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Expanding Affordable Homeownership With Housing Counselor Support

It is not new news that market constraints affect minority homeownership. Rising interest rates, tightened eligibility requirements, higher prices and origination costs are converging to lower mortgage origination projections for 2018. These and other factors will have an inordinate effect on minorities and low-to-moderate income borrowers particularly in underserved markets and rural areas.

According to a recent analysis by Zillow, black and Hispanic renters are finding it more difficult to save for the required down payment for a home purchase. Essentially, Zillow determined that high rental rates are taking such a large bite out of income that it is materially affecting the ability for these groups to save money for a down payment on a home.

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Recent Home Mortgage Disclosure Act (HMDA) data show that the percentage of black applicants declined for a mortgage was at a higher-than-average rate.

Despite the lowest industry declination rate in 20 years – 9.8 percent in 2017 compared to 18.1 percent in 2007 – black applicants were turned-down to the tune of 20 percent in 2017.

Programs Abound

Despite these dismal results and pessimistic expectations, there is an abundance of affordable mortgage lending programs at the local, state and federal levels. Community Reinvestment Act (CRA) requirements provide additional stimulus for banks to participate in such programs. All of these programs require pre-purchase housing counseling and education by HUD-certified housing counselors to ensure that the applicant has a successful homeownership experience and is prepared for unanticipated life events that may disrupt the ability to pay.

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There is also an emerging trend to deploy proactive post-purchase counseling protocols for at least a year after affordable loans originate to help new homeowners when turbulence occurs.

Rather than reacting to a problem, this counseling strategy includes constant communication with the homeowner at regular intervals and continuous education about the responsibilities of homeownership. This type of assistance helps new homeowners avoid financial traps and navigate tax and insurance issues, home repair problems or homeowner association dues issues that may surprise new buyers.

Most importantly, it can help homeowners create a budget and maintain financial discipline especially, in the first year of the mortgage when all stakeholders are at the most risk.

These dynamics present a unique opportunity for lenders to embrace housing counseling and integrate the discipline into new efforts to work on a local and national basis to create best-execution models for expanding sustainable homeownership, especially in a purchase market where first-time homebuyers can play a significant role.

Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible program are designed to reach low- to moderate-income (LMI) borrowers in underserved areas and feature more lenient eligibility criteria.

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For instance, under the Fannie Mae HomeReady guidelines while there is a 3 percent down payment requirement, the allowable sources are flexible including authorized down payment programs at the state and local level which will translate into zero-down from the borrower.

Both programs require proof of pre-purchase homeownership preparation. The Fannie Mae requirement may be satisfied if the borrow completes an online education course provided by Framework. However, a particular down payment assistance DPA program used for the HomeReady program may require more personalized counseling.

Fannie Mae also strongly encourages housing counseling by including it in the HomeReady guidelines: “housing counseling for prospective homebuyers effectively expands the pool of eligible homebuyers.”

Best Execution

While the competition for borrowers heats up, lenders must always look for the most cost-effective model to increase homeownership rates. However, the housing counseling component, if not managed correctly, will impose additional costs and time delays to an already costly proposition for originators.

To help make affordable lending actually “affordable,” Hope LoanPort (www.hlp.org) offers a turnkey technology platform to originators that fully integrates HUD-certified housing counselors who provide pre-purchase and post purchase counseling.

This delivery model makes it easy for originators to work with housing counselors for any borrower nationwide to meet housing counseling eligibility requirements both before and after a loan is originated. HLP reports that by implementing a post purchase counseling process for DPA loans, early payment default rates are reduced by 30 percent. An early payment default is equally as devastating for the servicer, lender, investor and insurer as it is for the homeowner.

Social Responsibility

The mortgage banking industry has always been a strong proponent of expanding the pool of eligible borrowers especially for minorities and LMI consumers in underserved markets. The addition of personalized and consistent housing counseling and education has proved to be a major tool in supporting that admirable objective.

The current mortgage finance market is fertile ground for the industry to step up its efforts to collaborate with housing counselors and leverage their abilities to meet this common goal.

About The Author

IndiSoft Taps Mark Sweeney For Chief Technology Officer

IndiSoft, a provider of technology solutions for the financial services industry, has tapped Mark Sweeney for the chief technology officer position. He is responsible for all technical and product strategy, development and support.

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“We are excited to have someone of Mark’s caliber join the IndiSoft team,” said Hans Rusli, CEO of IndiSoft. “We felt that Mark is a great fit for this role based on his experience and commitment to the evolution of technology in business. He is an innovative leader recognized for establishing and continually improving client relationships and developing application strategies.”

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Sweeney has more than 30 years of experience in the technology industry. He was previously senior vice president of service delivery at Bank of America and executive vice president of applications development at Countrywide Home Loans. Sweeney has proven experience in managing large technology organizations and delivering enterprise systems.

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“Mark’s organizational leadership, experience with governance processes, employee satisfaction and organizational metrics programs makes him ideal for this position,” said chairman and founder of IndiSoft, Sanjeev Dahiwadkar.

The True Cost Of Buy Vs. Build

The age old question to build or to buy technology solutions seems to be more prominent and perplexing in the modern mortgage banking age than in past.

Once the digital revolution found its way into mortgage finance – despite valiant opposition – it has pushed technology strategy to the top of the agenda at board meetings.

Concerns run the gamut from seeking competitive advantage to regulatory compliance and everything in between. Then add the desire to improve the consumer’s experience.

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Therefore, it is no surprise that technology budgets are the fastest growing component of mortgage bankers’ expense profile during the last two years.

While much has been written about this classic dilemma, and even more money has been spent on consultants to assist in the decision-making process, there is no hard-and-fast template to guarantee the correct decision.

There are, however, some guidelines beyond the standard template that may be worth considering to ease the pain of the process and at least help management ask the right questions.

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Five Stages of Decision Making

In a recent conversation with the COO of a top 50 residential mortgage lender, he likened the decision making process of whether to develop proprietary technology for pre-funding QA and post-closing QC to the five stages of grief; denial, anger, bargaining, depression and acceptance. His honesty was as refreshing as it was revealing as he concluded, “Since we are now in the acceptance stage, you may expect an RFP in three months.”

It was a tortuous process to first recognize a technology solution was needed and then to finally conclude that for their particular situation, buy, not build, was the answer.

The COO went on to explain that one of the lessons he has learned over time regarding technology strategies is that changes in the business environment are often misinterpreted as temporary instead of longer-term solutions, Band-Aids are applied. For example, when the Dodd-Frank legislation passed in 2010, many companies did not appreciate the gravity of the change in federal regulatory oversight. In turn, these companies did not realize the need for technology from a strategic perspective to help with the implementation of Dodd-Frank rules as they should have.

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So, while some people may argue that exigency forced Excel spreadsheets, Access databases and other end-user programs to be deployed, their salve was temporary. The solution was temporary because it delayed a more strategic decision like purchasing software specifically designed for compliance.

Now, even eight years later, many companies are struggling again with decisions to build, buy or outsource regulatory compliance solutions, which go beyond federal to state, agency and investor.

Few of us with any experience in the industry have not been involved in these herculean struggles regarding the choice of a technology solution. And haven’t we all enjoyed providing evidence for the axiom that the time to make a decision is inversely proportional to the desired implementation timeline?

“Hurry up and wait” and “It must be in production by yesterday” are often-heard during group commiseration time.

We all have seen the various formulaic approaches to the buy/build question, which are a necessary part of a complete analysis: ROI, TCO and other metrics that live and die by the assumption.

So where is the edge? What could be done differently in addition to the normal analyses and decision making that will increase the probability of success?

What’s Mine is Mine and What’s Yours is Mine?

Notwithstanding the ROI on building proprietary solutions, a frequent variable that may get overvalued is retaining intellectual property and its corollary, establishing a competitive advantage. However, when it comes to cost in direct expenses and time associated with such an undertaking, companies have historically, and wildly, underestimated these projections.

Many times the build decision is driven by CTO zeal and not the discipline and self-awareness needed to make the best decision. Sometimes it simply comes down to an identity crisis: are we a technology company or a lender?

The CEO of a large correspondent lender explained the issue in the context of retaining and enhancing a legacy LOS or seeking an outside solution. “We have a stellar tech team that is capable of developing just about anything and if given the budget, they will.”

Outside of analytics that everyone uses, these leadership decisions are probably the most critical. It is incumbent upon business leadership to force the issue and really determine the need for proprietary compared to off-the shelf solutions despite the sometimes strong push from internal IT to build.

While IQ (intelligent quotient) is indispensable; EQ (emotional quotient) may be the final differentiator between a boondoggle and a successful initiative.

Key Considerations: Pluses and Minuses

Here are some key factors to consider when developing a strategy to implement new technology:

Third-Party Tech Solution

Plus: These systems are typically written by the vendor with domain expertise in the product they have built.

Plus: Release updates allows all uses to take advantage of ideas from other customers that would be beneficial to all.

Plus: Spread the costs of regulatory items across the entire customer base.

Plus: With multiple customers using the same core package, there is a better chance of one customer finding a bug (not all systems have bugs) that can be fixed.

Plus: Typically, there is a dedicated budget to enhance the system.

Minus: Could be a challenge getting your secret sauce request prioritized because the company must consider its entire customer base for prioritization of enhancements.

Minus: Once installed, the vendor could raise prices, and it could sometimes be difficult to change the application if your company has other pressing needs.

Home Grown

Plus: Typically, any enhancements can be implemented faster

Plus: Your great ideas can remain proprietary to your company and not shared across the industry; however, this is a factor that is only valuable for true differentiators. For example, there is no advantage to having the best bankruptcy solution because the same laws/process apply to everyone.

Minus: If in a highly regulated environment, the company must spend money to stay current with regulations and do so without the help from a third party.

Minus: As organization change occurs, budget allocations can change overtime and if a company does not invest in its homegrown application, it can become an inhibitor over time.

More Cooks in the Kitchen

Another common approach to turn the dichotomy into a trichotomy is to consider using multiple technology providers to deliver a solution. While this presents its own set of headaches, including two integration points that must be maintained and increased operational risk. There may be some benefits to different functional areas having more independence and the ability to apply a domain-specific platform to their world. The mortgage servicing industry is a classic example of this approach especially in the default servicing area where many companies have specialized in technology to assist with non-performing loans and there is now a market with mature products to assist servicers.

This trend is continuing where not only are there more specialized services for residential mortgage servicers available but, third-party service providers have developed enabling technologies to increase benefits. And this trend has gone beyond default servicing and includes other business activities that service bureaus could not provide and developing proprietary technology would be impractical.

For instance, some third-party providers in insurance tracking, loss-draft processing and performing loans that offer such services as bank reconciliation, investor reporting and billing have added technology to their services to bring additional benefits and cost saving to the servicers.

In the end, no matter where you land in determining whether to buy or build, your decision will only be as good as the questions you ask and the leadership strength you exert to coax out the best result.

About The Author

Industry Veteran Named President of IndiSoft

IndiSoft, a technology development firm that specializes in systems for the financial services industry, has named Camillo Melchiorre president. He will focus on the firm’s sales and marketing efforts. The move allows Sanjeev Dahiwadkar, who previously held both the roles of president and CEO, to concentrate on IndiSoft’s strategic direction as CEO.

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Melchiorre joins IndiSoft from HLP where he was president and CEO. HLP, which is powered by IndiSoft’s RxOffice, is a nonprofit collaborative that enables counselors, advocates, mortgage lenders, servicers, investors, attorneys and government agencies to build solutions that help individuals and families achieve and sustain homeownership.

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Before working with HLP, Melchiorre was senior vice president of loss management at Radian Group Inc. (RDN: NYSE) where he led their efforts to manage losses during the financial crisis with new systems, operations and loss mitigation strategy.

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Prior to his Radian position, Melchiorre was co-founder and executive vice president of business development at MSTD Inc. MSTD developed the mortgage servicing industry’s first web-based default servicing and loss mitigation application, BackInTheBlack. He was also vice president of servicer relations and policy at Freddie Mac where he led Freddie Mac’s landmark Servicer Advisory Board. Before joining Freddie Mac, he was vice president of loss mitigation and quality control at Commonwealth Mortgage Assurance Corp. (CMAC, now Radian Group Inc.) where he began the company’s affordable housing pre-purchase counseling program.

“We have a long history with Cam that started years before he worked for HLP,” Dahiwadkar said. “Cam’s longevity in the mortgage industry and his knowledge will help us further position IndiSoft as a strong technology player that not only understands the industry but can also anticipate the technology needed to address any process or regulatory challenge.”

Melchiorre has more than 30 years of experience in many areas of the mortgage industry which has afforded him the opportunity to be a featured speaker during several industry events, and he has authored multiple articles that have appeared in leading industry publications. He is a graduate of Gettysburg College and Widener University School of Law.

“I have a long history with Sanjeev and IndiSoft,” Melchiorre said. “This is an exciting time in the industry one in which we have a chance to truly harness the power and capability of technology to make fundamental changes in efficiencies while being agile enough to be compliant with the ever-changing regulatory climate. IndiSoft has a remarkable platform that can help achieve those goals, and I am happy to be a part of the effort to move the company forward during this time.”

The Devil Is In The Details

With growing complexities around existing, new and changing regulations, companies need to realize more than ever that applications that come out of a box do not work. Any technology that claims to be a magic bullet for any issue is false. Regulations are not set in stone and technology should not be either. This is why companies that select “boxed” systems need to pay special attention to the details of the systems BEFORE signing the agreement.

Just as an example, recently, the Consumer Financial Protection Bureau (CFPB) called for another revision to the Home Mortgage Disclosure Act (HMDA), which means that all systems need to adjust to the new change. A company using a boxed system will need to make some modifications to meet the revision’s timeframe and then test, deploy and train users on the modified system to ensure the company is compliant and protected.

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Think of boxed systems versus configurable systems along the same lines of single-family homes versus mansions. Both are meant to provide shelter and comfort. Each can have its own unique features and purpose, be it a main residence or a get-away home. However, the single-family home has size and space restrictions that a mansion does not. For that simple fact, you can obviously do more with the mansion. In fact, the single-family home cannot compare to the spaciousness of a mansion.

Configurable or bendable technology as we call it allows a company to adjust it into its processes instead of the other way around. This flexibility helps in protecting a company’s secrete sauce/brand. After all, the majority of companies in any specific segment of the industry are truly competing for the same customer base. What makes one brand stand out is its uniqueness in creating a better customer experience than its competitors. A smart company that has figured out a unique way of taking care of customers cannot rely on a “one-boxed-for-all” approach provided by some technologies that claim to provide a complete solution. The fundamental questions managers need to ask themselves is if the company’s offerings and customer service is so unique, how can a common boxed system help in the effort to maintain that uniqueness?

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On the other hand, this does not mean that every company should start building their own configurable systems. However, it is practical to license a configurable system that allows a company to be efficient in its business processes while meeting its customer service goals.

The idea of using straight from the box technology usually comes from company managers who are disconnected from the actual technology needed on the front lines to effectively run the business. Sometimes, even decision makers are not that intimately involved in the operations on the front lines. Often, these decision makers are misguided by half-baked consultants. Therefore, it is important for decision makers to listen to the people on the front lines to ensure that the technology that gets selected to be implemented on the front lines is actually vetted by the people [on the front lines] who will use it. Vetting technology will allow a company to separate the “this is how we do things” from “this is why we do things” perspectives. In reality, most managers confuse the whys and hows and end up looking for a system that will allow them to continue the hows, which is another mistake.

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Boxed technology usually drags companies into adapting their processes around the technology once they start the implementation process. It quickly becomes very apparent that there is little flexibility when it comes to altering the predetermined criteria of the boxed system. This proves that the devil is really in the implementation details. And this is what can cause a company to fail in its effort to create efficiencies with technology or get totally left behind its competitors who have a better grasp on the proper use of technology.

When considering making a technology decision to assist in compliance or any other processes, company managers need to let business goals be the driving factor not the promise of one size fitting all. Boxed technology has fine print that says it cannot be changed. When you need to make changes because of business needs, then companies start having challenges with the system. Consider this: people have built consulting businesses to help companies implement so called out-of-the-box systems. This goes to show the one-size-fits-all claims of many boxed systems is not true and that it is imperative to pay attention to the details of these systems before signing an agreement.

About The Author

The Devil Is In The Details With Boxed Systems

With growing complexities around existing, new and changing regulations, companies need to realize more than ever that applications that come out of a box do not work. Any technology that claims to be a magic bullet for any issue is false. Regulations are not set in stone and technology should not be either. This is why companies that select “boxed” systems need to pay special attention to the details of the systems BEFORE signing the agreement.

Just as an example, recently, the Consumer Financial Protection Bureau (CFPB) called for another revision to the Home Mortgage Disclosure Act (HMDA), which means that all systems need to adjust to the new change. A company using a boxed system will need to make some modifications to meet the revision’s timeframe and then test, deploy and train users on the modified system to ensure the company is compliant and protected.

Featured Sponsors:

 

 
Think of boxed systems versus configurable systems along the same lines of single-family homes versus mansions. Both are meant to provide shelter and comfort. Each can have its own unique features and purpose, be it a main residence or a get-away home. However, the single-family home has size and space restrictions that a mansion does not. For that simple fact, you can obviously do more with the mansion. In fact, the single-family home cannot compare to the spaciousness of a mansion.

Configurable or bendable technology as we call it allows a company to adjust it into its processes instead of the other way around. This flexibility helps in protecting a company’s secrete sauce/brand. After all, the majority of companies in any specific segment of the industry are truly competing for the same customer base. What makes one brand stand out is its uniqueness in creating a better customer experience than its competitors. A smart company that has figured out a unique way of taking care of customers cannot rely on a “one-boxed-for-all” approach provided by some technologies that claim to provide a complete solution. The fundamental questions managers need to ask themselves is if the company’s offerings and customer service is so unique, how can a common boxed system help in the effort to maintain that uniqueness?

Featured Sponsors:

 
On the other hand, this does not mean that every company should start building their own configurable systems. However, it is practical to license a configurable system that allows a company to be efficient in its business processes while meeting its customer service goals.

The idea of using straight from the box technology usually comes from company managers who are disconnected from the actual technology needed on the front lines to effectively run the business. Sometimes, even decision makers are not that intimately involved in the operations on the front lines. Often, these decision makers are misguided by half-baked consultants. Therefore, it is important for decision makers to listen to the people on the front lines to ensure that the technology that gets selected to be implemented on the front lines is actually vetted by the people [on the front lines] who will use it. Vetting technology will allow a company to separate the “this is how we do things” from “this is why we do things” perspectives. In reality, most managers confuse the whys and hows and end up looking for a system that will allow them to continue the hows, which is another mistake.

Featured Sponsors:

 
Boxed technology usually drags companies into adapting their processes around the technology once they start the implementation process. It quickly becomes very apparent that there is little flexibility when it comes to altering the predetermined criteria of the boxed system. This proves that the devil is really in the implementation details. And this is what can cause a company to fail in its effort to create efficiencies with technology or get totally left behind its competitors who have a better grasp on the proper use of technology.

When considering making a technology decision to assist in compliance or any other processes, company managers need to let business goals be the driving factor not the promise of one size fitting all. Boxed technology has fine print that says it cannot be changed. When you need to make changes because of business needs, then companies start having challenges with the system. Consider this: people have built consulting businesses to help companies implement so called out-of-the-box systems. This goes to show the one-size-fits-all claims of many boxed systems is not true and that it is imperative to pay attention to the details of these systems before signing an agreement.

About The Author

Automation Is Still Needed

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To say automation is important in mortgage compliance efforts would be like saying air is important for people to live. Even though it is a known fact that technology is necessary and makes our daily processes run more smoothly and accurately, regulatory changes, economic uncertainty and the changing political landscape have lenders and servicers hesitant to want to consider any new innovations. However, this is the most crucial time to look to automation to remain compliant now and well into the future. Technology can help take companies to the next improved level of production.

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Many of today’s mortgage companies are finally becoming acclimated to the changes required by Dodd Frank and other regulatory agencies. Companies have the systems in place to help them ensure their day-to-day processes are efficient while adhering to these regulations. It would be safe to say that technology, even though it has not been completely embraced by every facet of the regulatory industry, has in fact saved companies millions of dollars by improving efficiency, reducing errors and making sure all processes are followed. This all prevents costly and unnecessary fines that can be imposed.

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The majority of systems on the market today allow lenders and servicers to meet with basic compliance requirements. Companies are working with third-party firms or hiring internal staff to complete the remaining requirements. Technology should be used to fill these gaps and automate the entire compliance process from beginning to end. Of course, there are certain areas where technology will never be automated such as the review of manually-signed documents, documents that are poorly scanned etc., which would still need the human eye for review, but those, are the areas where companies can have their staff resources shift focus.

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What is next on the horizon for the mortgage industry as it moves toward complete automation? It may be described as futuristic but not for long. In addition to true e-signatures, technology such as optical character recognition (OCR) and loan data analysis, such as auto answer questions based on multiple data elements, are being used by other areas in the financial sector. Once managers understand the true value of these systems, a company can collaborate with its technology partners or add qualified IT staff to take advantage of these new features.

If we take queues from the automotive industry, after its initial investment in technology, the industry reached an optimal level. The advantages were reduced staff, improved car quality, satisfied customers and increased brand image. Complete automation of compliance efforts in the mortgage industry could and would be similar to the automotive industry. It reduces human errors, increases the quality of the loans and translates into better pricing in the secondary market. And all of this makes for happier lenders, servicers and borrowers alike.

To successfully take the next step into making these new areas of automation a reality, mortgage companies should identify the critical areas of their business where there are failures or system breakdowns and the determine adequate staffing requirements. This could help companies prioritize their needs so they can create and follow a roadmap to completely automate processes that were once tedious and time-consuming.

About The Author

Automation Is The Next Step, Still

To say automation is important in mortgage compliance efforts would be like saying air is important for people to live. Even though it is a known fact that technology is necessary and makes our daily processes run more smoothly and accurately, regulatory changes, economic uncertainty and the changing political landscape have lenders and servicers hesitant to want to consider any new innovations. However, this is the most crucial time to look to automation to remain compliant now and well into the future. Technology can help take companies to the next improved level of production.

Featured Sponsors:

 

 
Many of today’s mortgage companies are finally becoming acclimated to the changes required by Dodd Frank and other regulatory agencies. Companies have the systems in place to help them ensure their day-to-day processes are efficient while adhering to these regulations. It would be safe to say that technology, even though it has not been completely embraced by every facet of the regulatory industry, has in fact saved companies millions of dollars by improving efficiency, reducing errors and making sure all processes are followed. This all prevents costly and unnecessary fines that can be imposed.

Featured Sponsors:

 
The majority of systems on the market today allow lenders and servicers to meet with basic compliance requirements. Companies are working with third-party firms or hiring internal staff to complete the remaining requirements. Technology should be used to fill these gaps and automate the entire compliance process from beginning to end. Of course, there are certain areas where technology will never be automated such as the review of manually-signed documents, documents that are poorly scanned etc., which would still need the human eye for review, but those, are the areas where companies can have their staff resources shift focus.

Featured Sponsors:

 
What is next on the horizon for the mortgage industry as it moves toward complete automation? It may be described as futuristic but not for long. In addition to true e-signatures, technology such as optical character recognition (OCR) and loan data analysis, such as auto answer questions based on multiple data elements, are being used by other areas in the financial sector. Once managers understand the true value of these systems, a company can collaborate with its technology partners or add qualified IT staff to take advantage of these new features.

If we take queues from the automotive industry, after its initial investment in technology, the industry reached an optimal level. The advantages were reduced staff, improved car quality, satisfied customers and increased brand image. Complete automation of compliance efforts in the mortgage industry could and would be similar to the automotive industry. It reduces human errors, increases the quality of the loans and translates into better pricing in the secondary market. And all of this makes for happier lenders, servicers and borrowers alike.

To successfully take the next step into making these new areas of automation a reality, mortgage companies should identify the critical areas of their business where there are failures or system breakdowns and the determine adequate staffing requirements. This could help companies prioritize their needs so they can create and follow a roadmap to completely automate processes that were once tedious and time-consuming.

About The Author

Technology Adoption In Compliance

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Lenders and servicers have used technology to gain the competitive advantage, attract tech-savvy millennials and enjoy efficiency in their loan origination and servicing activities. When it comes to compliance, however, lenders and servicers have come up short in successfully adopting technology.

After Dodd Frank Act in 2010, the rules have changed and the Consumer Financial Protection Bureau (CFPB) has played an important role in enforcing the compliance on the lenders and servicers. Other regulatory bodies such as Office of the Comptroller of the Currency (OCC), Federal Reserve (Fed) etc., have also enforced additional requirements. We have all seen what the result is when there is a failure to meet these regulatory requirements: For example, in May 2014 Bank of America was required to pay $30 million to improve its compliance practices thanks to findings by the OCC.

Featured Sponsors:

 

 
A report by CFPB published just last month (June 2016) stresses that lenders and servicers are not effectively investing in technology. And the whole purpose of having this high level of compliance is not helping the borrowers instead it can lead to greater risks. While leaders and servicers should be maximizing technology to aid in compliance efforts, they are only using the basic applications, such as spreadsheets, to manage compliance. Yes, I have actually had people tell me they use and are happy with their run of the mill spreadsheets. Using these applications might solve work for the short term but for the long term, this approach will present more challenges than gains. The mindset of using basic applications until there is an issue or until an agency cites you is misguided and financially risky; however, this is the pervasive thinking in many companies.

Why are companies reluctant to make changes? In short, money. This might save a few dollars in the beginning but when a problem arises or a complaint is lodged, it could cost them a substantial amount in fines. Lenders and servicers who have deep pockets would be able to afford the hefty fines but other companies might find it hard to pay, which can force them to go out of business. This can be avoided by embracing advanced technology in compliance efforts.

Featured Sponsors:

 

When companies do make the decision to invest in technology, management should consider whether to invest in building new technology from scratch or finding an application that can be used as a Software as a Service (SaaS). One thing companies should keep in mind is that building technology from scratch could take a couple of years, couple of millions of dollars and a dedicated software development team. Working with a provider that already has a viable system developed or one that can be customized or can be implemented in less than a month for far less may be a much wiser choice. When it comes to a decision like this, it becomes pretty obvious what route most companies will take. I’m thinking the SaaS.

The report from CFPB, which clearly highlights the agency’s dissatisfaction of the lack of technology adoption, should be a clear indicator or a warning to those companies who have not yet maximized the use of technology in every aspect of their business. In my opinion, this report as a strong warning shot from the CFPB and one that should not be overlooked. Lenders and servicers today need to set a budget and take heed before it is too late.

About The Author

Technology Adoption In Compliance

Lenders and servicers have used technology to gain the competitive advantage, attract tech-savvy millennials and enjoy efficiency in their loan origination and servicing activities. When it comes to compliance, however, lenders and servicers have come up short in successfully adopting technology.

After Dodd Frank Act in 2010, the rules have changed and the Consumer Financial Protection Bureau (CFPB) has played an important role in enforcing the compliance on the lenders and servicers. Other regulatory bodies such as Office of the Comptroller of the Currency (OCC), Federal Reserve (Fed) etc., have also enforced additional requirements. We have all seen what the result is when there is a failure to meet these regulatory requirements: For example, in May 2014 Bank of America was required to pay $30 million to improve its compliance practices thanks to findings by the OCC.

Featured Sponsors:

 

 
A report by CFPB published just last month (June 2016) stresses that lenders and servicers are not effectively investing in technology. And the whole purpose of having this high level of compliance is not helping the borrowers instead it can lead to greater risks. While leaders and servicers should be maximizing technology to aid in compliance efforts, they are only using the basic applications, such as spreadsheets, to manage compliance. Yes, I have actually had people tell me they use and are happy with their run of the mill spreadsheets. Using these applications might solve work for the short term but for the long term, this approach will present more challenges than gains. The mindset of using basic applications until there is an issue or until an agency cites you is misguided and financially risky; however, this is the pervasive thinking in many companies.

Why are companies reluctant to make changes? In short, money. This might save a few dollars in the beginning but when a problem arises or a complaint is lodged, it could cost them a substantial amount in fines. Lenders and servicers who have deep pockets would be able to afford the hefty fines but other companies might find it hard to pay, which can force them to go out of business. This can be avoided by embracing advanced technology in compliance efforts.

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When companies do make the decision to invest in technology, management should consider whether to invest in building new technology from scratch or finding an application that can be used as a Software as a Service (SaaS). One thing companies should keep in mind is that building technology from scratch could take a couple of years, couple of millions of dollars and a dedicated software development team. Working with a provider that already has a viable system developed or one that can be customized or can be implemented in less than a month for far less may be a much wiser choice. When it comes to a decision like this, it becomes pretty obvious what route most companies will take. I’m thinking the SaaS.

The report from CFPB, which clearly highlights the agency’s dissatisfaction of the lack of technology adoption, should be a clear indicator or a warning to those companies who have not yet maximized the use of technology in every aspect of their business. In my opinion, this report as a strong warning shot from the CFPB and one that should not be overlooked. Lenders and servicers today need to set a budget and take heed before it is too late.

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