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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

Camillo Melchiorre

Camillo Melchiorre is President at IndiSoft. Columbia, Md.-based IndiSoft, LLC develops collaborative technology solutions for the financial services industry. Its flagship products, RxOffice Compliance and RxOffice Vendor Management, enhance risk-based assessment and help companies, including servicers and sub-servicers with increased regulatory concerns. The company provides efficient, reliable and scalable solutions for companies that want to remain compliant, effectively manage workflow and maintain a competitive edge.

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.”

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.

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

Sanjeev Dahiwadkar

Sanjeev Dahiwadkar is president and CEO of IndiSoft LLC, a Columbia, Md.-based global technology development firm that provides collaborative, real-time workflow solutions, configured for the entire financial services industry. He is responsible for the company’s overall strategic planning and direction as well as overseeing its business operations.

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

Sanjeev Dahiwadkar

Sanjeev Dahiwadkar is president and CEO of IndiSoft LLC, a Columbia, Md.-based global technology development firm that provides collaborative, real-time workflow solutions, configured for the entire financial services industry. He is responsible for the company’s overall strategic planning and direction as well as overseeing its business operations.

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.

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.

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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

Pramod Karachur

Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

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

Pramod Karachur

Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

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

Pramod Karachur

Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

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.

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

Pramod Karachur

Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

What The Mortgage Industry Can Learn From The Automotive Industry

What do having a car and getting a mortgage have in common? Surprisingly, more than you would think.

Outside of both requiring some form of financial commitment over a long period of time, the automotive and financial industries have had to face the double-edged sword of technology. On one hand you have the efficiencies created by automating processes; those save companies money by trimming the amount of time necessary to complete a task. Then on the other side of the sword is the financial savings gained from eliminating salaries of the people who are no longer in the positions that were replaced by technology. Hence, the painful result of technology implementation.

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For so long in the mortgage industry, we have been saying that the adoption of technology has been slower than other industries. We have attributed it to several things from mistrusting technology to misunderstanding it to the proverbial wait-and-see mentality. I contend there are some lessons that we mortgage professionals can learn from the automotive industry regarding implementing technology.

United Auto Workers membership was at 1.5 million in 1979. In 2006, that number had dwindled to 540,000. The decline in membership from 1979 to 2006 was due to the increased use of technology by Original Equipment Manufacturers (OEM) such as Ford, Chrysler, General Motors and their suppliers. The technology sword was at work slicing these large workforces down.

Now consider the fact that CIOs at the top 50 banks say their technology budgets are going to increase by 10 percent in 2016, according to a recent SourceMedia study. I am sure this is based on a financial institution’s desire to improve efficiencies and beef up security protocol as well as help meet regulatory requirements. Interestingly enough, I think part of that expenditure will also be made on efforts to attract millennial home buyers – the very group that has been immersed in technology practically from the womb but who have also been the “victims” of technology efficiencies that have minimized their job market. The mortgage industry will continue to increase budgets in adapting technology until all the tasks that can be automated are actually automated. The question now becomes: when will this happen and how many jobs will be affected?

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From the current technology adoption trends in the mortgage industry, certain areas still need technology intervention, especially in the compliance arena. Compliance is not new to this industry. It has been a part of how business has been done for decades. However, since the Dodd Frank Act of 2010 and the creation of the Consumer Financial Protection Bureau (CFPB), not to mention the additional oversight from other federal agencies, new mortgages should now have stricter compliant rules. Effectively using technology can easily solve the issues created by needing to be compliant. Similarly, there are other tasks that technology can also still improve, such as document management etc.

So, in regards to learning from the use of technology in the automotive industry, we can and must use it to create efficiencies while saving time and money. However, the one caveat that the housing industry has that the automotive industry did not is the need – that will never go away – for some home buyers to speak to a human, not a bot, during the life of a loan. As long as mortgages continue to be the largest expenditure some people will make in their lifetime (other than college for their children, but that is another topic for discussion), there will be a real need to talk to someone who is knowledgeable about the loan at some point. Whether it is checking to see if documents were received or if a payment was properly accounted for or an issue with an escrow account, dialog will need to happen. These are the issues that consumers want to have reassurance; a “live” person whose name they can write down and who can be held accountable for making a note of the borrower’s interaction.

There is no doubt that technology will help lenders be more productive and decrease the need for human resources. While this decrease may seem drastic initially, over time it will level off. Just like in the automotive industry, the need for efficiency will outweigh the need to maintain a huge job force. But we can rest assured that there will always be a need for human interactions in the mortgage process. Can you imagine the financial equivalent to an automated parking feature? No, neither can I.

About The Author

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Pramod Karachur

Pramod Karachur is project manager at IndiSoft, a technology company that specializes in systems for the financial industry. In his six years at IndiSoft, Karachur has implemented various grant programs, worked with multiple servicers such as Wells Fargo and Bank of America and thousands of non-profit and for-profit counseling agencies. He can be reached at pramod.karachur@indisoft.us.

Going Beyond TRID Compliance

We talk a lot about TRID compliance, but there are a host of other things that lenders also have to comply with. For example, IndiSoft has teamed up with Chicago-based business consulting firm Navigant Consulting, Inc. to include Home Mortgage Disclosure Act (HMDA) reviews via its RxOffice Compliance module. These enhancements will provide visibility and simplicity to users striving to remain compliant with HMDA regulations.

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“The HMDA review will transform the way users manage their compliance issues,” said Beji Varghese, a managing director at the  valuation and financial risk management practice at Navigant. “The addition of the HMDA LAR module  will allow users  to quickly identify issues with their HMDA data and design solutions to remediate those identified issues.”

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In addition to supporting existing federal, state and investor regulations, Navigant and IndiSoft now offer technology  to rapidly verify compliance to HMDA standards. These features include:

  • HMDA Data Verification: Support of blind entry of data enables input of data without any influence of existing information and allows comparison of data with LAR data.
  • Ability to consume Loan Application Register (LAR) data file.Ability to upload LAR data files in Excel format from the application, allowing users to see the comparison of blind entry and LAR data in one click. This will enable a clear identification of mismatched data points.
  • Support for various key reports related to HMDA quality control.The platform now supplies three distinct SSRS reports with one–click export capabilities.  .

“Staying compliant has never been so simple with this innovative review process,” said Vinayak Kulkami of IndiSoft. “Our technology gives users the peace of mind they need to focus on day-to-day processes instead of whether they are compliant.”

About The Author

[author_bio]

Tony Garritano

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