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A Time To Reflect

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In covering the mortgage space for more years then I’ll admit, I’ve always been concerned about how slowly this industry moves. In addition to moving slowly there’s this follow-the-neighbor mentality whereby lenders are hyper focused about what other lenders are doing because they don’t want to go first when it comes to doing anything new. There’s no self reflection it seems. If you’ll stick with me, I’d like to share this blog written by the head of my son’s school where he talks about the importance of self reflection:

“We focus on the outside world in education and don’t look much at inwardly focused reflective skills and attentions, but inward focus impacts the way we build memories, make meaning and transfer that learning into new contexts. So what are we doing in schools to support kids turning inward?”said Helen Immordino-Yang, Professor of Education, Psychology and Neuroscience, University of Southern California.

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“Here at Wooster School, reflection is a big part of what we do because we agree with Dr. Immordino-Yang, and understand that we learn more, and forget less, when we’ve had a chance to “think again,” “mull it over,” or even “sleep on it.” Like many an old adage, these express something we’ve always known to be true, but now also have the science to back up. Ever more frequently our teachers are providing the time for students to reflect in class, and are asking them to do so in many different ways. We take this time because we know that when done consistently and well it helps the learning stick.

“According to an article about Dr. Immordino-Yang’s and her research published by the Association for Psychological Science, “when children are given the time and skills necessary for reflecting, they often become more motivated, less anxious, perform better on tests, and plan more effectively for the future. And mindful reflection is not just important in an academic context – it’s also essential to our ability to make meaning of the world around us. Inward attention is an important contributor to the development of moral thinking and reasoning and is linked with overall socioemotional well-being.”

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As you develop self awareness when it comes to your total business, you become better able to make changes.

Now that lenders have begun to get a handle on their TRID-related defects, they should have more capacity to address other defects.

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“At Wooster School, we aren’t just talking about how schools can do a better job preparing our students to be better thinkers, learners, and people — or nibbling around the edges of the same old curriculum with the same methodologies — we’re taking the science and putting it into action. Our Days of Reflection, like the one we are having this year, are an opportunity for students and faculty to reflect together about some bigger picture goals related to skill and disposition development. They are also a great time for community dialogue about our shared struggles and successes. As faculty members, we are always impressed with the depth of thinking that happens on these days, and how willing these digital natives are to slow down and think about their aspirations and progress. Students have fun with it, and they learn from it. They also like the crumbcake we serve. And yes, I’ll have a big piece too. As I said, no nibbling around here.”

Why did I share that blog? Well, I thought it would be educational. It was interesting to me that an educator was talking about the power of reflection and critical thinking. I’m just not sure that goes on too much in mortgage lending, and that’s a shame.

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Case in point, the industry had a knee-jerk reaction to the recent TRID requirements. Instead of reflecting on how to make the entire mortgage process better, most lenders were just looking to comply with the rule and some were totally dependent on their LOS to ensure compliance. That’s not how it should be, and the results reflect the industry’s poor efforts.

ARMCO reported that after peaking in Q1 2016, the overall industry critical defect rate dropped to 1.63 percent in Q2, ending an upward trend spanning the previous three quarters. Defects in the Legal/Regulatory/Compliance category also waned in Q2, comprising 34 percent of all defects reported and marking the first decline in nine months. However, this category still represents the largest reported defect category.

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As an industry, we all have to be more self aware so we can adapt to constant change.

While TRID-related defects are still driving the majority of Legal/Regulatory/Compliance defects, we’re seeing a decline in defects in this category.

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“While TRID-related defects are still driving the majority of Legal/Regulatory/Compliance defects, we’re seeing a decline in defects in this category as a result of corrective action planning lenders undertook through the first six months of 2016,” said Phil McCall, COO for ARMCO. “As lenders determine the most effective strategies for addressing TRID-related defects, we expect to see this category decline further.”

Loan Package Documentation defects increased slightly in Q2, accounting for 26.7 percent of reported defects in Q2 versus 26.4 percent in Q1. Also of note is the increase in defects reported in credit-driven categories in Q2. Income/Employment leads this group as the third most frequently reported defect category in Q2 at 9.8 percent, followed by Borrower and Mortgage Eligibility at 8.9 percent and Assets at 6.8 percent.

“Given the magnitude of compliance-related defects lenders were facing in Q1, it’s not surprising to see upticks in other areas,” said Avi Naider, CEO for ARMCO. “Now that lenders have begun to get a handle on their TRID-related defects, they should have more capacity to address those credit-related defects. Thus, we should see those categories normalize in Q3.”

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See what I mean? It took the industry so long to comply with TRID before they finally turned to a smarter, more automated approach that is just now driving down TRID-related defects. I have two questions: Why did it take the industry so long to get to this point? Why are TRID defects still high? The answer is simple: There is a lack of true self reflection.

As an industry, we all have to be more self aware so we can adapt to constant change. When you think about it, self awareness is about having a clear perception of your personality, including strengths, weaknesses, thoughts, beliefs, motivation, and emotions. Self awareness allows you to understand other people, how they perceive you, your attitude and your responses to them in the moment.

We might quickly assume that we are self aware, but it is helpful to have a relative scale for awareness. If you have ever been in an auto accident you may have experienced everything happening in slow motion and noticed details of your thought process and the event. This is a state of heightened awareness. With practice we can learn to engage these types of heightened states and see new opportunities for interpretations in our thoughts, emotions, and conversations. Having awareness creates the opportunity to make changes in behavior and beliefs.

As you develop self awareness when it comes to your total business, you are able to make changes in the thoughts and interpretations you make. Changing the interpretations in your mind allows you to change your actions. Self awareness is one of the attributes of Emotional Intelligence and an important factor in achieving success.

Self awareness is the first step in creating what you want and mastering your business. Where you focus your attention, your emotions, reactions, personality and behavior determine where you go in life. Having self awareness allows you to see where you are and where you need to go. Until you are aware in the moment of your thoughts, emotions, words, and behavior, you will have difficulty making changes in the direction of your business. This industry has to be more self aware.

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.

Keep Improving

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In this market, or in any market really, you can’t rest on your laurels. You have to keep improving. For example, Equifax just launched its Equifax Ignite application to challenge the traditional “one size fits all approach” with an this suite of solutions that provides fast, configurable and actionable data to solve critical challenges and help drive growth strategies. Offering insights through three distinct delivery channels, this “tailored for you” approach was designed with various key users in mind – from marketing senior executives to data scientists.

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The driving force behind Equifax Ignite is the company’s established leadership in providing insights through powerful data and analytics solutions that help propel critical business decisions. Equifax Ignite embodies the company’s deep expertise in big data, specialized risk, fraud and marketing analytics, as well as its vast portfolio of directly sourced, directly measured data from the credit, finance, and telecommunications industries. Equifax Ignite delivers deep insights through an extensive data portfolio including trended data, risk scoring models and the linking and keying of disparate sets of data.

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“Harnessing the power of big data poses a tremendous challenge for businesses,” said Trey Loughran, Chief Marketing Officer at Equifax. “Whether it’s providing the latest in data visualization through an app or access to our differentiated data, advanced analytical tools, and technology, Equifax Ignite brings data to life and helps drive businesses forward by helping the end user become a data-driven organization.”

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As an example, with Equifax Ignite, a bank could leverage key insights to help assess risk at various decision points relevant to their unique goals. From more accurately targeting and screening new customers through market intelligence and alternative data, to creating risk models and monitoring risk scores over time, the user is able to access the vast array of insights available, using leading-edge analytic techniques.

“Equifax Ignite redefines access to data and speed to market,” said Prasanna Dhore, Chief Data and Analytics Officer at Equifax. “There is a paradigm shift happening: the market needs more tailored data solutions that don’t take months to deliver. Generic models aren’t relevant to many businesses’ needs and custom models and diagnostics simply take too long.  Equifax Ignite meets market demand through a frictionless process that reduces building, testing and deployment from months to days.”

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.

Let’s Change The Conversation

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There’s a lot of negativity out there. If you look at the story of the year, the Presidential Election, you have one candidate that became his party’s nominee by insulting his opponents’ looks, mannerisms, etc. That’s all fine and good, but instead of name calling, we should be lifting people up. It’s not enough to insult or even to diagnose a problem if you are not willing to put forth a solution. So, in this issue we at PROGRESS in Lending have decided to change the conversation. We are not going to focus on the negative, we are going to focus on providing solutions.

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For example, there’s a lot of talk about the burden of new regulations. We talk a lot about how those rules are impacting originators, but they are impacting mortgage servicers just as much. So, what should servicers do? Complain about their lot in life? No sir. In this issue, Nickie Badalamenti-Kalas, the President of Five Brothers, courageously points out, “As a servicer and asset manager, you should be focused on maximizing your assets, rather than constantly worrying about these ever-changing compliance requirements. You can’t afford to go it alone, that’s why selecting the right asset management provider is critical to your long-term sustainability.” I encourage you to read what else she said on this topic.

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Also, we don’t think about marketing as a point of contention. However, regulators want to regulate marketing, as well. So, should lenders stop marketing their businesses? Of course not. In this issue, Brandon Perry, the President at The Turning Point, clearly states, “In today’s market with intense competition, mortgage companies cannot afford to stop marketing to prospective borrowers. The key is having the right tools and partner to deliver compliance and control in their mortgage marketing efforts.” To that comment I say: Bravo!

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All throughout this issue you’ll read stories whereby industry visionaries don’t just sulk and moan about tough situations, they roll up their sleeves and look for solutions. If everyone in the industry followed their lead I think the industry would be much better off.

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.

The Rules Of Innovation

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We always talk about how the mortgage industry is in need of innovating. Progress In Lending hosts the Innovation Awards each year to reward those companies that are moving the ball forward. But when it comes down to it, I think a lot of companies may struggle with how to innovate and how to move their clients forward in an environment that is becoming increasingly regulated.

In an article entitled “The 9 Rules of Innovation” by Greg Satell, he says that the truth is that there are many paths to innovation. Here are nine of them:

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Rule 1: Innovation is Never a Single Event

Alexander Fleming discovered penicillin in 1928, but it wasn’t until 15 years later, in 1943, that the miracle drug came into widespread use. Alan Turing came up with the idea of a universal computer in 1936, but it wasn’t until 1946 that one was actually built and not until the 1990’s that computers began to impact productivity statistics.

We tend to think of innovation as arising from a single brilliant flash of insight, but the truth is that it is a drawn out process involving the discovery of an insight, the engineering a solution and then the transformation of an industry or field. That’s almost never achieved by one person or even within one organization.

Rule 2: Innovation is Combination

The reason that Fleming was unable to bring Penicillin to market was that, as a biologist, he lacked many of the requisite skills. It wasn’t until a decade later that two chemists, Howard Florey and Ernst Boris Chain, picked up the problem and were able to synthesize penicillin. Even then, it took people with additional expertise in fermentation and manufacturing to turn it into the miracle cure we know today. Great innovation almost never occurs within one field of expertise, but is almost invariably the product of synthesis across domains.

Rule 3: First, Ask the Right Questions

Too often, we treat innovation as a monolith, as if every problem was the same, but that’s clearly not the case. In laboratories and factory floors, universities and coffee shops, or even over a beer after work, people are flushing out better ways to do things. There is no monopoly on creative thought.

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But that leads us to a problem: How should we go about innovation? Should we hand it over to the guys with white lab coats? An external partner? A specialist in the field? Crowdsource it? What we need is a clear framework for making decisions.

As Satell wrote in Harvard Business Review, the best way to start is by asking the right questions: (1) How well is the problem defined? and (2) How well is the domain defined? Once you’ve asked those framing questions, you can start defining a sensible way to approach the problem.

Clearly, no one method can suffice. Look at any great innovator, whether it is Apple, Tesla or Google, and you’ll find a portfolio of strategies. So the first step toward solving a difficult problem is asking the questions you need to define your approach. To paraphrase Voltaire, if you need to solve a problem, first define your terms.

Rule 4: There is No Optimal Size for Innovation

When most people think about innovation, they think about startups. And certainly, new firms like Uber, Airbnb and Space X can transform markets. But others such as IBM, Procter and Gamble and 3M have managed to stay on top for decades, even as competitors rise up to challenge them and then, when markets shift, disappear just as quickly into oblivion.

While it’s true that small, agile firms can move fast, larger enterprises have the luxury of going slow. They have loyal customers and an abundance of resources. They can see past the next hot trend and invest for the long term. There’s a big difference between hitting on the next big thing and developing it consistently, generation after generation.

Rule 5: Leverage Open Innovation to Expand your Capabilities

When Microsoft launched Kinect for the Xbox in 2010, it quickly became the hottest consumer device ever, selling 8 million units in just the first two months. Almost immediately, hackers began altering its capabilities to do things that Microsoft never intended. Yet instead of asking them to stop, it embraced the hackers, quickly releasing a software development kit to help them along.

Like Microsoft, many firms today are embracing open innovation to expand capabilities. Cisco outfoxed Lucent not by developing technology itself, but by smartly acquiring startups. Procter & Gamble has found great success with its Connect and Develop program and platforms like Innocentive allow firms to expose thorny problems to a more diverse skill set.

As was the case with Alexander Fleming and penicillin, most firms will find that solving their most important problems will require skills and expertise they don’t have. That means that, at some point, they will need to utilize partners and platforms to go beyond their own internal capabilities of technology and talent.

Rule 6: Disruptive Innovations Require New Business Models

When Chester Carlson perfected his invention in 1938, he tried to market it to more than 20 companies, but had no takers. It was simply far too expensive for the market. Finally, in 1946, Joe Wilson, President of the Haloid Company, came up with the idea of leasing the machines instead of selling them outright. The idea was a rousing success and in 1948 the firm changed its name to Xerox.

The tricky thing about disruptive innovations is that they rarely fit into existing business models and so the value they create isn’t immediately clear. It’s not just products that we have to innovate, but business models as well

Rule 7: Innovate The Core – The 70/20/10 Rule

Many people think of innovation as discarding the old to make room for the new, but as Bain & Co.’s Chris Zook points out in Profit From The Core, smart companies realize that the bulk of their profits will come from current lines of business.

Take Google for example. Yes, it pursues radical innovation, like self-driving cars, at its Google X unit, but its continual improvement of its core search business is what made it the world’s most valuable company. That’s why Google, as well as many other innovative companies, follow the 70/20/10 rule.

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The premise of the rule is simple. Focus 70% of your resources in improving existing technology (i.e. search), 20% toward adjacent markets (i.e. Gmail, Google Drive, etc.) and 10% on completely new markets (i.e. self-driving cars).

Rule 8: In the Digital Age, We Need to use Platforms to Access Ecosystems

It’s no accident that the people who would make the vision Engelbart presented at “The Mother of All Demos” a reality actually attended the event and knew Engelbart personally. In those days, it was difficult, if not impossible, to actively collaborate across time and space. Today, however, we can use platforms to access ecosystems of technology, talent and information. In a networked world, the surest path to success is not acquiring and controlling assets, but widening and deepening connections.

Rule 9: Collaboration is the New Competitive Advantage

When we look back to the great innovations of the past, it is hard not to wonder how it could’ve gone differently. And now, the problems we seek to solve are significantly more complex than in earlier generations. That’s one reason why the journal Nature recently noted that the average scientific paper today has four times as many authors as one did in 1950. At the same time, knowledge has been democratized. A teenager with a smartphone today has more access to information than a highly trained specialist a generation ago.

We need to work harder to integrate people with diverse talents.

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.

How Do We Change The Mortgage Process For The Better?

A lot has been made of complying with this rule or that rule, but in the rush to comply I think the big picture is sometimes lost. The big picture should include changing the whole mortgage process for the better instead of just trying to stay ahead of this rule or that regulator.

So, how do you do that? “We focus on the backend processes,” answered David Sohm, COO at Capsilon. “We want to speed that up and keep the communication open. Things change all the time. The most recent change was TRID. TRID was supposed to speed up the process and make the process easier to understand, but it has actually extended the process.”

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Capsilon is provider of cloud-based document management solutions for mortgage lenders and investors. Sohm is responsible for managing the company’s growth plans and overseeing alliances and corporate development.

Sohm has more than 15 years of successful president/chief operating officer experience in software and Software-as-a-Service (SaaS) markets, in both public and private companies. He has been directly responsible for the evaluation, selection and integration of multiple acquisitions and mergers (both buy and sell). He has developed and executed worldwide product support, sales, distributor and marketing plans to achieve company growth and profit goals.

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“In the end, if the number of touches can be reduced, that speeds things up. For example, knowing which documents are required and which docs are missing is important. Also, there needs to be a secure place to exchange information so you’re not just exchanging important info through the air,” noted Sohm.

A lot of the heavy lifting required to change the process for the better is done by the LOS because it’s the system of record. So, what contributions are LOS vendors making to improve the space? “There are a lot of ways that people are trying to simplify the process, but beyond that you also have to engage at the right times,” answered Abhinav Asthana, a senior product manager and global head of mortgage consulting at Wipro Gallagher Solutions (WGS), a Wipro Ltd. Company, which is a provider of end-to-end technology products and services for mortgage, consumer, and commercial lenders in the United States and abroad. WGS’ technology products include its flagship NetOxygen Loan Origination Systems (LOS) and mobile lending technologies.

“We at WGS are manufacturing a loan for the borrower so the customer has all the input. So, the touch points should be more skewed toward the borrowers vs. the backend of the process. Today when a borrower starts an application, the loan officer is in constant communication with the borrower, asking for more and more items. While the LO is working the loan, or when the loan is being worked by the underwriter, the borrower is in the dark. The borrower doesn’t know what’s going on. The back office is working the loan, but the borrower doesn’t know what’s going on. You need to inform the borrower upfront and let them know what’s going on and what comes next.”

As vendors talk about advancement and what they are doing to propel mortgage lending into this century, the rubber really hits the road with the lender. If the lender doesn’t adopt new technologies, nothing changes.

“I got in the mortgage industry in 2003 and there was a lot of talk about e-mortgages,” remembered Dan Jones, vice president, technology at Churchill Mortgage Corporation. “Look at where we are today. The industry moves slow. Also there was a lot of talk about younger borrowers wanting everything electronic, but we are finding that they also want to speak to you on the phone.”

Jones has been with Churchill since July of 2003 and has previously worked as a small business technology consultant, Systems Analyst for a national manufacturing company and Data Specialist for an international computer manufacturer. Jones’ experience in customizing and installing Churchill’s multi-branch loan origination platform and integrating their pricing engine, lead management, database marketing, imaging workflow and e-commerce efforts has provided a unique holistic perspective and hands on knowledge of every aspect of the mortgage banking process. In these efforts, he helped spearhead an LOS implementation during Churchill’s transition from Broker to Correspondent Lending in 2003, and played a key role in Churchill’s implementation of a newer LOS.

“If you have to boil the mortgage process down, you have to automate the experience,” Jones pointed out. “Its not just about how you interact with the borrower, it’s about total transparency. Getting a mortgage can be an intimidating process that consumers don’t understand. Going forward we at Churchill are working on automating the collection of information so the need for the borrower to provide and share documents like bank statements, W2s, etc. goes away. The need to traffic in these documents is going away. As this becomes electronic it will streamline the whole process. That’s where every lender should be going.”

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.

Inspiration Leads To Action

Summer is in the air; it’s the time of the year when many people make the leap to homeownership. Combine this with the fact that rates are still sitting at comfortable lows, and you can see that it is now more important than ever to inspire potential borrowers to reach out to you for their home buying needs. However, it is equally important to make sure your current borrowers get their next mortgage through you. Similar, yet distinct, approaches should be taken with each group.

We recently held our annual user conference, which draws hundreds of the industry’s premiere lenders and technology providers together to talk about all things mortgage. I have participated in this conference for many years, listening to our myriad of speakers and networking with our customers and partners. The conference always reenergizes participants and sparks new ideas.

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This year, I honed in on one message in particular: Now, more than ever, lenders want to get borrowers excited about homeownership. This sounds obvious; after all, lenders are always seeking to attract borrowers. Marketing lays the groundwork, sales makes the pitch, and operations manufactures the loans. Together, they close deals.

So where does this process go awry, and why are lenders seeking to get borrowers excited? To put it simply, borrowers are not interested in the lender’s sales pitch.

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The stark truth is that the vast majority of current mortgage holders will take out their next mortgage from a new lender. There are lots of reasons for that, including referrals from friends or real estate agents, or the pull of timely advertising. Brand loyalty is rare in housing finance, in part because lenders have little interaction with borrowers once their loan closes.

With the shift to a purchase market — one ripe for the biggest crop of first-time buyers in history — keeping in touch with your current borrowers throughout the life of their loan lays the foundation for increased brand-loyalty. There are many ways to approach relationship-building. Surveys can give you great insight into your current standing with customers, but you must then act on those responses. Borrowers (especially those who are unhappy or indifferent) must know that their voice has been heard. It also helps to stay in front of them with your current rates and programs; you want to be top of mind when the time comes for them to buy their next home.

Reaching those who are not already customers takes inspiration and differentiation. Lenders should experiment with new approaches to advertising, different types of conversations with potential customers, and new ways to cultivate and motivate referrals. The idea is to stand out in a crowded market with a combination of value and service that leads the prospective customer to action.

It’s never dull in our industry. Inspiring current borrowers and attracting new ones is more important today than ever before. Market research methods let us know who is likely to be looking for homes and financing. Other technologies — like online tools lenders make available to borrowers and potential borrowers — can also help. These are all great steps in the right direction, yet, as mentioned, today’s borrowers are often not brand-loyal. Address this by building loyalty with your current customers and by inspiring potential customers. After all, inspiration often leads to action. These are key ingredients in the recipe for continued success.

About The Author

Sarah Volling
Sarah Volling is the Marketing Lead for Mortgage Cadence, an Accenture Company. Beginning her career with the company in 2008, Sarah now oversees the marketing department, strengthening brand identity through thought leadership, industry participation and guerilla marketing. Prior to joining Mortgage Cadence, Sarah earned her Bachelor of Arts degree in Communication from the University of Colorado.

The State Of Innovation

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Over 100 mortgage executives came together to attend PROGRESS in Lending Association’s Sixth Annual Innovations Awards Event. We named the top innovations of the past twelve months. After that event, we wondered what would happen if we brought together executives from the winning companies to talk about mortgage technology innovation. Where do they see the state of innovation? And what innovation is it going to take to get our industry really going strong? To get these and other questions answered, we got the winning group together. In the end, here’s what they said:

Q: Some say innovation has to be sweeping change. Others say innovation can be incremental change. How would you define innovation?

JEFF BRADFORD: Innovation can be incremental or sweeping. The key is that it is an improvement. It can be a small change to a process that improves efficiency or costs, or it can be disruptive and eliminate an entire category of services or processes.

DOMINIC IANNITTI: In order to gain significant traction and adoption in the mortgage industry, things generally happen in increments, mostly because so many parties have to weigh in and agree on how and when to effectuate change. A good example of that is the slow but sure industry adoption of eSignatures, eNotes and eClosings.

However, universal change and innovation can occur when a major compliance regulation is put into effect. The CFPB’s drive to implement the TRID rule created a fundamental shift of seismic proportions in both business processes as well as relationships. This affected so many entities across the mortgage supply chain. The CFPB essentially became a change agent that facilitated never-before collaboration between lenders and title companies. This not only helped the borrower but it also helped develop far greater transparency, much more efficient workflows, and better communication.

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So depending on the impetus, innovation can be swift or incremental. But I really define innovation as a process — the process of arriving at new ideas, concepts and approaches to doing things differently — and then bringing all the necessary parties together to execute on and attain adoption.

PAUL CLIFFORD: I don’t think it is either. Innovation isn’t tossing out the old paradigm completely, nor is it tweaking the old paradigm for incremental change. Innovation is taking what we “know,” our collective industry experience, and solving for old problems in new ways. We can’t forget our history, nor can we simply amend it.

MARC RICCIO: There is no definite explanation on how to create innovation, which is what also makes it so difficult to define. Considering something as being innovative means that it is one of a kind regardless of how it was achieved. What matters most in today’s industry, especially in the software world, is that creating innovation is mandatory in order to stay relevant and competitive. Without the ability to think outside of the box, there is little hope for survival.

BRAD THOMPSON: Innovation must be constant. It’s a given, really, for all technology companies, though especially ours. We’ve built our business around rapidly evolving mortgage platforms to meet the ever-changing needs of lenders and their borrowers. Regulations over the past several years, including TRID, are current examples, though many innovations were less reactionary and more visionary for us, such as the rollout of a true borrower portal in 2001 – it’s the combination of both reactionary and visionary innovations that allows lenders and technology providers to stay ahead of the market.

NICKIE BADALAMENTI-KALAS: Innovation does not have to be mutually exclusive to being either sweeping change or incremental change. It depends on the circumstances and specific market conditions in play. Innovation requires a company’s commitment to delivering dynamic solutions, technology, new processes, that proactively address current and future market conditions in a way that adds value to all interested parties.

SHARON MATTHEWS: Innovation comes in all formats, including small changes and large revolutionary advances. Being innovative simply means doing something differently than what has traditionally been done. It means not accepting the status quo as a given, but rather looking for new ways to do things. For every disruptor like the smartphone, there are many more that have been the result of multiple innovations over time that have improved the state of the art. Mortgage technology is a prime example.

Q: How would you define the state of innovation in the mortgage industry? Is it thriving or in a state of decay?

BRAD THOMPSON: Innovation is thriving in the mortgage industry! Stronger than ever, in fact. Some of it is, of course, reactionary – TRID for example – yet the most interesting are forward-looking – like the work we’re doing around business intelligence and our next-generation borrower portal. Lenders require partners that are innovative, therefore, the best companies will be taking similar steps to stay ahead of industry trends.

MARC RICCIO: If you asked me this question 12 months ago, I would have replied it’s in a state of decay because of TRID. Although still weighing some vendors and lenders down, the worst part is over…and we have some exciting and innovation capabilities being released in the next 6-18 months. That being said, there are many new opportunities to embrace innovation. The Millennial generation will need housing, which will push lenders to embrace “their type of technology,” including tablets and mobile devices. We haven’t even scratched the surface with e-signature and paperless process capabilities. The future is all about speed, efficiency and economies of scale, and it will be driven by providing a seamless and optimizing loan process that provides personal service. The lenders who find a way to achieve this through innovation will be the winners.

DOMINIC IANNITTI: To use a well-known proverb, “Necessity is the mother of invention.” I cannot recall the last time I have seen so much innovation in the mortgage industry. Dodd-Frank imposed unprecedented regulatory oversight, introducing new processes and procedures, workflows, increasing compliance costs, along with greater risk while reducing bottom line profit and thinning margins. In order to survive, lenders must turn to eliminating old paper-based processes and automating more of the compliance verification and document process to ensure proof of compliance to protect themselves against future regulatory audits.

The increasingly regulatory intensive landscape the industry has faced ended up forcing a major business change from producing a paper trail, to document compliance in a loan file, to implementing a continuous automated, electronic data verification and compliance audit process. This resulted in ensuring that both the data and the documents which contain them are as current, complete and compliant as possible. Even Fannie and Freddie have moved from a post-closing review process to new pre-closing verification systems in order to verify data before final documents are drawn.

The short answer is that regulatory mandates to implement new compliance rules resulted in vendors developing better technology solutions to accommodate them. While it has been painstaking, I believe that the mortgage industry is about to turn a critical corner. We’re going to reach new heights of efficiency and the truly paperless eMortgage will gain critical mass sooner rather than later.

JEFF BRADFORD: I think innovation is thriving in the mortgage industry. The amount of venture capital that is pouring into the FinTech sector is huge. There are a lot of ideas being funded. We’ll see some of these turn into new services and products and enter the market in the next few years. Some may even disrupt the mortgage market. It will be interesting to watch.

NICKIE BADALAMENTI-KALAS: Personally, I know at Five Brothers we view the state of innovation as thriving. The influx of new rules and regulations has forced companies to develop innovation to respond to constantly changing market conditions. The key is developing a culture within the organization that is continually looking for ways to do things better, faster, and more cost effectively.

PAUL CLIFFORD: While it is thriving from a “spot solution” standpoint, I do feel we are still too reactive rather than proactive, preventing us from innovating at a broader, industry level.

SHARON MATTHEWS: Innovation in the mortgage industry is thriving without question. Every phase of the mortgage process is evolving, from the user experience at the point-of-sale, to eClosings, to post-close processes. We see better, faster and more cost efficient approaches coming to market in all these areas. Even data standards – not something typically associated with innovation – are helping to make possible the vision of a data-validated mortgage, in which quality and compliance are more easily assured from beginning to end.

Q: Lastly, if there was one innovation that you would say the mortgage industry desperately needs to happen over the next twelve months, what would it be?

SHARON MATTHEWS: It would be what we have termed the “Data-Validated Mortgage,” which refers to a loan whose individual data elements are in an accepted, standardized format and is made available in a way that is useful by stakeholders in every aspect of the business. The ability to assess loan documentation from pre-close to close and then extending through to post-close, especially in relation to TRID disclosures, is a game-changing capability affecting compliance, loan quality and investor salability. Leveraging the work performed by MISMO, eLynx and others, the Data-Validated Mortgage is an innovation whose time has come and is ready for adoption by the industry.

DOMINIC IANNITTI: Director Cordray of the CFPB has gone on record as stating that his number one goal moving forward is to implement a total eClosing and electronic Compliance Management System (CMS) that effectively addresses both compliance and consumer satisfaction. Our participation in the CFPB’s eClosing Pilot provided us with keen insight into helping streamline the overall consumer experience from the initial LE and eDisclosure to delivering the final CD and pre-closing package three days prior to consumption.

In order to ensure a truly consistent and compliant process, however, lenders need to document all consumer interactions. Using paper-based or even imaging-based systems aren’t going to cut it. You must start and end with electronically creating a completely paperless process to document consumer consent and understanding, acknowledgement, intent to proceed, receipt of delivery, etc. throughout the entire mortgage manufacturing process.

In future compliance audits, the CFPB is going to be checking the source and validity of the data so lenders are going to have to keep an electronic audit trail to document that as well. The only way to effectively accomplish that is to implement a true eMortgage process (eSign, eDisclosure, eClosing, eNotary, MERS eRegistry) and retain electronic proof and evidence of compliance (data, documents and electronic audit trail) that resides in an eVault along with reps and warrants to ensure total compliance with regs.

MARC RICCIO: I see the need for providing “picture” documentation that allows a borrower to zoom and click a picture of a borrower document with their cell phone or tablet. They need to be able to securely transmit the document to the lender to automatically be uploaded to the LOS and securely attached to the borrower record. The key is providing a secure delivery that requires no human intervention.

JEFF BRADFORD: Appraisals need to get better. Much better. It’s a big bottleneck for lenders trying to close loans when 50% of the appraisals submitted are returned for corrections. Innovation in the appraisal process, in the analysis and in the reporting are desperately needed. We live in a world, which revolves around technology and appraisers are still filling out forms manually. This has to change.

NICKIE BADALAMENTI-KALAS: With the influx of new rules and regulations, property preservation is not just about securing a lock or boarding up a window; it is about preserving the appearance of neighborhoods and maintaining homes as good as the house next door. The speed and accuracy at which servicers can get information from their property preservation company is a critical factor in making this happen. Mobile technology specifically applied to property preservation significantly speeds up this process while also improving data integrity and therefore will have a major impact on the industry over the next twelve months.

BRAD THOMPSON: The digital mortgage is absolutely crucial. Even a hybrid approach where the front-end process becomes digitized is a step in the right direction. With regulations and an ever-changing industry ahead of us, the ability to be agile is critical to long-term success, and being digital is essential to being agile.

PAUL CLIFFORD: Well, I don’t think it is a secret that we need to drive to data standardization and interoperability. The longer we remain a fragmented industry of stakeholders and systems, the longer our problems persist and multiply.

Progress In Lending
The Place For Thought Leaders And Visionaries

We Need Some New Ideas

There is a lot of talk about how to attract Millennials. There is a lot of talk about increased efficiency. There is a lot of talk about digital or electronic mortgages. But how do we do any/all of these things? We need some new ideas to attract younger borrowers and digitize the mortgage process. The same-old, same-old won’t work. Here’s what I mean:

I just read that Aspire Performance Improvement Ltd will launch a unique and innovative digital self-service maturity assessment and corporate diagnostic based business model.

Aspire focuses on empowering clients to conduct their own consultancy engagements by training client team members in the ASPIRE performance improvement engagement approach and use of the CXO Diagnostic model range. This is designed to help clients quickly pinpoint problems, issues and challenges and proactively solve them through interventions which help turnaround, stabilize, optimise, transform and drive business growth.

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The company’s vision is to operate as a transparent organisation which shares its intellectual property for the benefit of the majority and not just the privileged few. Aspire has started to publish its public training course schedule, via Eventbrite, and will also be running tailored in-house courses for clients and consultancy organisations who wish to use the Aspire approach and collateral with their clients.

Aspire expects to lower the average cost of a traditional consultancy engagement from the £200k to £500k engagement cost down to an agile technology enabled £35k-£75k cost, significantly increasing the likelihood of a positive return on investment from the interventions recommended.

The Managing Director of Aspire Performance Improvement, Robert Peopall, who has previously worked for leading business and technology consultancy firms HP, CSC and Ernst & Young in business transformation director roles stated, “We are extremely excited about taking a fresh innovative technology enabled approach to market that allows clients to solve their own problems in a standardized and repeatable manner reducing their dependency on expensive third party consultancy services. This is not to say that third party consultancy services are not a worthwhile investment, we are merely offering clients a choice; a different pragmatic and practical option that recognizes the scarce budgets and tough reality of today.”

Why do I bring this up? Because it’s an example of a company putting a new and innovative twist on an old practice to make substantial improvements. Why don’t we do this in mortgage lending?

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.

Executive Spotlight: John Walsh of LERETA

John Walsh - CEOIndustry pioneer and visionary John Walsh is now CEO of Covina, Calif.-based LERETA, a national provider of property tax and flood hazard data for the real estate industry. Walsh leads an executive leadership team focused on providing the mortgage and insurance industries accuracy, responsiveness and innovative technology. In a long-ranging interview, John detailed his vision for the future of mortgage lending.

Q: What trends do you expect in the mortgage lending industry over the next few years?

JOHN WALSH: There are several critical topics facing the mortgage industry over the next few years. According to Fannie Mae, the number one risk concern for mortgage lenders and servicers in 2016 is compliance. Will the hyper-regulation that has existed for the past several years continue or will the pendulum swing back to a more reasonable approach? Recently, one of the presidential candidates suggested that new regulation should require an ROI analysis. How does the cost of the new regulation, to both the government and the affected industry relate to the anticipated benefit? It’s an interesting idea. However, even if adopted, it is unlikely that the mortgage lending industry will see relief for several years. In the interim, regulations will continue to increase costs for both originators and servicers. This may be a particular problem in servicing where the revenue side of the equation is fixed. The obvious threat to both the mortgage industry and borrower is if this trend results in fewer firms willing to service or originate mortgages.

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Again, according to Fannie Mae, the number two risk concern in 2016 is mortgage origination levels. During the last four years mortgage originations have declined from $1.9 trillion to $1.6 trillion. This year the forecast is $1.5 trillion. At the same time, there is some room for optimism given housing starts have been steadily increasing since 2009. Today, they are currently less than 45% of the peak years of 2005 and 2006 and only 60% of housing starts in 2000. The average origination volume during the last 18 years is about $2.1 trillion. If the purchase market continues to grow, and can replace the refi market that the industry has been surviving on for the past several years, there is an argument that $2 trillion might be a “normal” origination level at some point in the future. However, if you eliminate the “boom” years of 2002 to 2006 from the equation, the average is only $1.7 trillion. Regardless, we are hearing from many of our clients that their intent is to grow their origination volume, particularly online, either based on overall market increase or increased market share.

Q: Do you see the landscape changing for vendors to the industry?

JOHN WALSH: Vendor management will continue to be a critical task for lenders and servicers and as a result, compliance will be a primary focus for vendors. This presents vendors with the same increasing cost challenges as lenders, but also creates opportunities to provide clients with better and innovative solutions for compliance. One downside of this is that the cost and complexity of vendor management has/is causing many lenders to limit the number of vendors they can engage. This is obviously a benefit to established firms such as LERETA that already have a solid market share. Regardless, the unintended consequence is that it has become harder for new vendors to enter the space. Over the long run, I think this will reduce the innovation introduced to the lending industry. Clearly this is not good for either the industry or borrowers.

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Q: What do you see as the LERETA’s current value proposition to the mortgage industry?

JOHN WALSH: This year is LERETA’s 30th year providing tax services and 25th year providing flood services to the mortgage industry. Today, we serve more than 4,000 lenders and servicers and add 10 to 15 new clients each month. Today, based on client count, we are the largest provider of tax services. We have achieved this success for a couple of reasons. First, compliance is obviously critical for all participants in the mortgage lending industry today. It is also fundamentally about protecting the lender’s asset but also protecting the homeowner. These challenges are compounded because of the complexities of tax service and the small number of staff firms can dedicate to tax service. LERETA provides clients with solutions that are compliant with all regulators. Second, our goal is not to sell an off-the-shelf product. Our clients have important and difficult jobs. Our focus is to help our clients do their jobs better and also to make their lives easier. We do that by working with them to understand their unique problems and then providing the solution that meets their needs. This may mean flexibility in the product, flexibility in technology and integration and flexibility in pricing terms. Frankly, this is unique in tax service. Part of this is just a mindset and commitment. Part of this is also the ability to understand our clients’ business. What allows us to do this better than others is our complete focus on tax and flood. We do not sell AVM’s, BPO’s appraisals. We just sell and service tax and flood. On average, our managers have more than 20 years’ experience in mortgage lending.

Q: Where do you see LERETA in the next couple of years?

JOHN WALSH: During the last five years, the company has increased in size fivefold. Our primary target market has been medium and regional lenders. As one of only two national tax service vendors, and the only one focused on this market, I expect our growth in this market to continue. On the other hand, up until the last couple of years, LERETA was not large enough to effectively compete for the largest lenders. That means that for about the last 10 years the largest lenders have had only one choice for tax service. Obviously having only one option for any product or service is not in the best interest of the customer. Sellers without competition have little incentive to innovate, little incentive to improve service and little incentive to provide a competitive price. In addition, some of these lenders are telling us that having only one option for a service that is critical to the lending process creates vendor management problems with their compliance groups. In short, we believe we can introduce a new level of competition to this market that will benefit of both lenders and consumers.

Q: How would you define mortgage industry innovation?

JOHN WALSH: I’d define mortgage industry innovation as products or services that make the lending process easier or faster; identify and/or reduce risk for lenders, investors and servicers; or materially reduce the cost of the lending process.  I would add the caveat that innovation is only if it is adopted.  We have seen numerous “innovative” solutions that sounded good, but for whatever reason they failed to achieve any meaningful adoption by the industry. Today, there is a significant focus on compliance solutions and services that may be siphoning off attention from other areas of innovation.  This is clearly a response to what lenders and servicers want and need.

Progress In Lending
The Place For Thought Leaders And Visionaries

Operational Excellence Must Include Innovative Technology

Tammy Alvarez, Senior Vice President, Operations at Bank Leumi, and BNY Mellon declare that keeping everyone in the organization informed and aligned on process excellence initiatives with enterprise impact will drive operational excellence success and returns for them in 2016. Here’s what they said:

In the recent PEX Network interview ‘4 Leaders of OPEX in the Financial Services’ Tammy states, “You know you have a ‘good’ handle on operational excellence when people within the organization aren’t talking about it.” Good operational excellence within financial services for BNY Mellon is a culture that embraces continuous improvement.

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Tammy goes on in the article to identify Bank Leumi USA’s biggest challenge as leveraging technology. She states, “I am always interested in learning about the latest innovations in technology and business processes”.
PEX Network Director, Karen Magnusson has also commented on this issue, stating, “It is imperative to harness innovative technologies to drive business growth. It is this forward thinking attitude which is pushing companies such as BNY Mellon and Bank Leumi to become leaders in Operational Excellence.”

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Tammy Alvarez will be speaking at the Operational Excellence in Financial Services Summit taking place March 7 – 9, 2016 at the Marriott at the Brooklyn Bridge, New York, which will welcome over 150 Senior VPs and Directors of Operational and Performance Excellence to learn how to keep the entire organization aligned and productive during a period of enterprise-wide transformation in a dynamic business environment, such as the financial services, with continuous regulatory changes and increased customer expectations.

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.