Follow The Leader

I have been critical of the industry’s inability to move forward on eMortgages, or what is now called a Digital Mortgage, without other lenders going first. Today there is great buzz around going digital so I’m shifting my earlier concerns. To every lender today I say: Please follow the leader and go digital. My hope is that we have reached a tipping point where not going digital is more of a risk compared to finally making that transition to digital mortgages.

Featured Sponsors:


In order for lenders to make this transition there first has to be clarity around the term Digital Mortgage. “There is still quite a bit of confusion in the marketplace as to what a digital mortgage is actually comprised of,” noted Dominic Iannitti, President and CEO at DocMagic, Inc. “Put simply, a truly comprehensive digital mortgage involves zero paper whatsoever, from start-to-finish. That means from the time the loan is originated at the point-of-sale to when the loan is closed and the eNote is delivered to the investor, nothing is papered-out. This includes fully paperless eClosings for borrowers, which absolutely must contain eNotarizations. Also, another important component of the digital mortgage process is an integrated mobile strategy.”

Recently DocMagic, Inc. completed North Carolina’s first 100 percent paperless eClosing. The DocMagic-driven eClosing was completed on Friday, May 5th at North State Bank and was carried out in the presence of borrowers Jason and Karen Boccardi, the North Carolina Secretary of State, a closing paralegal, an eNotary, and members of the media who documented the historical event.

Featured Sponsors:

Attorneys from the Hunoval Law firm attended via interactive video. The entire eClosing took only about 20 minutes to complete.

“Millennials in particular want the ability to start the origination process on a phone/tablet, check status, eSign documents and complete the closing process,” added Iannitti. “That technology needs to be integrated with the document preparation provider, eClose technology vendor, LOS, as well as other third party vendors.”

DocMagic’s Total eClose, which contains all the components to facilitate a fully compliant, 100 percent paperless digital closing, served as the single platform that enabled the entire transaction in North Carolina. eNotarization was facilitated by long-time DocMagic strategic partner World Wide Notary (WWN).

Featured Sponsors:

In fact, DocMagic facilitated four of the five statewide-first eClosings, as well as the CFPB’s eClosing pilot program. The North Carolina eClosing was part of a state sponsored eClosing Pilot Program that was established in 2016 by North Carolina Secretary of State Elaine F. Marshall to create a best practices guide for mortgage lenders seeking the heightened security, speed and efficiency of eClosings.

“For the record, a comprehensive digital mortgage is really just a new term for an end-to-end eMortgage process,” stated Iannitti. “The reality is that most of the digital mortgage technologies that are currently available for lenders are hybrids, so paper is unfortunately still involved. However, the technology to go fully digital is here today. The biggest hurdle is still educating all the players on the benefits, the technology solution exist today. The CFPB was very helpful in evangelizing for lenders and vendors to embrace eClosings, which is now well on its way.”

Valerie Saunders, Vice President at NAMB – The Association of Mortgage Professionals and President at Title ClearingHouse of Jacksonville, agrees that a digital mortgage is a mortgage that is transacted 100% electronically, including digital signing and electronic notarization, with no semblance of paper, whatsoever. And while there is still jockeying among some over the definition of the term Digital Mortgage, nobody disputes the return on investment associated with adoption.

“Digital mortgages are a lot faster and more efficient than traditional mortgages,” pointed out Saunders. “It’s also a lot easier for lenders and settlement service providers to manage and keep mortgage files secure without all that paper.

“As far as the consumer goes, paperless mortgages allow more time for borrowers to review the documents they’re executing prior to affixing a signature. In a typical transaction, unless the borrower specifically requests it, the first time they’re seeing those documents is when they’re at the closing table. With a digital mortgage, borrowers can take the time to digest the information and ask questions well in advance of closing.”

That doesn’t mean that there are no hurdles to adoption. “I think the major hurdles are cost and necessity,” noted Saunders. “We need to remember the role that states and counties play in electronic mortgages. In order to transact a fully paperless mortgage, states need to allow for both electronic recordings and electronic notarizations, and counties need to be technologically equipped to accept those electronic documents.

“Technology is the foundation of a digital mortgage, so it plays a major role in how that experience is going to play out. That said, lenders and settlement service providers also play a key role in assuring that the digital mortgage experience doesn’t replace a personalized experience.”

Put simply, the digital mortgage is about the customer interaction. “Customers will interact how they want on their timetable,” noted Josh Friend, the founder and CEO of InSellerate, a Costa Mesa, California-based CRM provider that helps companies maximize their sales leads and convert them into closed customers. “The second part of the digital mortgage is the use of big data. Tax returns, pay stubs, w2s, etc. is all in the cloud. You need to leverage platforms so that documentation can be downloaded through the web without the borrower having to provide that. Third, is the technology required to take in and process all the loan data. You want to make the mortgage process easier.”

InSellerate is a specialized customer relationship management system that delivers incremental sales and revenue by optimizing consumer direct lead channels, increasing prospect conversion and maximizing sales opportunities through an automated nurture program. With InSellerate, companies can immediately connect to leads while the prospects are actively in the decision-making process, manage their sales team real-time for maximum efficiency and ROI, and build strong customer relationships through trigger-automated nurture marketing campaigns. InSellerate is SSAE 16 certified and built to satisfy the most closely regulated businesses, including community banks with mortgage subsidiaries.

“The cost to originate has increased,” noted Friend. “Having accurate closing fees upfront will allow us to be more accurate at closing. The digital mortgage will also lower buybacks significantly. From the view of the consumer, if they can go online, see accurate pricing, fill out the documents and submit the trailing documents online, that would be a big benefit.”

So what will it take for digital mortgages to finally go mainstream? “You need to tie the business and technology together,” concluded Dr. Rick Roque, President and Founder of MENLO, a firm that advises mortgage lenders on their M&A strategies. “You have solid technology, but there are failures in how to apply that to the business process. It takes a unique intersection in how the business process can be designed and reimagined with the use of technology.

“Lenders have to look at the net tangible benefit. Lenders may go after the latest technology, but don’t look at how it can be operationalized. A digital mortgage is not a switch that just gets flipped. It’s a progression.”

About The Author

Reflecting On The Rate Hike

USA Today reports that the Federal Reserve’s hike of short-term interest rates by 0.25 percentage point, was in line with nearly universal expectations. It’s the first time the central bank has raised rates in almost a year. Now that we’ve had some time to reflect on this news, it’s time to talk about the real industry impact.

If you’re a current or would-be homeowner, you shouldn’t feel rushed into action. In fact, the biggest moves in mortgage rates have likely already happened — and the Fed had nothing to do with them.

Featured Sponsors:


But the Fed’s action, and the expectation that it will raise rates again in the coming months, has important implications for mortgage rates, as well as your ability to buy a home or refinance your loan.

“Rates have been moving up since last July, so the Fed is merely playing catch-up to what’s already happened. Also, let’s not forget that the Fed only controls short-term rates, not long-term rates like mortgages,” said Sam Heskel, CEO of Nadlan Valuation, an appraisal management company.

Featured Sponsors:

“Having said that, I think the immediate affect will be that refinances dry up and there might be some negative effect on the purchase mortgage market as well. Developers and builders will pay more to finance new projects which may stall some commercial and residential building and perhaps raise prices. Long-term, however, I think people will adapt to the ‘new low rates’ – which are still low by historical standards – and get back into the market. Actually, higher rates may have a beneficial effect: If consumers cut back on buying homes, that may force home prices to come down to more realistic levels, which could help more homebuyers than low rates did.”

But not everyone is convinced that this rate hike will be so insignificant. “I can see this small change at the Fed having a large impact on the industry,” noted Dr. Rick Roque, president and founder of MENLO, a firm that advises mortgage lenders on their M&A strategies.  “In essence, retail lending may become less attractive to a broad spectrum of originators, leading to more exits than normal and perhaps even glutting the market for M&A.  If this happens, it will also drive a new approach to finding street origination talent that will mean fewer big signing bonuses and overvalued compensation scenarios due to more players and reduced margins.

Featured Sponsors:

“Early on, of course, we could well see an increase in transactions.  Borrowers currently considering purchases might be moved to action by the Fed’s changes, which could offset the normal seasonal slowdown at this time of year.  Many believe the Fed will make several of these adjustments during 2017, and if true, we can expect more valleys than spikes over the course of the year.”

But if you are taking the long view, most expect the mortgage industry to be just fine. “In the long run, the Federal Reserve raising its benchmark rate by a quarter point shouldn’t have a significant impact on housing. We may, however, see sales and loan applications slow down in the near-term as the market adjusts, and as consumers get over the psychological hurdle of interest rates above 4% on their mortgage loans,” said Rick Sharga, EVP of Ten-X, an online real estate transaction marketplace.

“Fortunately, there’s no guarantee that lenders will raise mortgage rates more than they already have (based largely on changing yields on US Treasuries). Last year’s disastrous experience of loan applications falling off a cliff after lenders used another quarter-point Fed rate increase to raise mortgage rates by a full point are probably still fresh in the industry’s mind.”

How will this rate hike impact homebuyers? “Interested homebuyers will figure out in short order that the difference in their monthly payment will be minimal – the difference between a 3.5% 30-year fixed-rate loan and a 4.0% loan works out to about $26 per month per $100,000 borrowed,” answered Sharga. “For anyone who can actually afford to buy a home, this certainly doesn’t seem to be a game-changer. We could even see a slight “rush,” as interested buyers act quickly, in order to lock in rates before they rise further.

“It will be interesting to watch how interest rates fluctuate throughout 2017, especially if the Fed follows through on plans to raise rates another 2-3 times. And it will be equally interesting to see if home price appreciation cools off as it has historically during periods of rising interest rates, keeping affordability levels intact.”

Tomorrow’s Lending Strategies

You Can Download This Article As A PDF HERE

There is no denying that it takes a very savvy lender to stay ahead of market conditions. And being savvy means investing in technology according to industry veteran Rick Roque. Rick recently joined LendSmart Mortgage, a national retail, non-depository mortgage lender headquartered in a suburb of Minneapolis, Minnesota. With lending centers in Minneapolis, Phoenix and St. Louis, and offices across the United States, LendSmart is growing its retail production presence in local markets through strategic market acquisitions in target markets. The company places a priority and focus on compliance and local fulfillment in their operations. Their model serves employees and referral partners uniquely allowing for direct access and communication with staff members supporting the underwriting, closing and funding functions within the market itself. Rick explains what will make LendSmart and other lenders successful going forward.

Q: Why did you get into the mortgage space to begin with?

RICK ROQUE: I grew up in the mortgage and housing industries because my father owned a real estate agency up in Vermont. In the late ‘80s and early ‘90s I was exposed to the family business. From there, like many kids who worked for their fathers, you want to carve a separate path. So, I got my undergraduate degree in electrical engineering and I intentionally left the mortgage business and left the housing sector to focus on the high-tech boom from 1995-2001, 2002. At that point, I had started a company that focused on custom CRM solutions. I sold that company in 2003 to my business partner and it caught the eye of one of the top ASP hosting providers in the country, a company called Wizmo. They had raised $30 million dollars or more in venture capital and they were really on the rise. However, they were significantly hindered by the dot-com bust in 2001, 2002, so they had scaled back to focus on hosting Calyx Point. When I sold my company in 2003, they tapped me to head up their business development because I knew the mortgage business, and I had a strong technology background, as well. That was how I got back into the mortgage business.

Q: How do you think the industry has changed since you first got involved?

RICK ROQUE: We’re in what I would consider the third generation of mortgage lending. As I see it, the first generation started with the creation of the GSEs. At that point, products were fairly simple, and the applications were fairly simple. The second generation started when the industry expanded from 200 to 2008. Loan products and technology applications became very complex during this period. I think the third generation started with Dodd-Frank.

Today mortgage lending is being reconstructed to include a banking foundation. Many of the requirements put on banks like capital requirements and liquidity are now being put on mortgage lenders, as well. What we’re seeing is this shift is created a significant cultural challenge. The very first challenge it posed on the non-depository space, mortgage brokers and mortgage banks alike, is in capital requirements.

Q: You’ve been on the technology vendor side, and you are now on the lender side of the business. Which side do you prefer and why? And how do the disciplines cross?

RICK ROQUE: I started on the mortgage side and branched out to the technology side. When I started Menlo I focused really on warehouse lending and mergers and acquisitions, just production growth strategies. I’ve worked with probably more than 15 investment banks between New York and San Francisco in identifying the appropriate firms both in the retail origination side and the technology side, that would be good investments for them to put money into. Regardless of what side of the business you’re in, you have to have an understanding of the way technology can drive your production, can increase efficiencies, can decrease costs and can increase your revenue. From there, as you scale your business, you need access to capital and you need to identify the appropriate growth strategies that would scale your business safely. We’ve recently seen some lenders like RFC grow in a very un-sustainable, unsafe manner to a point where they had a peak of a thousand employees, on July 1, 2013, and now they have under 200. They had almost 60 branches and now they are down to two or three. My hope is to continue working and applying my skillset in all three of those areas, capital, technology and production or retail growth strategies. I want to add value in all three of those areas as I move forward. I don’t want to pick a side because I think it’s too narrow to do that.

Q: You recently joined LendSmart Mortgage. Why did you choose this career path and what do you think separates this lender from others in the market today?

RICK ROQUE: I have had a lot of opportunities to run retail mortgage companies and I have turned down a lot of those offers for a couple reasons. One of those reasons is culture. Second was lack of capital. And the third reason was a lack of good management. Those are the three reasons why I chose LendSmart. When the opportunity presented itself the first thing I looked to was their management and their culture. They have a high employee retention, number one. They don’t have serial turn over by loan officers in branches. Number two, they have a culture of investing in their branches. So, there are actual systems and people in place to help their branches grow. It isn’t just a talking point or a marketing slogan, it genuinely is a systemic focus of the company to help their offices grow.

Also, a lot of the bigger companies have central underwriting and processing, so you end up getting an underwriter in Milwaukee writing a decision on a property in Miami and they don’t really have local market knowledge to be able to assess a borrower’s income circumstance. For example, if they have never looked at a Union borrower and they don’t know how a Union Shop works, they tend to make mistakes in how they evaluate their credit decisions.

LendSmart has agreed to build out their fulfillment platform, underwriting, closing, funding, in the local markets themselves. So we’ve carved out the country into various regions and we’re pushing regional lending centers. In each of our regional lending centers there is underwriting, closing, and funding functions to support the loan officers in those markets in a very local way.

Q: You talk about mergers and acquisitions and I know that’s one of your responsibilities at LendSmart Mortgage. What are the major M&A trends?

RICK ROQUE: I think the branches and/or independent companies that are doing $5-$30 million a month are the most vulnerable today. Obviously the lower in production you go, the more vulnerable you are. Even companies doing $30 million a month or so, might be in jeopardy these days. For example, I was talking to a company yesterday that does $25 million a month in Orange County. They have a net worth of $6 million, $5.5 million in cash. So, they are moderately capitalized, but for them to make the money they’ve made in the last year, they’ll have to double their production because margins have compressed. So, that’s a challenge.

For me, $5-$30 million a month is really the sweet spot right now. There are some bigger plays out there, but those that do $70-$120 million a month in volume, don’t want to be sold. Also, if you are in that $80-, $90-, $100-million a month category they’re kind of faced with the same kind of decision. They are asking themselves: Do I expand or do I sell? The problem is when they sell, they want too much money for the company. So, that’s why my sweet spot right now is in that $5-$30 million a month space.

Q: What’s the biggest problem that mortgage lenders face and how can it be fixed in your opinion?

RICK ROQUE: Number one, they pay their loan officers too much. I think we’re going to see significant compression on LO compensation. You still see a lot of mortgage lenders paying their loan officers 130, 150, 180 base points a deal and that, I believe, will go away. I think that’s going to fall to more industry norms of 100 basis points, 110 basis points. The second big problem is that a lot of lenders are desperate for production because their executive salaries were too high when rates were low. Let me give you an earmark. There should be no manager that makes more than $200,000-$240,000, $250,000 a year, unless you’re tied to production. I believe that lenders need to be reinvesting in the mortgage company. The point that I’m trying to make is that compensation in our industry is completely out of line when compared to most other industries. I believe that until that falls in line, lenders won’t invest in things like technology and attracting quality people that will help them grow that business.

Q: Last question along those lines is, how would you describe the lender of the future?

RICK ROQUE: I’m afraid that the CFPB has an unchecked mandate to relate and to impose both rules and regulations on our industry, and fines for that matter. In the end, that’s going to increase the cost of doing business. As a result of these new rules, lenders will be forced to operate just like banks and other depository institutions. Now, without a serious commitment to technology, which means you spend probably 20-30 basis points on technology, I don’t see how you maintain a healthy mortgage lender.

The next-generation lender needs a real technology roadmap for their company that will integrate sales and operations. Unfortunately, right now there’s such poor technical leadership on the mortgage side. Lenders have to be more sophisticated when it comes to their thinking about technology, simply put.

Also, sales management is grossly lacking, grossly lacking in mortgage lenders today. I believe that you need to have weekly meetings and pull weekly reports. Lenders need to think: Am I drilling down as much as I should? How are my loan officers really doing? How many appointments are they booking? How many Realtors are they talking to? How many loan applications are they generating? The next-generation lender should be asking these questions and they should have the technology to answer these questions at their fingertips.

What am I really getting at? The next-generation lender should have a full understanding of technology and use it to create a fully integrated business that works regardless of new regulations or shifting market conditions.

Insider Profile

Rick Roque is VP of Corporate Development at LendSmart Mortgage and Managing Editor of MortgageCompliance Magazine. Before starting his consulting firm MENLO Company in 2009, Rick was on the management team for Calyx Software where his focus was Sales and Business Development. Today, MENLO Company works directly with mortgage banks and depository institutions on capital fund raising efforts, production expansion goals, mergers & acquisitions and technology adoption planning. He is a national speaker on mortgage market trends, industry forecasts and emerging technologies that best serve consumers.

Industry Predictions

Rick Roque thinks:

1. We’ll fall short of the $1 trillion in originations that the MBA is predicting. I think we’ll come in at $0.8 trillion this year. I also think that rates will hit 5.5%.

2. In my view, there will be 30% fewer mortgage banks operating by the end of this year as compared to those in business right now. We’ll have under 1,500 lenders out there by the end of 2014.

3. I think the costs of compliance will increase by another 10 basis points over and above what lenders are paying today.

4. Lastly, I think Ellie Mae will be sold and will once again become a private company.

Welcome Aboard

*Welcome Aboard*
**By Tony Garritano**

TonyG***Each day PROGRESS in Lending goes out to over 12,000 unique lenders. As part of our ongoing effort to deliver quality content and services that lenders can actually use to grow their business, last year PROGRESS in Lending launched a Lender Advisory Panel. Initially there were nine members. We have used their input to improve what we’re doing, continually innovate, and to launch new products like the Lender’s Digital Marketplace. We are always looking for lending thought leaders to join the panel. Along these lines, today we welcome three new members to our Lender Advisory Panel. Join me in welcoming:

DanielJ****A recognized mortgage thought leader and entrepreneur, Daniel H. Jacobs is an executive who enjoys building and growing companies that solve industry problems through a delicate combination of technology and systems implementation, smart infrastructure. For example, Daniel grew 1st Metropolitan’s parent company from six offices and $100 million per year in production in 2000 to a 250 branch $4.2 billion production company with a sterling reputation throughout the industry. In 2011, Daniel went on to build a leading retail branching mortgage banking operation at Residential Finance, as a new business channel, from zero to $120 million per month production channel in two years.

JimMorin****Also, James Morin, the Senior Vice President of Retail Lending at Norcom Mortgage, headquartered in Avon, CT. Since joining Norcom in 2009 he has helped grow the company to a Regional Lender that is now licensed in 18 states and was recognized as one of the “Fastest Growing Lenders in New England.” James has been instrumental in leading the strategic expansion of Norcom production and is in charge of Norcom’s retail platform, including the inside and outside sales departments, marketing, strategic planning, and product development, as well as training and overseeing the sales staff. He has also helped grow Norcom into an active Ginnie Mae Issuer and Seller/Servicer with Fannie Mae and Freddie Mac.

RickR****And lastly, Rick Roque, Vice President and Director of Retail Operations at Menlo Company. Rick entered the mortgage space in 2001 by raising capital for a company called PushMX Software. He later started Menlo Company where he worked directly with mortgage and banking firms who had a desire for acquisitions, were seeking warehouse lines, private capital placements, and an interest in new technology solutions. Roque is an accomplished national speaker on mortgage technology and market trends to both educate banking professionals about product trends, forecasts and technology enhancements.

****All of these lenders are truly visionary and we at PROGRESS in Lending are lucky to have them on hand informing us about how we can continue to deliver quality content and services to help improve mortgage lending.