtka and Tim Oglivielaid out a simple process for using Design Thinking. Whether your focus is growth, redesigning internal processes, launching new products or expanding into new markets, the basic methodology remains the same. The design thinking process examines four basic questions, which correspond to the four stages of Design Thinking. What is? Explores the current reality. What if? Envisions multiple options for a new and better future. What wows? Makes some choices about where to focus first and What works? Moves into the real world to interact with actual users through experiences.

Five Contributions Design Thinking has made to business. In the Fall, 2013 issue of Rotman Magazine, Jeanne Liedtka listed the following.

1. The Power of Re-framing: Design Thinking helps us ask better, deeper questions that expand the boundaries of the search itself. One of the most serious challenges we fac in our quest for innovation is our own impatience, which makes us rush to solve instead of taking the time to understand. Spending time at the front end of the process to explore the question and it’s context can pay big dividends in producing more effective solutions.

2. Collaboration. How many of us have been trapped in seemingly endless debates between ‘quant jocks’ and ‘intuitives’ or between those advocating the ‘customer case’ versus those insisting on the ‘business case’? Design thinking refuses to get caught up in debates and either/or thinking. Instead, it insists that we develop shared insights and ambitions before generating ideas, and that we use data from experiments (rather than theoritcal debates) to determine the most effective course of action.

3. Curation. Design thinking helps us to drill down to the essence of an issue and see what really matters. This is an increasingly important role in today’s environment. Wired magazine has announced that we have entered the “age of curation,” where we are “surrounded by too much music, too much software, too many websites, too many feeds,too many people, too many of their opinions and so on…” The problem: research demonstrates that too much information actually degrades the quality if our decisions. But it is unlikely that this information bombardment is going to let up. We predict that the future will place even more value on the ability of the design process to cut through complexity to find nuggets of wisdom.

4. Comfort with Emphasis. Design is comfortable with ’emptiness’ – with leaving space in the emergence of a solution so that many can contribute to it. Managers are often taught the importance of finishing something, making it complete; but artists and philosophers know better. “To finish a work?” Picasso said; “What nonsense! To finish it means to be through with it, to kill it, to rid it of its soul.” In organizations, employees want to be pa of works in progress, too, to feel the sense of discovery as it unfolds. Design thinking builds these possibilities into every step of the process.

5. Speed. The final contribution is an outcome of the previous three: when you combine the engagement and alinement that design’s affinity for collaboration and emptiness makes possible with skilled curation, you get another invaluable asset for any organization trying to move innovative ideas through bureaucracies: speed. Design’s ability to deliver engagement, alignment nd curation greatly enhances speed by removing the friction and subsequent drag created by trying to unite people with different views of the world around a new idea.

Design Thinking: Whatever label it goes by, this approach to problem solving is distinguished by a few key attributes:

>> It emphasizes the importance of discovery in advance of solution generalization using market research methodologies that are empathic and user-driven.

>> It works to expand the boundaries of both our problem definitions and our solutions.

>> It is enthusiastic about engaging partners in co-creation.

>>It is committed to conducting real-world experiments rather then running analyses using historical data.

Let’s explore this further by looking at a recent RFI ( Specifically, the Consumer Financial Protection Bureau (CFPB) seeks information on key consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.

Consumers and Closing

1.)What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?

2.)Are there specific parts of the closing process that borrowers find particularly helpful?

3.)What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?

4.)How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?

5.)How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?

6.)What, if anything, have you found helps consumers understand the terms of the loan?

Errors and Changes at Closing

7.)What are some common errors you have seen at closing? How are these errors detected, if at all? Tell us about errors that were detected after closing.

8.)What changes, diverging from what was originally presented at closing, often surprise consumers at closing? How do consumers react to changes at closing?

Other Parties at Closing

9.)How, if at all, do consumers typically seek advice during closing? In person? By phone? Online?

10.)Where and to whom do consumers turn for advice during closing? Whom do they typically trust?

Closing Documents

11.)What documents do borrowers usually remember seeing? What documents they remember signing?

12.)What documents do consumers find particularly confusing?

13.)What resources do borrowers use to define unfamiliar terms of the loan?

Improving Closing

14.)What, if anything, would you change about the closing process to make it a better experience for consumers?

15.)What questions should consumers ask at closing? What are the most important pieces of information/documents for them to review?

16.)What is the single most important question a consumer should ask at closing?

17.)What is the single most important thing a consumer should do before coming to the closing table?

The CFPB has been very open and shows a strong willingness to collaborate with the mortgage industry in addressing consumer’s concerns. I encourage and challenge everyone to consider the Design Thinking concepts when formulating your response to the RFI. This is the time for some progressive ‘thinking outside the box’.

About The Author


Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader 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


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rsz_tme-jheitzThe potential to inadvertently deceive your customers is risky. When two parties in a transaction have different expectations based on the terms of an agreement, one is likely to be injured when those expectations are not met. They might even feel deceived. And when they do, the consequence may be felt by your bottom line.

In order to mitigate this risk (the risk of engaging in what the Consumer Financial Protection Bureau (CFPB) may see as unfair, deceptive, or abusive acts or practices (UDAAP)), we need to understand what a deceptive practice looks like.

The Seinfeld episode “The Non-Fat Yogurt” provides a case study. Kramer invests in a non-fat yogurt shop. The yogurt is delicious. “How could this not have any fat? It’s too good!” George proclaims. But Jerry and Elaine start gaining weight. The yogurt is tested and turns out to be fattening. Mayoral candidate Rudy Giuliani blames his poor physical exam on the non-fat yogurt and vows to eliminate false advertising in the city. Business plummets.

There’s no questioning the deceptive practice in “The Non-Fat Yogurt.” Back when it aired in 1993, it may have even been a satisfactory, albeit obvious, example of the type of acts your business must avoid to mitigate risks of deceptive claims. Today, however, it is much harder to define deceptive practices.

The industry’s understanding of what qualifies as deception became less clear when the CFPB started deciding what it considers unfair and deceptive in the consumer financial market. The Dodd-Frank Act empowered the CFPB with the authority to prevent UDAAP. This may be the CFPB’s most powerful tool, and they’ve been busy using it, which offers more recent case studies.

“22,500 bonus points-earn a bonus $300.” The institution is offering 22,500 bonus points, equal to a $300 bonus. The consumer accepts the offer, expecting 22,500 bonus points AND a $300 bonus. The customer only gets the 22,500 points. The CFPB deems the advertisement deceptive. The institution must pay the $300 as part of a $112.5 million Consent Order (which included other acts violating consumer financial law).

This case, like many other CFPB UDAAP actions, doesn’t necessarily include clear, intentional deceptive activity. Similar to CFPB orders related to add-on financial products (debt protection, indentify theft protection, credit score tracking) that focus on marketing and suitability of services, the potential for a UDAAP claim involves a subjective analysis. Even if many customers understand the terms or want the product, a potential UDAAP claim may arise if others don’t get what they expect or if a regulatory authority thinks that product isn’t worth the price (for example, deposit advance and overdraft products).

Because it’s more difficult to know what a potential UDAAP claim looks like, your institution needs to keep its eyes open and take affirmative steps to mitigate known risks. First, your institution must develop UDAAP awareness throughout every corner of the company (do it formally and with documentation). If you and your employees think through a consumer lens about whether a product, practice or disclosure could be misunderstood, you will start indentifying and eliminating acts that create UDAAP risk.

Second, your institution should automate the customer-facing processes that inherently are high-risk for a UDAAP claim. UDAAP claims often arise from terms disclosed in writing and often those terms only appeared deceptive because of human error or oversight. Some examples include manually entering loan terms, checking-the-box to determine what features do and don’t apply, or relying on a procedure to make sure every required document gets in the loan package. Automating a customer-facing process can immediately lower your UDAAP risk, and free up resources to focus on what your business is here for — growing its bottom line.

The potential to inadvertently deceive your customers is risky, but if you develop your UDAAP awareness and automate manual processes, a UDAAP claim is less likely to derail your long-term goals.

About The Author


Joel Haitz is an attorney and product specialist with Compliance Systems, Inc. (CSi). Joel is focused on helping financial institutions navigate the complexities of new financial regulations and consumer-focused regulatory oversight. CSi is a highly respected provider of best-in-class financial transaction technology and expertise. You can reach Joel at or visit CSi at

Design Thinking: The New Competitive Edge

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TME-RGudobbaA lot of you know that I started my career over 50 years ago by developing computer applications to facilitate mental health research. I realize this dates me, but I have never been embarrassed about my age. I firmly believe that it is important to appreciate the past in order to better understand the points I am trying to make.

Many of the psychiatrists and psychologists that I worked with had very little knowledge of computers. I also recognized that they might have wanted to have a better understanding about computers but I felt the industry was in such an early fuzzy phase that it would frustrate them more than help. I realized early on that my role was to determine the problems or questions that were puzzling them and attempt to understand what they were trying to do. That was a necessary first step before I could focus in on a solution.

They looked at the work that I and others were doing in absolute amazement. I, on the other hand, was in complete awe of their knowledge of medicine and the human brain and the number of years they invested in reaching that level of understanding. Obviously, I wasn’t going to go to medical school, but I could determine how a computer may possibly improve their studies. So, I developed systems to aid the doctors in their research.

This is when I first developed an insatiable appetite to read as many diverse books and articles as possible. Until now, the literature on innovation has focused either on radical innovation pushed by technology or incremental innovation pulled by the market. In ‘Design-Driven Innovation: How to Compete by Radically Innovating the Meaning of Products’, Roberto Verganti introduces a third strategy, a radical shift in perspective that introduces a bold new way of competing. Design-driven innovations do not come from the market; they create new markets. They don’t push new technologies; they push new meanings. It’s about having a vision, and taking that vision to your customers.

Most companies today have innovation envy. Many make genuine efforts to be innovative—they spend on R&D, bring in creative designers and hire innovation consultants. But they get disappointing results. They yearn to come up with a game-changing innovation like Nintendo’s Wii, Apple’s iPod, or create an entirely new category like Facebook. Those innovations overturned our understanding of what a video game means and how we listen to music. Customers had not asked for these new meanings, but once they experienced them, it was love at first sight.

In his book, ‘Change by Design’, Tim Brown introduces the idea of design thinking; the collaborative process by which the designer’s sensibilities and methods are employed to match people’s needs not only with what is technically feasible and a viable business strategy. It’s a human-centered approach to problem solving that helps people and organizations become more innovative and more creative. Different organizations may focus on one of these as it may fit better in their business framework more than the others. What do we mean by that? Think about it this way:

1. Consider the Users: Obviously, these are the people that will be directly interacting with the application. So, I challenge you to think about what is desirable. Too often we assume we can determine what the user needs and develop the appropriate solution. Henry Ford understood this when he remarked, “If I’d asked my customers what they wanted, they’d have said a faster horse.” Take a step back. Focus on the user. What do they like about the current solution? What don’t they like? How would they improve it? How would they change it?

2. Consider the Market: Ask yourself what’s viable? Companies don’t have infinite budgets. It would be great to have unlimited funds and resources to totally reinvent the space every time you come up with a new technology to solve a problem, but that’s not reality. Resources aside, the market may not be ready for your idea. Remember, you’ve only created a good application if people use it.

3. Consider the Technology: Think to yourself about what’s possible? I would love to see the cure for the common cold invented. It would be a huge breakthrough, but for right now the technology doesn’t exist to make that possible. Always think big, but not too big that you can’t achieve your stated goals.

The myth of innovation is that brilliant ideas leap fully formed from the minds of geniuses. The reality is that most innovations come from a process of rigorous examination through which great ideas are identified and developed before being realized as new offerings and capabilities.

Now, let’s talk a bit about our industry for a second. A lot of people equate being innovative with spending a lot of money and not necessarily pulling in a profit. Given that our industry is now in the midst of complying with new rules while we switch away from a booming refinance market to a softer purchase market, I would suggest that if you don’t employ some of the strategies that I’ve suggested, you won’t be profitable, period.

Why do I say that? Look at the proof of what the status quo has gotten the mortgage industry in 2013: Independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $743 on each loan they originated in the third quarter of 2013, down from $1,528 per loan in the second quarter, the Mortgage Bankers Association (MBA) reported in its Quarterly Mortgage Bankers Performance Report.

Among the other key findings of MBA’s Quarterly Mortgage Bankers Performance Report are:

>> Average production volume was $391 million per company in the third quarter of 2013, down from $439 million per company in the second quarter. The volume by count per company averaged 1,788 loans in the third quarter, down from 1,921 in the second quarter.

>> Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – increased to $6,368 per loan in the third quarter, up from $5,818 in the second quarter. Third quarter 2013 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008.

>> The “net cost to originate” was $4,573 per loan in the third quarter, up from $4,207 in the second quarter. The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

>> Productivity was 2.5 loans originated per production employee per month in the third quarter, down from 2.9 in the second quarter.

74 percent of the firms in the study posted pre-tax net financial profits in the third quarter of 2013, down from 92 percent in second quarter. If this doesn’t call out for lenders to embrace a more innovative approach, I don’t know what does.

About The Author


Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader 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

Manage Transaction-Level Risk

*Manage Transaction-Level Risk*
**By Tony Garritano**

TonyG***Everyone wants to be risk averse. Everyone also wants to be transparent and fully compliant. How do you do it all? You need to break the loan down to transaction-level data and make sure that you’re managed that trusted data instead of forms that can be tampered with. For example, Compliance Systems Inc. (CSi), a provider of transaction risk management technology, has formed a strategic partnership with eOriginal, a provider of electronic transaction management solutions. Here’s why this pairing should matter to all lenders:

****CSi’s IntelleDoc Solutions leverage a single, data-driven system to dynamically assemble compliant documentation for all financial institution lines of business. eOriginal SmartSign Web is an electronic signature solution that offers flexibility, compliance and control within an advanced software platform. With embedded transaction risk management, both systems give institutions unparalleled protection from financial transaction risk.

****The integration of these two technologies will reduce a financial institution’s compliance risk as the systems automatically place signatures in the proper locations and specify the correct signers based on the transaction data. Mitigating the risks of human error in that process cuts costs and reduces the potential for errors. From end-to-end, the transaction is driven by relevant data quickly and efficiently without the need for human intervention.

****“Finding a like-minded partner with the same transaction level focus provides our customers with more ways to reduce risk and enhance security throughout the transaction,” said Reid Smeda, CSi President.

****The seamless integration of the two software systems equips institutions with the ability to reduce costs and speed transaction processing while simultaneously mitigating compliance risks through the electronic management of the whole transaction starting with origination data all the way through the signature and vaulting process. In addition, a representation of the data and software used to produce the transaction documentation will be preserved along with each document. This provides a key enhancement to the process with a precise audit trail preserved with the final transaction documents, providing even greater transaction transparency.

****Joint business partner, FIS Global, is one of the first partners to adopt the combined solution for its financial institution customers. “With CSi and eOriginal, we have partners that are truly looking out for our customer’s best interest. The CSi IntelleDoc Solutions coupled with eOriginal’s SmartSign and Trusted Repository is a powerful solution that not only mitigates risk but also reduces overhead by eliminating inefficiencies in the document production and signing process,” says Ronny Chapman, FIS Global. “Because it’s a fully electronic process, this reduces the level of risk associated with potential mistakes.”

****Bryan Caporlette, CTO of eOriginal, said, “We are thrilled to partner with CSi to bring this integrated solution to our joint customers in the financial services industry. The combination of these two market-leading technologies will provide unmatched protection from financial transaction risk, while delivering the speed and efficiencies of a fully electronic solution.”

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

And The 2013 Winners Are …

And The 2013 Innovations Winners Are …

It was a night to remember. Over 100 mortgage executives gathered to see who the top innovations of the past year were. We recognized innovations that were introduced into the mortgage market between January of 2012 and December of 2012 that truly changed the mortgage market for the better. Understand that this is not a subjective competition. All applications were scored on a weighted scale by every member of the PROGRESS in Lending Executive Team. We looked for the innovation’s overall industry significance, the originality of the innovation, the positive change the innovation made possible, the intangible efficiencies gained as a result of the innovation, and the hard cost and time savings that the innovation enables industry participants to achieve. We encourage everyone to apply online to get recognized next year. But for now, in alphabetical order, the top innovations of the past twelve months are:

a la mode, inc.

alamodePROGRESS in Lending has named a la mode, inc.’s Appraisal Quality Management (AQM) system a top innovation because in a risk-averse market, the AQM service guides underwriters to the issues in each appraisal that require human attention, includes actionable recommendations for improving quality and compliance, an end-to-end audit trail to satisfy examiners and investors, and produces investor-ready loan files, dramatically reducing repurchase risk. AQM is the result of lengthy collaboration between a la mode and MasterServ Financial and AXIS Appraisal Management Solutions. With AQM, risk assessment and investor preparation is transparently integrated with standard collateral valuation workflow. This is important because essential results are returned along with an overall Appraisal Quality Index (AQI) score compiled from analysis of five intelligently weighted risk categories in the appraisal report, consisting of property risk, market issues, completeness of the appraisal report, accuracy of the findings, and the risk associated with the collateral value, making it a true innovation.

Compliance Systems Inc.

CSIPROGRESS in Lending has named CSi’s Configurability tool a top innovation because this product addresses a clear and rising industry problem. With the rapid, extensive and frequent regulatory changes that are hitting mortgage lenders as a result of the 2008 market upheaval, lenders will not be able to maintain libraries of modified standard and custom documents without introducing unacceptable levels of risks. To address this Configurability includes the functionality for lenders to (a) add/append to standard provisions within documents (e.g., a Mortgage/Deed of Trust, Construction Loan Agreement, etc.), (b) replace standard provisions within such a document or (c) suppress/exclude certain standard provisions (“Configurations”); the functionality for lenders to make and manage Configurations internally (i.e., without reliance on a third-party entity for making or maintaining changes); the functionality for lenders to maintain and adapt those Configurations as market, business, policy and regulatory needs change (which is generally frequent, rapid and extensive); the functionality for a lender to create and maintain those Configurations while maintaining the Compliance Warranty of the underlying transaction; and the functionality for lenders to define the business rules/conditions under which the Configurations are to be used in specific transactions.


ElynxPROGRESS in Lending has named the eLynx Expedite Inbox a top innovation because this solution provides a central portal for all consumer documentation. Consumers establish a single account that can manage documents across all loan products, providing a consistent and easily identifiable touchpoint for the bank. The solution is truly innovative because it enables borrower access to all manner of loan documents through a single, bank-branded portal. Instead of borrowers having to search through e-mails for the link to a document, they can simply log in to their secure account on Expedite Inbox and see a visual display of all the document sets sent from their lender, with the current completion status (as well as the status of associated signers, if applicable) and due date provided. These visual displays enable consumers to know, at a glance, how close they are to completing actions and what tasks must take priority.


IndysoftPROGRESS in Lending has named IndiSoft a top innovation because the company has consistently improved business processes in the financial industry, and its RxOffice platform is an innovative technology that is continually enhanced to benefit all stakeholders. From originations, to default management to foreclosure, IndiSoft’s technology has transformed communications and workflow processing. In turn, customers have experienced strong returns on their investments and consumers have been able to work through their financial challenges more quickly, which is greatly helping the financial industry gain stable footing for the future. This year, IndiSoft added a mobile feature and engaged a national law firm to provide users the additional assurance that they will remain up-to-date with all regulatory changes. IndiSoft truly understands the issues surrounding regulatory compliance and the growing need for mortgage companies to implement strong quality control initiatives.

The Lykken on Lending Radio Program

LykkenPROGRESS in Lending has named the Lykken on Lending Radio Program a top innovation because David Lykken saw a need to create a new way for mortgage executives to stay abreast of the latest industry events. With that, the radio show was launched. The radio show is innovative because it takes an old concept (the idea of doing a specialized radio broadcast) and brings that concept into the mortgage space, which has never been done before. Today the radio program averages 30,000 unique downloads of the broadcast every month. In 2012 the industry saw the culmination of and launching of a lot of new rules. Realizing that mortgage lending is quickly becoming a highly-regulated space, the radio program quickly moved to innovate this past year by filling that need.


NCSPROGRESS in Lending has named National Credit-reporting System, Inc. (NCS) a top innovation because for the past three years, NCS has been a driving force behind the mortgage industry’s IRS electronic signature initiative for the income verification IRS Form 4506-T. These efforts came to fruition on January 7, 2013, the day the IRS began accepting e-signatures for Form 4506-T. The e-signature of Form 4506-T will lead to rising consumer satisfaction and mortgage processing efficiencies, while significantly advancing the protection of consumer information and lessening the opportunities for mortgage fraud. Through its work, leadership and influence, NCS was the undisputed leader behind this innovation. Only the NCS team—led by Cecil Bowman, senior vice president for government and industry relations for NCS and a former top administrator at the IRS for 35 years—had the know-how and experience to successfully navigate the IRS bureaucracy and develop trust with the agency.

The Turning Point

TurningPointPROGRESS in Lending has named the work of The Turning Point a top innovation because the company stepped up in 2012 to champion compliance-centric marketing. The FTC’s “Mortgage Acts and Practices – Advertising Final Rule” (that became effective in late 2011) was instrumental in pushing marketing compliance to the top of every lender’s agenda, although this is only one component in an expanding array of mortgage-specific regulations that now seriously constrain marketing activity. Of particular interest is section 321.3 of MAP, which outlines 19 areas where mortgage advertising misrepresentations have been prevalent – including loan terms, fees and costs, and the consumer’s potential for savings or approval – and which “prohibits any material misrepresentation, whether made expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product.” The Turning Point’s SaaS-based MACH3 platform rose to the challenge, introducing “Corporate Control” and confirming MACH3’s status as the mortgage industry’s only compliance-centric corporate CRM and marketing automation solution.




Separating “E” Hype From “E” Reality

*Separating “E” Hype From “E” Reality*
**By Tony Garritano**

***Too often vendors say they can do something, but when you look under the covers it is only half true. It’s a shame, but it’s true. For example, everyone says they can do electronic disclosures and signing today, but can they really? Is their approach really data driven or is it just a work around that they inserted into their existing software? When you’re talking eSigning, eDelivery and eVaulting, you might want to start by looking at Compliance Systems Inc., (CSi) and eSignSystems. These two companies have launched a partnership that will provide CSi’s thousands of financial services clients with eSigning, eDelivery and eVaulting capabilities directly from CSi’s IntelleDoc solution. Here’s why I think this is significant:

****CSi ‘s partners and clients may now elect to incorporate the use of SmartSAFE to streamline all financial transactions, in any segment of banking, consumer or mortgage lending with eDelivery, eSignatures and eVaulting.

****Financial institutions using CSi IntelleDoc Solutions can easily incorporate SmartSAFE and benefit from a reduction in cost and time associated with printing, mailing, and processing financial transactions. Many companies are widely utilizing electronic delivery and signatures to improve compliance with state and federal regulators. Competitive advantage is also a very important driver of electronic transactions in today’s environment.

****“This partnership will help both companies address the significant demand for next generation solutions that require compliant audit trails around the eDelivery and eSignature process,” said Kelly Purcell, executive vice president of eSignSystems.

****eSignSystems’ SmartSAFE includes a SigningRoom that provides a centralized, secure environment where parties  can login to review and eSign documents from the IntelleDoc Solution. CSi’s financial institution clients and partners have many options to integrate the SigningRoom directly into their own business process with similar or like user interface. By extending the look and feel of the CSi’s clients and or partners’ existing web infrastructure, eSignSystems ensures a seamless experience for the end user.

****“Given the regulatory environment of today, our clients and partners demand high integrity around the document and data,” said Roger Gudobba, Chief Strategy Officer of Compliance Systems, inc. “That applies to the eSignature piece as well.”

****Going even further, CSi IntelleDoc Solutions in collaboration with eSignSystems, has been certified with MERS eRegistry and Fannie Mae eDelivery through  SmartSAFE. This includes the dynamic SmartDOC, a mortgage eNote specification required for mortgage transactions. Wells Fargo Funding has also authorized CSi for eDelivery and eSignatures via SmartSAFE for its mortgage correspondents as well.

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

Understanding The News: Vendor Seeks To Break Your Compliance Shackles

*Vendor Seeks To Break Your Compliance Shackles*
**CSi Launches Compliance Resource Center**

***The average mortgage lender is burdened with new rules and regulations all too often. To make life easier for today’s lenders, Compliance Systems Inc. has launched a new website and Compliance Resource Center, or Compliance RC. The Compliance RC is designed to be a source for compliance information, providing the mortgage industry with facts and critical insights on the compliance issues that have the potential to impact your business. Here’s the details:

****CSi’s new website, new branding, and the Compliance RC exemplify the company’s focus on compliantly documenting the financial transactions while mitigating the risk surrounding transactions to reduce resource expenditures, so that the lender can focus on their business and their bottom line.

****“What’s critical is that CSi realized that we are providing value, but we’re not necessarily understood in the market,” pointed out Reid Smeda, Sr., president at CSi. “What CSi offers is so much more than just the docs. CSi is not just a document provider. So, because we have such insight, we are now opening that up and exposing that to the industry through this new offering. The lender can come back to the Compliance Resource Center daily, weekly, monthly, whatever and see what’s new when it comes to new rules and regulations.

****In terms of who in your organization should take advantage of this, advised Mr. Smeda, “For smaller lenders maybe there is a compliance person that should visit the resource center. For larger lenders maybe there is an entire staff. As we see it, the compliance person will visit this resource all the time. But for a CEO, you need to have a pulse of this, too. Is the CEO going to go here daily? Probably not, but the CEO is concerned about risk mitigation.”

****CSi’s compliance professionals are constantly on alert for changes from a variety of sources, including legislation, case law, administrative rules, regulations, and other governing authorities to help mitigate risk surrounding the transactions between you and your customers.

****You can check out the new branding and the Compliance RC at

Things To Ponder: Artificial Intelligence

*Artificial Intelligence*
**By Roger Gudobba**

***Personally I have been working with computers in one form or another for over 50 years. When I look back over the years I am amazed at the progress that has occurred in the computer industry but also disappointed because I don’t believe we have yet utilized all the tools at our disposal to maximize the opportunities that technology makes possible for our industry.

****Computers, in the broadest terms, consist of hardware and software. Hardware is the physical component and software is the instructions that make the hardware work. The job of the hardware is to collect data (through user input with the keyboard, mouse, or scanner), store data (on hard drives and servers), and output data (through monitor display and printers). The purpose of software is to provide an interface between users and hardware so that human will can be exercised in managing the data: cataloging it, defining its logical relationships, and using it appropriately in decisional processes. Hardware capabilities have grown exponentially over the years. Have software capabilities kept pace?

****Computer programs have plenty of capacity when we consider the metrics of speed and memory, but their capacity for logical data use is limited to the intellectual mechanisms that software engineers understand well enough to program into their software code.

****What does this have to do with artificial intelligence?

****Artificial intelligence, or AI, is the science and engineering of making intelligent machines, especially intelligent computer programs. It is related to the similar task of using computers to understand human intelligence.

****The field was founded on the claim that a central property of humans, intelligence, can be so precisely described that it can be simulated by a machine.[i] Aspects of human intelligence of interest in the field of AI include speech recognition, deductive reasoning, inference, and the ability to learn from experience.

****Arthur R. Jensen, a leading researcher in human intelligence, suggests “as a heuristic hypothesis” that all normal humans have the same intellectual mechanisms and that differences in individual intelligence are related to “quantitative biochemical and physiological conditions”. I see these varying differences as differences in speed, short-term memory, and the ability to form accurate and retrievable long-term memories.

****Whenever people do better than computers on some task or computers use excessive computation to do as well as people, we may conclude that the program designers lacked understanding of the human intellectual mechanisms required to do the task efficiently.

****An extension of AI is in the development of expert systems. An expert system is software designed to make decisions or solve problems within a limited domain, like finance, using the knowledge and analytical rules set forth for its operation by its engineers. Automated Underwriting Systems (AUS) and credit score (FICO) are considered examples of such expert systems in the mortgage industry.

****Heuristic classification is another example of AI at work, allowing users to classify an unknown by matching its features against the features of those things that are known. Let’s say we ask an expert system for advice about whether to accept a proposed credit card purchase. The expert system can classify the decision to accept the credit purchase against what is known, such as the buyer’s record of credit card payment, the value of the item he is buying, and the establishment from which he is buying it, including the rate of previous credit card frauds at the location.

****Artificial intelligence was the genesis of creative computer programming. Let’s talk more about this next time.

Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader 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

Things To Ponder: Does Innovation Ever Happen Anymore?

*Does Innovation Ever Happen Anymore?*
**By Roger Gudobba**

***I remember back in the late 90s when everyone was saying the e-mortgage is only three to five years out. Here we are 20 years later and e-mortgages are still a very small part of the market. As I was thinking about this topic of innovation, I thought I’d do some research to see where we were in the 1990s as compared to where we are today. To this end, I uncovered the Mortgage Banking magazine, March 1991 issue. The cover story was “Technology: More systems, less paper”. One article stated, “There is still a lot of paper out there—no threat to Federal Express is emerging yet from this industry. But then again, change is rarely delivered overnight.” What do you think of the progress in the industry in the 20 years since this issue was published?

****As I am told, the definition of innovation is the process of improving an existing product or service and not, as is commonly assumed, the introduction of something better. Personally, I disagree and believe that innovation is about the introduction of new or different tools or methods, especially as it relates to the mortgage industry. This may be a matter of personal perspective, but when I look back at the significant changes in the industry, like the development of loan origination systems, automated underwriting systems, converting from paper to electronic (more on that later), product and pricing engines; all amount to the introduction of something better rather than just an improvement of an existing product. What was the common thread?

****Each of these innovations took a subset of the overall mortgage loan process and thought “how can we do this better?” They began by looking at the start and the end of the process. You need to determine what the objective is, and what the end result is that you want to achieve. From there, you brainstorm on different ways to achieve those results and ignore how it has always been done in the past. It was thinking outside the box that lead to these innovations.

****Michael Fruhling, Founder and CEO of bfs innovations, Inc., in his article Bridging the Innovation Gap published 3/8/2011 stated:

****“In a 2010 McKinsey survey of over 2,000 corporate executives, 84% said that innovation was very or extremely important to their company’s future growth. However, 40% claimed that they select their new ideas on an ad hoc basis. Further, 57% agreed that while they execute well against the few new ideas that they had… they needed more big ideas.

****Net: most corporate executives believe that innovation is important, but a good number of them don’t appear to dedicate sufficient time, attention and resources to building and maintaining their innovation pipeline. The result of this would appear to be an Innovation Planning Gap.

****The McKinsey survey highlights overall, what Michael sees on a more micro scale. A good number of his R&D colleagues lament their inability to carve out adequate time away from the current business to pursue and develop new opportunities. They are similarly frustrated that they lack a proper forum to serve up their inspirations to their marketing peers to build their interest sufficiently to pursue some of these ideas.

****Many marketing managers have new product development responsibilities in addition to their current business obligations. Time restrictions can cause some to feel pressured to pursue more conservative, expedient opportunities, as opposed to more ambitious concepts with greater potential (but also with greater risk).”

****What does all this mean? For “an innovation, to be effective, it has to be simple and it has to be focused. It should do only one thing, otherwise it confuses. If it is not simple, it won’t work. Everything new runs into trouble; if complicated, it cannot be repaired or fixed. All effective innovations are breathtakingly simple. Indeed, the greatest praise an innovation can receive is for people to say: ‘This is obvious. Why didn’t I think of it?’” —Peter Drucker

****What will 2011 bring? PROGRESS in Lending honored five top innovations in 2010. I am honored to be a judge for the competition. Some of the entries were very impressive. I hope to see even more impressive entries as we work toward Innovations 2011. I’m waiting…

Roger Gudobba

Roger Gudobba is passionate about the importance of quality data and its role in improving the mortgage process. He is an industry thought leader 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