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RegTech: The Intersection Of Mortgage And Politics

Home ownership is a sign of stability, security, and a life milestone for many Americans. Ironically, the industry providing the keys to this essential part of the American Dream is constantly in a state of transition, dependent on the political climate. Keeping up with the changing tides emanating from Capitol Hill pulls resources away from business building, hindering many lenders from remaining competitive and providing the best service and offerings to their clients.

Initially built for automation, technology is becoming a force for compliance and competition. End-to-end solutions like Asurity Technologies’ award-winning MRGDocs, a smart loan documents processing system, and RiskExec, a web-based compliance risk analysis and reporting platform, empower lenders to proactively mitigate risk. With 100% compliant loan documents, risk analysis and reporting, state-of-the-art data infrastructure, an ecosystem of expertise from engineering to regulation, and a committed customer and technical support team. Asurity is turning compliance into a competitive advantage for lenders so they can focus on business growth.

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Our editor interviewed (left to right) Kathleen (Kathy) Mantych, Asurity’s Senior Director of Business Development and Sales for MRGDocs; Luke Wimer, Asurity’s Chief Operations Officer; and Chris Anderson, Asurity’s Senior Sales Executive for MRGDocs, about the state of the mortgage industry, regulation politics, the role of technology, and the impact of it all on the economy.

Q: How would you describe the current state of the mortgage industry?

Luke Wimer: The mortgage industry is at a turning point, but a slow one. Everyone is trying to figure out how to electronify processes, new entrants are putting emphasis on the customer experience, and regulatory action, while it has levelled off some, remains a significant factor. This is a challenge because although innovation with control is needed to survive and compete, we are in a sector with razor thin margins.

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Q: What is the biggest challenge facing the industry today?

Chris Anderson: In today’s lending environment, it is increasingly expensive and difficult to originate a loan that is 100% compliant. Over the past seven years, an influx of third-party wholesalers dealing primarily with mortgage brokerage businesses have entered the fray, providing competitive rates and positive customer experiences that some of the bigger banks have yet to perfect. On top of that, interest rates are rising, pushing lenders to consolidate in an attempt to increase share in an already tight market. And of course, regulations are constantly in a state of transition based on the political landscape, with lenders beholden to requirements from the federal, state, and investor levels.

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In response to this increasingly complex and costly scenario, savvy lenders are turning to technology to create efficiencies across the board. The greatest value we offer our clients through solutions like RiskExec and MRGDocs is peace of mind at every stage of the loan lifecycle and leading up to the compliance exams so they can focus on the business at hand, whether that’s making their customer service competitive, increasing market share, or adding new services.

Q: What trends are you noticing in compliance management?

Kathy Mantych: Compliance and technology are becoming an integrated part of the entire loan lifecycle, as opposed to just segments of that cycle. Lenders are focusing not only on automation and efficiencies, but on improving quality and cost as well.

Q: How is technology influencing the future of the mortgage industry?

Chris Anderson: Technology has been and will continue to be the driving force behind increased efficiency and better customer service. Whether it’s technology that automates previously manual processes or a platform or partner that ensures lenders are doing it right the first time, technology is enabling users and borrowers to experience a smoother process from the origination to closing.

Q: What is a major challenge facing the mortgage industry?

Kathy Mantych: One major challenge is the adoption of compliance tools and technology available to mortgage lenders and banks. It’s challenging because the regulatory environment changes constantly. From a compliance risk perspective, we need to adopt new technology in order to mitigate that risk in real time.

Another challenge is that both lenders and vendors have spent a lot of time and money implementing regulatory changes in the past few years, which has distracted them from focusing on their core business – building revenue and providing borrowers with a better customer experience.

Q: There have been a lot of regulatory rollbacks over the past year that were intended to prevent future financial crises – especially as it relates to the housing finance industry. How might that impact the housing industry over the next five years, and the overall economy?

Kathy Mantych: There have been, and always will be regulatory changes, the most significant to date being the recent impact of TRID. By continuing to monitor both sides of the lender to consumer relationship through compliance enforcement and regulatory rollbacks, we should be able to maintain a healthy balance that allows for steady growth.

Chris Anderson: I think these rollbacks can only help the industry. A number of the industry’s new regulations over the past nine years have only made it more difficult and costly to lend money. By rolling back some of the more onerous regulations, we should see consumers having more access to funds, allowing for more loans to be made to borrowers at a lower price.

Luke Wimer: Making it easier for smaller lenders to issue mortgages should have a positive economic effect, and allowing borrowers a little more judgement in loan-making while retaining risk is healthy.

Some of this boost could be offset by consumer protection concerns. For example, requiring less borrower data might lead to an uptick in fraud or less clarity on whether certain borrowers are being fairly treated. There are also indications that there will be fewer violators pursued and less of a voice for consumers. We will not see the CFPB become a “Yelp for financial services”.

We have to look at both enforcement and regulatory rollbacks together. Lenders will behave based on the rules and whether they fear punitive action by regulators. This does not mean lenders will not choose to be compliant; rather, I think their ability to comply with regulations will be reflected in the level of investment or intensity of compliance processes. It appears that federal and state regulators are still focused on consumer protection, which should prevent a complete backslide. Overall, I think banks will benefit from lower administrative costs while remaining compliant and customer-focused.

Q: How is Asurity Technologies helping mortgage professionals overcome those challenges and look to the future?

Luke Wimer: Asurity monitors, interprets, and delivers current compliance so mortgage professionals can focus on giving loans to consumers. We are making good compliance easy by helping mortgage businesses protect their consumers in an informed way.

Kathy Mantych: Our solutions look at the entire loan life cycle from beginning to end. Compliance tools like MRGDocs and RiskExec that bring together years of in-depth regulatory, legal, and technology expertise and experience create operational efficiencies from origination to servicing and beyond.

Q: What do you love about working in the mortgage industry?

Luke Wimer: Home ownership is the American dream. Fairness and consumer protection is a big part of that and an implied promise of our democratic economy and government. We are delivering on these promises every day.

Kathy Mantych: This industry operates like a large family; many of us have known each other for years as colleagues and peers. Together, mortgage lenders and technology providers are creating a positive environment for the consumer. It is exciting to be a part of that rising tide.

INSIDER PROFILE

Luke Wimer is Chief Operating Officer of Asurity Technologies. An innovative executive for more than 30 years, Luke has depth in operations, technology, finance, and product development, and has successfully scaled and transformed businesses. Prior to Asurity Technologies, Luke served as Executive Vice President of Global Operations and Chief Information Officer for MoneyGram, International; Principal at Thomas H. Lee Partners, the Boston-based private equity firm; and as a Vice President at Capital One.

INDUSTRY PREDICTIONS

Luke Wimer thinks:

1.) Boosted by deregulation, big lenders will get bigger.

2.) The big players in the industry may be slow to adopt change but they will ultimately buy technology or copy innovation and edge smaller players out.

3.) We will continue to have cycles of regulation and deregulation. Mortgage lending will remain a difficult business throughout these transitions.

INSIDER PROFILE

Chris Anderson is a Senior Sales Executive with Asurity Technologies’ smart loan document solution, MRGDocs. Over the past 24 years, Chris has worked in various strategic roles across the financial services industry, enabling efficiency and providing better products and services to consumers. Since joining Asurity in 2017, Chris has focused on exploring strategic partnerships, developing business cases for new products and marketing, and setting the strategic direction of product lines.

INDUSTRY PREDICTIONS

Chris Anderson thinks:

1.) As rates rise, borrowers on the fence will finally make a decision that they better purchase now or pay higher interest rates and therefore, higher monthly payments.

2.) Loosening regulations and adjustments to qualifying requirements will enable more and more younger people, like millennials who are saddled with student loan debt, to finally afford to buy their first home.

3.) With the reintroduction of Non-QM (Non-Qualified Mortgage) loans, more consumers with lower than minimum credit scores will again be able to purchase homes where they have not been able to previously since the great recession started in 2008.

INSIDER PROFILE

Kathleen Mantych is a Senior Director of Business Development & Sales at Asurity Technologies. Kathy has a comprehensive background spanning 30 years in complex software environments providing organizations with business growth strategies and leadership necessary to drive revenue and return on investment. She joined the MRGDocs team in 2010 and has spent the past eight years driving the company’s growth and expansion by way of indirect and direct sales channels.

INDUSTRY PREDICTIONS

Kathy Mantych thinks:

1.) The industry will continue to fast-track technology adoption for operational efficiencies.

2.) Compliance complexity will increase with White House administration policy changes.

3.) The lender and vendor community will continue to condense over the next 5 to 10 years due to the overall cost of maintaining compliance amidst new regulations.

New Entrants Are On The Way

The market is getting ready for the digital mortgage. Sluggish market conditions continue as predictions show that mortgage rates will tick higher and average 4.60 percent for the year. Additionally, in July, sales of previously-owned homes fell for the fifth straight month, below year-ago levels. With rising mortgage rates and decreasing home sales coupled with fierce competition in the market, the process and its regulation are triggering innovation to help consumers find the best mortgage deal.

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Digitizing the home-buying process is needed for traditional players to compete with non-traditional players disrupting the mortgages market. The mortgage application system in part remains phone and paper-based which slows down the application cycle. Updating underperforming and costly core-banking systems are a strategic priority for traditional mortgage providers as they compete against fintech and challenger banks.

In an effort to help traditional mortgage providers improve customer experience, new players are entering. For example, Intelenet Global Services have launched a new Lending Suite with their banking clients. Using this AI & Automation based initiative, banks can generate mortgage offers in 30 minutes. The Lending Suite is interoperable with banks existing legacy systems which prove inflexible, reducing processing time by 40 percent and costs by 50 percent.

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Crucially, this solution integrates with existing core systems to deliver significant speed and accuracy improvements without the need to replace current infrastructure. This is important given that less than 30 percent of first-generation Core Banking Systems (CBS) replacements succeed, according to McKinsey.

Nitin Sahni, Director Corporate Services at Intelenet Global Service says, “Consumers are constantly searching for the best deals to enable them to invest in their dream home as quickly as possible. The last thing a customer wants is for this landmark time in their life to be tainted by long waits and arduous processes to get things moving.

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“Revamping the core banking system seem daunting for banks who recognize there is a need to change their system but are deterred from the exorbitant implementation costs. Totally replacing the core business systems, which largely underpin all banking operations is not feasible. Firms are looking for solutions to cut costs and processing times which fit alongside these systems.”

Nitin continued, “Speeding up processes will help traditional mortgage providers retain and expand market share while delivering the best possible customer experience.”

Intelenet Global Services is a global Business Process Services player. Intelenet offers a range of integrated BPM services to deliver benefits to clients through optimized costs, ongoing productivity improvements, and process re-engineering. The organization is committed to delivering its client’s strategic goals and helping in enhancing, broadening, and deepening the relationship to add value.

And it doesn’t end here. My guess is that more new players will be entering the space to help lenders digitize. Hopefully this trend means that lenders are willing to embrace this technology. We’ll just have to wait and see.

About The Author

Tony Garritano

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

Looking For Investment Money?

A lot of startups and mainstay mortgage technology companies are looking for investors. But how do you attract them? Look to other companies that have been successful and follow their lead.

In the article entitled “Best Pitch Decks: The Early Stage Pitch Decks Of The Hottest Funded Startups” by Alejandro Cremades, he talks about how to create a winning pitch deck that gets your startup funded. Whether you are still at seed stage, or are preparing for a follow up series of funding, a lot of your success is riding on a few slides.

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So, let’s take a look at the early stage pitch decks from some of the hottest companies that have successfully raised big money, and see what we can learn from them.

Uber

Uber has a nice sleek and clean pitch deck, as you’d expect. The deck dives deep into the detail of vehicle types and mile per gallon, all plans that seem to have been left behind after the company got funded. It’s a reminder not to box yourself in with specific strategies and tactics you’ll almost inevitably take a detour on later.

Dollars raised so far: $22B across 18 fundraising rounds

Number of slides in deck: 25

Early investors included: First Round, Benchmark, and Menlo Ventures.

Of special note: At the time Uber created this deck in 2008 it projected the overall market being worth $4.2B annually. It has raised over 5x that in funding.

In May 2018 Uber’s CEO said the company was on track to go IPO in 2019.

WeWork

WeWork may prove to be one of the most underrated companies from its early days. Going beyond simply providing co-working space the company is now in the residential apartment market and education.

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Dollars raised so far: $1.7B

Number of slides in deck: 37

Recent valuation: $20B

Early investors included: Benchmark

Of special note: SEC filings showed that WeWork owed $18B in rent as April 2018

Tinder

For a startup banking on looks to generate big profits (with a little help from gamification) Tinder’s early pitch deck seems to be a bit of an eyesore. Though with 8 billion matches reportedly made on the site so far, it’s a hot app people seem to be addicted to.

Number of slides in deck: 10

Recent valuation: $3B+

Sub-Organization of Match Group

Of special note: The company was originally named Match Box

Snapchat

Their deck was a little meaty and heavy on text for what snap stands for as an app. Yet, the company has undeniably appeared to be one of the fastest growing and an app best loved by celebrities.

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Dollars raised so far: $4.6B+

Number of slides in deck: 14

Early investors included: Lightspeed, Benchmark, IVP.

Of special note: Kylie Jenner is credited with knocking out $1.3B in Snap market value following a negative Tweet about Snap’s new redesign.

Buzzfeed

This deck was used when Buzzfeed had just 700k unique monthly views. Many of which were likely to clickbait content, which the company later took down as it attempted to become a more serious news source.

Dollars raised so far: $500M+

Number of slides in deck: 21

Recent valuation: $1.7B

Early investors included: Hearst, RRE, NEA, and Andreessen Horowitz.

Of special note: Buzzfeed shows off an extensive list of team members in this deck, yet, notes all content at the time was handled by just 2 editors, with a monthly burn rate of $60k.

Foursquare

We don’t hear much about Foursquare anymore, but the founders certainly deserve credit for leveraging its deck into millions of dollars.

Dollars raised so far: $155M+

Number of slides in deck: 15

Recent valuation: $600M+

Early investors included: Andreessen Horowitz and Union Square Ventures.

Of special note: Goes beyond basic positioning statements to use competitors as references more than once. It’s good to liken your startup to something investors already know, but be careful that you are actually differentiating yourself and show a need for what you are bringing to market.

Airbnb

Their pitch deck shows a great use of user testimonials and ‘use cases’ on one slide that are easy to understand. Interestingly this deck is far longer than the CEO’s famous one-page business plan to dominate the hospitality space.

Perhaps more amazing is that Airbnb has accomplished all this while technically being illegal, just as Uber was when it started out, and many of today’s cannabis startups were before recent legislation.

Dollars raised so far: $4.4B in thirteen funding rounds

Number of slides in deck: 13

Early investors included: Sequoia Capital, Greylock Partners, and Andreessen Horowitz.

Of special note: Airbnb did a great job of highlighting 3 value propositions or problems solved in one simple slide. A feat not normally recommended, unless you want to confuse potential investors.

Why talk about these pitch decks and companies? They all seem to have slide counts falling between 10 and 25 slides. Many of these companies original names changed after they got funded. Like UberCab, AirBed&Breakfast, or Match Box.

Don’t overlook the fact that most of these host companies were born in some of the toughest financial times our country has experienced (2008-2011). They’ve also continually raised money in 4 to 7, or more funding rounds.

None of these pitch decks are perfect, but they worked in conjunction with other factors, like getting in front of the right investors. As you will be able to find with the profiles of investors they onboarded, you will see that very early on they were able to convince top tier investors.

If you’re looking to get funded find the right investors, and with an even better deck you may raise more money, in less time and achieve even more.

About The Author

Michael Hammond

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

The Drawbacks Of Developing Your Own Digital Mortgage Solution In-House

In today’s thriving mortgage industry, lenders are jumping at the chance to implement digital point-of-sale applications (POS). While some lenders have made the decision to develop their own application and website in-house, other lenders have taken the initiative and devoted this job to experts in the software development space to handle. In doing so, lenders assure that they create a digital mortgage platform that both benefits their borrowers and reduces operating costs.

Building a digital mortgage solution from the ground up is not as easy as it may sound. It is 2018 and technology has grown rapidly over the last ten years or so, becoming more complex and involved. As it continues to change, we will be faced with new and more in-depth challenges that we have to be readily equipped to tackle. There is nothing truly straightforward when it comes to today’s technology and quite frankly, lenders don’t have the time to develop their own advanced solution in-house. They need to be devoted entirely to the borrower, rather than grasping at straws attempting to develop their own digital mortgage solution.

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Part of having a fully developed digital mortgage solution includes a POS system. Thanks to digital POS applications, lenders can now validate a borrower’s employment, assets, and income all within a matter of seconds, which is how the mortgage approval process has been sped up.

POS systems enable lenders to give their borrowers an all new, digitally enhanced, and fully automated mortgage application that cuts operating and closing costs while saving time and energy. For example, a borrower and their loan officer can communicate back and forth through their loan portal, uploading documents, pay stubs, etc. without leaving the comfort of their living room. Due to the digital era, the borrower no longer has to go back and forth between their bank and their loan officer in order to get approved and close a deal. Whether they are on the go or sitting stationary at home, home buyers can easily apply for a loan online and get approved in a remarkable amount of time. What used to be more than a month long, ongoing process can now be done in significantly less time.

Award-winning digital mortgage solution providers are devoted full-time to developing these solutions which make them extremely difficult to replicate. Their developers are there to build, establish, and execute lenders’ websites, however their duties don’t end there. Digital mortgage solution providers are readily available to train clients on how to navigate their corporate site, branch sites, and loan officer sites as well as edit them themselves to incorporate features they may want such as adding or deleting a specific loan officer. Not only will they help you to become an expert on your own website, but they will also be there for any dilemmas that pop up. If a company is trying to build their own solutions in house, odds are that they are learning as they go; They work for a mortgage company, not a digital mortgage solution company. Therefore, they are not trained and are not as experienced as the developers who are doing this all day, every day.

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In addition, it is by no means cheaper for a lender to develop their own digital mortgage solutions in-house. The average salary for a typical senior developer is upwards of $100,000 which is approximately the amount, if not more, what they’d be paying a digital mortgage solution company. Keep in mind that you’d be expected to pay more based on their experience, as well. That is not including any other factors, such as hosting fees, server administration or what a they’d be paying for additional developers, project managers, etc. The bottom line is that development costs add up quickly.

Potential home buyers need a simpler, faster way to get a mortgage. In order to do so, there needs to be a development team solely devoted to providing the finest products on the market. Between the most up to date digital POS applications and custom website solutions, there is no need for lenders to waste time building their own digital platform.

POS applications need to revolve around efficiency. Let’s face it: not all questions on a typical 1003 application applies to every borrower. Therefore, individuals are answering questions that have nothing to do with them and doesn’t affect their loan. For example, leading applications in the industry have the ability to only provide the borrower with questions that apply to them. If a user states that they are married, another drop down box will automatically appear regarding number of dependents, and then their ages. Some borrowers feel overwhelmed with these mass amounts of questions, which is why providing them with only the questions that applies to them really matters.

Many providers run analytics on their POS application on a monthly basis. Where the industry typically has a 75% abandonment rate amongst digital POS applications, very few have as low as a 12% abandonment rate. With this being said, more borrowers are enticed to complete the application due to its overall smooth-sailing efficiency.   They can also analyze borrower behavior to see where users run into trouble in hopes of optimizing the product, allowing mortgage professionals to close more loans. This takes experience to accomplish, however. In order to complete features such as these in digital solutions it takes a full team of developers who know what they’re doing. Ultimately, a lender could be paying close to a half million when it comes to in-house development. They would need equipment, a well established team, plus the costs of managing and maintaining the solutions.

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In addition to in-house developed POS systems, one of the worst things you could possibly do is utilize the same website layout that every other mortgage professional is using. Not only does this make your website appear to be boring and unappealing to the borrower, but in-house developed websites also have a slew of other concerning issues that could affect your business as well as the individuals involved.

First and foremost, some sites that businesses are using to build their platform have security issues that could potentially put the borrower’s personal information at risk of a hacker. Some of them do not even limit login attempts, meaning that even if a hacker unsuccessfully breaches your login, your system can overload as a result. Your account can also then be suspended due to these failed login attempts. The PHP code that runs a website can also be easily exploited, which would give unwarranted access to the website. You must also keep an eye out for SQL injections where hackers try to insert data into your database in hopes of linking your site to malicious or spam websites. It’s best to avoid these horrendous problems that unfortunately do occur, and utilize a custom mortgage website where developers are trained to handle situations like these.

One of the biggest advantages of choosing a digital mortgage company rather than developing in house is being able to have a site admin manage websites for the whole team. This ensures that they are always compliant.

Aside from the extensive security problems that lenders can experience from an in-house website, they also must remember that added features like plugins, extensions, and add-ons will cost extra. As you can imagine, the price can add up in order to get the full website you really want. However, these extra fees can be avoided all together by utilizing a custom mortgage website that includes all of these services. All in all, this would be the right way to go if you want to ensure that homebuyers are going to choose you. Digital mortgage companies take their systems very seriously which is why more and more lenders are choosing them every day.

Many digital mortgage solution companies are centered around creating a lead capture friendly mortgage site with a comprehensive CMS (Content Management System), a prequalification application, member portal, LOS bi-directional sync, mobile responsiveness, and a wide variety of other features. These features help to further ensure the safety and privacy of homebuyers’ personal information. Loan officers and brokers even have the ability to use this system in order to obtain more leads online. In that way, these custom sites are always built with home buyers’ and the mortgage company’s best interests in mind. It is simply more efficient to pay a one-time fee and get exact what you want rather than finding your own developer and having to pay them more than what you’d be paying to out-source.

Remember, professionals who do this for a living will be able to do things that you’ve never even thought of, in a lot less time. Being a lending expert is one thing, but being a lending technology expert is a whole other circumstance. The main focus of a mortgage company should be on potential homebuyers, and not on their website. There are skillfully trained developers who put all of their time and energy into applications from start to finish which is why they will be more successful than any in-house development.

It’s understandable why building a solution in-house may seem like the best choice at first, but it’s important to review everything at hand before making the final decision. In the end, working with a digital mortgage company to get the full works may ultimately be the best option.

About The Author

Curt Tegeler

Curt Tegeler is responsible for providing direction for action to all employees and business initiatives. Tegeler’s main responsibilities include communicating and implementing the company’s vision and mission; leading, guiding, directing, and evaluating the work of executive leaders; formulating and implementing the strategic plan; forming, staffing, guiding, leading and managing WebMax; evaluating organizational success; and represents WebMax in civic and professional activities.

Why Lenders Should Be Aware of Exemptions

As a homeowner, how would you like to pay less in property taxes, or even not have to pay those taxes at all? Many homeowners and lenders are familiar with the term exemption. It’s a discount or benefit given for meeting certain requirements. Common examples are a homestead or primary residence exemption, usually a credit applied to taxes if the property being assessed is where the borrower lives. Other common exemptions are disability or disabled veteran, given to people with disabilities or who have served in the military and are now disabled. Exemptions are also usually given to people who are 65 years of age or older, or if the property is used for a special purpose, such as agriculture. Exemptions like these help people who may have trouble paying their taxes keep their properties. Exemptions also lessen the amount that a mortgage company will have to pay if it’s an escrowed account.

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The financial effect of these exemptions can be substantial. Some states will give a large credit for the exemptions. For instance, if the property is a combined Homestead and Disabled or Homestead and over 65 status, it surpasses the taxes that are assessed to the property and the borrower does not have to pay property taxes. Sometimes, like in Texas, people with certain exemptions can qualify to have their taxes deferred, so the taxes will not have to be paid taxes until they move, pass away, or try to sell the property. People in Texas also can enroll in a special installment plan. In other situations, the exemption provides a credit that lowers the total taxes that must be paid. The requirements, benefits and application process for the exemptions can vary from state to state, and often local agencies check yearly to see if the exemption still applies. An example would be checking a property with an agricultural exemption to determine the last time there was actually farming on the property). It’s always best to check with the website of each state to understand the nuances of each exemption.

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If the county discovers that a property did not qualify for the exemptions granted, a reassessment can occur. When this happens, the taxes that would have been owed if the exemption was not applied become due. As a result, the property will suddenly have delinquent taxes that lenders were not aware of and the consequences of these delinquencies can range from having extra penalties and interest added, to possible property loss depending on how the county manages delinquencies.

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It’s always beneficial for lenders to be vigilant and pay attention to what is happening with the properties on which they have issued loans. If a borrower violates a requirement for an exemption, such as not farming on land with an agricultural exemption or filing a Homestead exemption even though it’s being used as rental property or for commercial use, the lender will ultimately end up paying more or even losing the property. One way for lenders/servicers to stay on top of this information is to stay in touch with the county tax offices and assessors and pay attention to any correspondence received from them. This can be a time consuming task. If lenders do not have time to constantly monitor this information, working with a business partner that has employees trained to be experts in tax laws would be prudent. Lenders should look at keeping up with exemptions as protecting their investment and saving themselves from unwanted penalties.

About The Author

Neil Gantan

Neil Gantan is a delinquency processor at LERETA, LLC and has worked on delinquent property tax research for the last six years. He has a Bachelor’s of Science in Business Administration from Cal-State Long Beach and has participated in 6-Sigma projects and has a 6-Sigma Green Belt Certification.

Creating Borrowers For Life

Ever since the housing market took a hit back in 2008, the industry has been struggling to bounce back. The imposition of stringent federal regulation, coupled with shifting priorities for younger demographics that have, historically, held home ownership in high regard have taken their toll on lenders’ bottom lines. Lead generation is getting more expensive by the day, while the overall quality of those leads is slowly deteriorating.

The most frustrating aspect of the mortgage landscape, however, is that those leads that could potentially be converted into new business are falling by the wayside because of sub-par credit scores. To those in the lending industry, it’s common knowledge that poor credit is one of the most common hurdles consumers face when it comes to homeownership. The Federal Reserve Bank of New York conducted a study in which it concluded that over one-third of all Americans have a FICO score below 620. One third; that translates into over 90 million people (only takes those over the age of 18 into account). To compound that statistic, the Consumer Financial Protection Bureau estimates that there are another 45 million people who do not even have a credit score. There is little doubt that lenders in today’s market are fighting an uphill battle.

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Loan officers across the country are forced to turn thousands of potential clients away every single day because their credit scores fall just short of the qualifying threshold. When an applicant’s credit score is ten, twenty, or thirty points short of the score required for eligibility, many lenders are tempted to intervene and advise those would-be clients to take remedial steps to raise their scores. The advice could be something as simple as paying off a credit card to lower their debt to credit ratio, or disputing a delinquent account that the prospective client maintains was reported incorrectly. These minor steps might be just enough raise the applicant’s credit score, qualify them for a mortgage on their dream house, and earn the lender a life-long client. However, few lenders realize that providing this type of advice to consumers, no matter how well intentioned, could subject the loan officer and the organization for which he or she works to serious liability from both, the federal government and the consumers to which the assistance was provided.

The Credit Repair Organizations Act (“CROA” or the “Act”) is a federal law, which falls under the broader Consumer Protection Act. Under CROA, any person or entity that provides any advice or assistance to any person with the goal of improving their credit in exchange for valuable consideration (i.e. the sale of financial products) can be classified as “credit repair organization” under the law, even if they’re not being directly compensated for providing that advice. A reclassification of this nature could have a devastating impact on any organization that engages in the practice of providing this or similar assistance. Once a company is classified as a “credit repair organization”, it becomes subject to all of the stringent requirements imposed by the other provisions of the statute, which, if credit repair were not the main focus of that lender’s organization, would almost certainly mean that the lender is conducting its business in violation of the law. The Consumer Financial Protection Bureau has begun to take an interest CROA cases, and has already reached seven-figure settlements with several companies that have run afoul of the statutory provisions.

In addition to potentially being subject to governmental backlash, many lending organizations that provide this type of assistance to their potential clients also risk being stripped of their ability to pull credit. Surprisingly, few people in the industry are aware that many of the largest providers of independent verification services require lenders to certify that they do not engage in credit repair. These prohibitions are often glossed over because many lenders do not realize that the advice they provide actually puts them in breach of these agreements. If these verification services discover that the lenders with which they contract are engaging in these practices in-house, they could very well, and most likely will, terminate the contracts and refuse to provide their services in the future.

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Because of the ever-increasing competition in the mortgage industry, it is imperative for lenders who wish to succeed to undertake initiatives to ensure that they stand head and shoulders above their competition. For the last few years we have seen a shift from a refinance to a purchase market. Additionally, the average origination costs have been steadily increasing, while the quality of leads is on the decline due, in part, to the credit difficulties widely experienced by consumers. Taking all of these factors into account, the question then becomes, “how?” “How can I differentiate myself from my competitors? “How can I increase my conversion rates?” “How can I establish a rapport with my clients to ensure repeat business and brand loyalty?”

One solution is to form strategic partnerships with third party companies that are able fill in gaps by providing services that you cannot. As discussed above, there are thousands of consumers who get turned away every day because of their credit scores. These consumers look great on paper in terms of employment status, income, and other assets, but their FICO scores render them ineligible for loans. Although lenders cannot and should not attempt to rehabilitate these consumers in-house, they should not just turn them away either. Those unqualified or underqualified consumers represent hundreds of millions of dollars in potential market share and, if lenders are able to implement a system to capture even a fraction of those consumers, they could bolster their bottom line by serving what was previously viewed as an untapped market, while establishing customer loyalty by indirectly aiding those customers that have traditionally been brushed off by the competition.

There are several not for profit entities that specialize in credit remediation and rehabilitation no cost to lenders, whatsoever. Although the non-profits were established to benefit consumers, lenders who choose to partner with these companies stand to become ancillary beneficiaries, while providing a niche service to their prospective clients. The effects of implementing this strategy are threefold in that lenders: 1) are able to insulate themselves from the potential liability that accompanies being reclassified as a credit repair organization, while ensuring that these consumers receive the assistance they require; 2) are able to maximize the value of every lead thy receive by providing this service without expending additional time or resources on conversion; and 3) are able to establish brand loyalty by offering a crucial service that competitors do not provide while simultaneously tapping a pipeline of new business.

When evaluating potential partnerships, it is imperative that lenders are able to pinpoint those organizations that are not only reputable, but that employ experienced personnel who are capable of providing the services necessary to rehabilitate the referred consumers. Not only should a chosen not for profit provide credit remediation, it should also provide coaching and education to give consumers who have traditionally experienced credit difficulties the requisite knowledge base to make sound financial decisions in the future. By affording consumers resources that teach responsible borrowing and spending habits, lenders can help ensure that when these clients return to them, ready to refinance or purchase another home in the future, they have the necessary credit profile to allow for an expeditious closing.

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Lenders should also ensure that there are mechanisms in place to monitor the progress of all consumers that they refer to their not for profit partners. This will operate to ensure that not only are the referrals making progress, but that the lenders are advised upon the completion of the rehabilitation process so that they can recapture leads in which they’ve invested considerable time and resources. The lender should also endeavor to periodically follow up with their referrals during the remediation process in order to build stronger relationships, which should lead to higher conversion rates upon completion.

Although it is getting increasingly difficult to close new loans in the mortgage industry, there are plenty of potential sources of business for savvy lenders that know how to recognize them and have systems and strategies in place to capitalize. By differentiating your organization and providing consumers with alternatives to rejection, you have the ability to maximize lead value and cut origination costs, while simultaneously building lifelong client relationships.

About The Author

Elizabeth Karwowski

Elizabeth Karwowski is the CEO of GCH360, a technology company that has developed a proprietary process and solution, which seamlessly integrates with the lenders’ loan origination software (LOS) and customer relationship management software (CRM) in order to create new loan opportunity and recapture leads. GCH 360 helped their partners create over $100M of new loan opportunities in 2017 alone, and plan on continued growth in 2018. As a recognized credit expert, Elizabeth has been featured on NBC and Fox News, and published in a number of financial industry publications.

eDocs, A Better Customer Experience

The industry is changing. Electronic loan documents have come a long way in the past decade. Today, most lenders incorporate eDocs for at least part of the loan origination process, whether it be electronic disclosures, digital closing docs or other document needs. Making eDocs even more effective has been the adoption of eSign technology, which has streamlined the delivery and signing of loan documents for a more complete and convenient experience for the borrower.

One frustrating challenge that has remained, though, is the ability for lenders to easily send one-off documents, independent from the standard loan doc package, in an efficient manner that allows those documents to be attached to the core loan doc package and electronically signed by the borrower. This results in a situation where a borrower can receive and sign some of their loan docs electronically. However, the lender is then stuck sending the other independent documents physically, or including the documents in an electronic package but requiring the lender to print and sign the extra forms, scan, and return via email.

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To provide the flexibility and customization required to compete in today’s marketplace, lenders are turning to two key electronic document technologies. The first is using dynamic document generation to ensure that only the necessary documents – with the right information – are created in the first place.

The second is leveraging integrated all-in-one eSign technology for a complete process including integration with doc generation, ability to customize independent documents for signature, eDelivery, enabling the borrower to sign anywhere, anytime, from any device, built in compliance checks and electronic storage in a secure eVault.

Building Custom Doc Packages

Dynamic documents have become the standard for loan document generation over the past few years. Instead of managing through empty space in a static document template, dynamic documents utilize rules-based intelligence and calculations to automatically pull the accurate data fields from the LOS to create transaction-specific documentation.

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Lenders using dynamic document software can then use the data to electronically generate and deliver accurate docs to the borrower and investor. Dynamic document platforms that leverage two-way data pushback can also greatly reduce the lender’s susceptibility to errors caused by manually reentering data and eliminate the need to manually create new sets of documents for each transaction, enhancing quality, compliance and efficiency.

Dynamic document engines also make it possible to insert other documents a lender might require, such as disclosures of business relationships with settlement services, documents related to the transactions between realtors or change of circumstance addendums. These forms are not generated by standard loan document software, and the ability to insert them into an electronic disclosure or closing package for delivery is valuable.

Building a Custom eSign Framework

Many lenders have taken the first step in using dynamic document platforms to customize their disclosure and closing packages. However, the next phase in providing borrowers with a fully digital loan experience is ensuring that all forms can be eSigned.

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Currently, most of the “extra” documents added to a package that are not specifically generated by the document software either are not mapped to eSign capabilities or the borrower is asked to use a separate system from what they have been using with the lender. This means that when the borrower receives an electronic document package, they will be able to sign some of the forms electronically but must print out the others. From there, they have to scan and email or mail the wet-signed forms back to the lender, slowing down the loan workflow.

The best loan document generation systems will offer lenders multiple options for adding external documents to an eSigned doc package. First, custom documents should be easy to add to a lender’s library in the doc generation software, so that they can be seamlessly included with all doc requests in the future. Second, external documents could be included in the initial doc generation request, along with the mapping coordinates for the electronic signatures. And finally, lenders should have the option to quickly and easily add one-off documents manually after the eSignable package has been created, editing them to add the appropriate eSigning points along with any other borrower interactions like check-boxes or text fields to be filled in.

These options provide lenders with maximum flexibility to include their custom documents within the loan doc package and make them eSignable, enabling their borrowers to complete the entire package in one seamless online experience.

As lenders move more of their loan operations into the digital world, the ability to customize all documents for eSignatures and inclusion in document packages will keep them on the leading edge of competitiveness, customer service and cost efficiencies.

About The Author

Harry Gardner

Harry Gardner is executive vice president of eStrategies for Docutech, a leading provider of compliance and documentation technology. Founded in 1991, Idaho Falls, Idaho-based Docutech offers a wide range of solutions to institutions all over the world. From document generation and imaging support to eDelivery, digital signatures and print fulfillment, Docutech sets the standard in providing market-proven technology and unrivaled client service to you, your workforce and your clients.

A New Era In Valuations

This may come as a shock to some of you, but according to the Appraisal Institute, the number of active real estate appraisers has been dropping at an annual rate of 3 percent per year for the past five years. Reportedly, this is due to retirements and fewer people choosing appraising as a career.

At the same time, alternative valuations have become a hot topic in the appraisal community with fast-growing demand among lenders and investors alike. Sometimes referred to as AVPs, alternative valuation products blend new technologies with human expertise to deliver faster, more affordable property valuations than traditional appraisers. They have become increasingly popular choices for lenders, servicers and investors. Just last year Fannie Mae and Freddie Mac decided to expand their accepted uses for alternative valuation products to include certain purchase loans.

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While many have welcomed these changes, not everyone has. The rising popularity of these products has led to fear among those who believe technology is replacing the traditional appraiser’s role. So, are alternative valuation products a rejection of the appraisal norms? Do they belong outside the current system of appraisals? Could they actually cause harm to an industry that has come so far from the depths of the 2008 economic crisis?

Personally, I don’t think so. In fact, most alternative valuation products perform as well as traditional appraisals and actually meet the definition of an appraisal. More importantly, alternative valuation products are a great potential source of new business for appraisers—and they couldn’t come at a better time.

A New Type of Appraisal

One of the biggest misconceptions with alternative valuation products is that they do not include the expertise of a licensed appraiser, which creates an element of risk in the secondary market. The truth is that many alternative valuation solutions were built specifically to provide a more affordable option to full appraisals while keeping licensed appraisers in control of the valuation decision. And because alternative valuation products have many different uses, they actually increase opportunities for appraisers.

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Alternative valuation products are being used on everything from conforming loans to non-QM loans, correspondent lending, warehouse lending and home equity lending. With the technology available today, however, any of these products can be completed with either the help of a local appraiser or one who lives hundreds of miles away.

For example, when a valuation order is placed, the inspection can be performed by someone other than the appraiser, who is able to gather all the property and market data to form a valuation. The licensed appraiser’s role is to then review all the data, including the list of comparable sales that were used and any notes about the property’s condition, and determine whether the value is valid. In most cases, these types of alternative valuation products actually count as appraisals, as long as they are completed by a licensed appraiser and disclosed to the borrower.

Traditionally, alternative valuation products have been used in the home equity space, since home equity loan valuations need to be supported by a licensed appraiser and delivered much more quickly and at less cost than a full appraisal. But the use of alternative valuation products is quickly spreading to other types of loan origination as well as on warehouse loans and non-QM loans.

Servicing has also adopted an appetite for these valuations. While the servicing requirements of some investors still require a traditional appraisal, more and more investors are accepting alternative valuation products, as long as a licensed appraiser is involved. For example, a growing number of investors are using alternative valuation products for conforming loans in which a high credit quality and low LTV ratios are required. Alternative valuation products are also useful for pre-close valuations in cases where a correspondent lender requires the original appraisal be performed by a licensed appraiser. In these cases, alternative valuations can help lenders that want to save they extra time and cost it would take to get a traditional appraisal.

Limitations and Safeguards of Alternative Valuation Products

Even though alternative valuation products typically perform as well as traditional appraisals, safeguards must be in place before an appraiser can effectively evaluate a property valuation long-distance. For example, USPAP states that in cases where an appraiser is preparing a report on a property located in an unfamiliar market, the appraiser must spend enough time to understand the nuances of that market, including local supply and demand and any other relevant factors about the type of property and its location.

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The process of becoming familiar with the market can be accomplished in several ways. One is through a careful analysis of the property and market data and any supplemental information that may have an impact on a property’s value. Another is to use an appraiser who is licensed in multiple states and has previous knowledge of the market because they spent time living there.

Of course, there are plenty of instances in which an alternative valuation product is not the best option. Generally speaking, alternative valuation products are best used when the valuation provider has an abundance of data about the subject property and the local market. For example, neighborhoods with properties that have similar attributes and where there is plenty of recent sales data are relatively easy to evaluate. By contrast, alternative valuation products shouldn’t be used when there is limited or little available information available. Without good data, it’s difficult if not impossible for an appraiser who is not familiar with an area to make an accurate conclusion of value.

Alternative valuation products are also not allowed by all investors or asset classes, which is why it’s imperative to understand investor requirements and whether there are any limitations on the type of valuation that an investor will accept. Knowing the current condition of a property is critical, as well. For this reason, an alternative valuation product that does not include a current inspection of the property should not be used for non-performing lending, because they will not uncover any recent changes to the property. However, many alternative valuation products do in fact have options to include both an exterior and interior inspection.

New Opportunities for Appraisers

The biggest challenge facing the appraisal industry is not the increase of technology and automation in the appraisal process, but whether or not we’ll have enough appraisers to serve the housing market. The 3 percent annual decline in active appraisers that I mentioned earlier has caused concern throughout the housing and banking industries.

Critics of alternative valuation products claim the increase in use of alternative valuation products will only speed up the decline in appraiser numbers. Some believe technology will replace appraisers altogether. Because most alternative valuation products rely on the expertise of a licensed appraiser, however, the more frequently alternative valuation products are used, the more business opportunities there will be for appraisers. Another benefit is that most alternative valuation products do not require a licensed appraiser to personally inspect a property, which takes up a good chunk of an appraiser’s business expenses.

Alternative valuation products are also creating new career opportunities for appraisers by giving them more ways to leverage their skills. By playing a role in the alternative valuation products process, an appraiser is no longer just a valuation expert for local home purchases, but also an expert for asset management, investment properties, compliance issues, valuation due diligence and a host of other assignments that can be completed with alternative valuation products.

Besides providing high-quality, supportable values and saving time and money, alternative valuation products can also make appraisers better at what they do. Many valuation providers that offer alternative valuation products (though not all of them) are investing in new valuation tools and data analytics for their appraiser teams that are far superior than what the average appraiser has access to, which adds value to the appraiser’s services.

The bottom line is that alternative valuation products are no more or less risky than other types of valuations—if they are done correctly. They do not represent a rejection of trusted appraisal standards and practices that have guided the industry for years. However, it is up to the users of alternative valuation products and other valuation products to understand what they are getting and choose their valuation providers wisely. After all, we can automate and simplify processes, but only if we are maintaining or improving quality. Let’s all hope this remains the goal, and endeavor to make it so.

About The Author

Jim Smith

Jim Smith is the president of Property Solutions, part of the Computershare group of companies and a provider of REO asset management, valuation and title services for the mortgage industry. He can be reached at jim.smith@computershare.com

Addressing Online Loan App Challenges

As the industry changes, Fiserv, Inc. is helping banks and credit unions deliver enhanced digital account opening and loan origination with Originate, a new suite of solutions built to provide the functionality and ease of use that on-the-move consumers are demanding.

The first solution in the suite, Originate Deposits from Fiserv, features a simple, step-by-step user interface with optional ID scanning, autofill, and facial recognition to allow consumers to easily and securely open an account or initiate a loan application from a mobile device, tablet, computer, or at a branch.

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Fiserv conducted extensive consumer research and user experience testing as a part of the product development process to identify pain points and shortcomings in current digital account opening and loan origination experiences. Originate Deposits alleviates multiple layers of friction to create an intuitive, step-by-step user experience that is fast, easy to use and uniform across channels – and results in higher user satisfaction and reduced abandonment. Numerous institutions are already selecting the solution for online account opening.

“When we saw Originate Deposits at the annual Forum client conference, we knew it could address a challenge we wanted to solve for our members,” said Paul Simons, CEO of Rantoul, Illinois-based Credit Union 1. “While we maintain a high volume of account openings, only a small percentage of our members were completing the process online. It was just too complex. The interface and flow in Originate Deposits are as intuitive as buying from a leading online retailer, and we are confident the solution will positively impact how our members start or expand their relationships with us.”

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Importantly, Originate Deposits supports multichannel strategies for financial institutions by maintaining the same experience and interface across channels, allowing users to complete an application wherever they are, in one or in multiple sessions, on a mobile device, tablet, computer – or in a branch.

“We’ve been looking at options for a better digital account opening experience, regardless of where or how our customers choose to complete the process,” said Sherri Wilson, senior vice president, technology of Towson, Maryland-based Hamilton Bank. “We’ve been able to work closely with Fiserv as we prepare to roll out Originate Deposits. It will allow us to deliver a better experience to our customers, who are increasingly mobile and have a high standard for their interactions with us.”

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Originate Deposits is launching now with account opening functionality, including credit cards and personal loans, and is integrated with other Fiserv digital solutions including the Mobiliti mobile banking and payments platform. Additional Originate solutions will add even more loan origination capabilities at the end of 2018 including retail, auto and mortgage.

About The Author

Tony Garritano

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

Millennials’ View Of Home Buying Examined

Millennials’ perceived value in buying a home dropped below 50 percent, down significantly from post-Brexit high, according to the latest ValueInsured quarterly Modern Homebuyer Survey:

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In the third quarter of 2018, 48 percent of all millennials believe buying a home in America today is a good investment; this is a record low, down from 54 percent in the second quarter. The previous high was 77 percent two years ago.

Fifty-eight percent of millennials now agree buying a home is the best financial decision they can make for themselves and their family, another survey low in ten quarters.

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Just over six in 10 millennials (61 percent) now believe buying a home is more beneficial than renting, again a survey low, down from a high of 83 percent two years ago.

While 76 percent of all homeowners believe now is a good time to sell a home, only 39 percent of millennials who want to become homeowners believe now is a good time to buy a home.

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The ValueInsured Housing Confidence Index for millennials registered a score of 56.9 on a hundred-point scale in Q3 2018. It is the lowest level recorded, down 1.7 points from Q2, and down 10.1 points from a year prior.

In addition to reporting a steady slide in their conviction for home buying, more millennials now associate owning with sacrifices:

Nearly one in four (23 percent) believe they need to delay having children in order to afford buying a home

Thirty-two percent do not believe they can afford a healthy and balanced diet while saving for a home at today’s high prices

Thirty-one percent seriously consider relocating to another city to afford buying

“Conventional wisdom assumed millennials were buying homes later because they chose to get married and have children later,” says Joe Melendez, CEO and founder of ValueInsured.  “New research now suggests homeownership may be the cause, not the effect, of delayed family formation. It is an alarming trend, and we see more acute evidence in expensive housing regions.”

Among millennials who are still interested and motived to become homeowners “in the near future,” their anticipation is often filled with anxiety. Among motivated first-time buyers, 49 percent are concerned rising mortgage rates could make homes currently within their budget become unaffordable later; 67 percent are concerned they will not save enough for a home they would actually like to live in; and 52 percent believe a home they buy now will likely drop in value within one year. Sixty-eight percent are concerned about another housing crisis; and 64 percent admit they will likely experience buyer’s remorse after reaching their homeownership goal.

Their trepidation could be explained by the high stakes these millennials plan to undertake. Eighty-five percent in the survey expect their home down payment to represent over half of their total personal assets.

“Most homebuyers experience a healthy amount of jitters before such a milestone purchase – that’s normal,” Melendez said. “But the new normal is highly anxious, inexperienced buyers bungee jumping in without knowing if their safety harnesses will work. That is an unhealthy, bordering on dysfunctional trend that our industry needs to mitigate to ensure we do not lose an entire generation of future homeowners.”