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Look For Opportunity In The CFPB HMDA Plans

Mortgage lenders were seemingly dealt another regulatory blow in July with the Consumer Financial Protection Bureau’s (CFPB) proposal to require significantly more data in the Home Mortgage Disclosure Act (HMDA). Some of the additional data points that will be required include loan pricing and underwriting details; applicant age, credit score and debt-to-income ratio; and property value. While HMDA changes have been on the horizon since the dawn of the Dodd-Frank Act, the plans released by the CFPB exceed the requirements lenders were expecting.

The comment period, which closes October 22, is sure to draw lots of negative input. Industry groups have already decried the additional work it will take to provide extra data. With fragmented, legacy systems housing required data and documents, the centralization necessary to easily retrieve and report all of this newly required data just isn’t there. Lenders are lagging behind the technology curve and the CFPB’s proposal is essentially forcing them to focus on new technology solutions.

It’s baffling to think that in this technology-driven world, electronic documents are touted as innovative. We have mobile apps for everything, but the mortgage application processes are still very much paper-driven and manual. As long as this prevails, lenders will continue to suffer damaging inefficiencies in all areas, but especially when it comes to regulatory compliance. Do you think one day the CFPB will decide they want less data? Or that trust will be re-instilled in the lending process and regulations will be lessened? Neither scenario is likely. In fact, it’s more likely that we’ll see the development of stricter regulations and heightened data requirements.

Instead of lamenting the difficulty of collecting and aggregating this extra data, lenders should be using this as the push they need to fix what’s broken—at the macro level. There will, of course, be short-term pain involved in a move away from paper-based processes to a centralized data and document management solution. However, that pain will be far outweighed by the long-term benefits. With less need for human involvement in manual, labor-intensive tasks like document retrieval and data entry, we can see increased efficiency and greater accuracy, all contributing to a reduction in costs over the long run.

With newly streamlined operations, traditional lenders can hope to compete with the influx of new peer-to-peer lending platforms that boast a lending process that’s simple, efficient and transparent. Further, they can focus on what matters the most—serving current customers and acquiring new business. And the quicker they jump on board the technology bandwagon, the greater the competitive advantage they can realize.

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Risk Management Must Combine Tech And People

The proliferation of technology in the mortgage industry has led to significant benefits for all parties, and the application of certain technologies can improve mortgage risk management. However, the adoption and use of technology has been fragmented.

As a director of a major global lending institution in 2008, I saw firsthand how fragmented or inadequate technology practices helped contribute to the economic downturn. Getting data and intelligence in a timely manner proved to be impossible: loss reports did not come in on time, origination documents were not tied back to the decision-making data, and established underwriting criteria were not applied. This situation continues to exist in most financial institutions.

It takes the powerful combination of data, document and people management to get the job done. This article discusses best practices in each of those areas, and how they should interact to create a truly effective risk management program.

Data

Data must be accurate. Manual data entry continues to plague the industry, leading to mistyped information and other errors. These inaccuracies are often never located, making the situation even more severe. We can avoid this by drawing data directly from the source document. Data management technology should have the capability to read data from any type of document, and should also enable the third-party creator of the data source, such as an appraiser, to directly populate relevant fields into the database.

Data management should begin before a deal transpires, starting with initial contact. And if a deal dies? The data should never be thrown away. Items like the offering memorandum, data tapes and analysis can be tremendously helpful if you are looking at a similar, or even the same deal, down the road. So avoid the “dead deal box” – you never know when you’ll need that information again.

Documents

Reliable, accurate data requires the use of a robust electronic document management system. Keeping digital records of your documents is imperative, as is ensuring that updates to a loan, correspondence with a borrower, and decisions by loan managers or servicers reside in a single asset file. If inaccurate data is uncovered, the original file must be located. An electronic document management system simplifies this process, but does not solve the issue completely: even electronic documents can be mislabeled and difficult to find. The loss of original documentation can prevent an asset from being sold, and can then necessitate a lengthy process to fix the issue before the asset is marketable again. Look for document management technology that has advanced search capabilities, to allow for content queries based on keywords, sentences, exclusions and other specific parameters to find all material applicable to a loan.

Unfortunately, a majority of financial institutions have not implemented technology with advanced document management functions, and are not maintaining the critical tie between documents and data.

People

Intelligence is not exclusive to data. True insight comes from pairing human intelligence with smart technology. We must move beyond monitoring numbers, and delve into what is happening in the social economic market. Technology can provide the data, but the interpretation and use of the data will determine success. That’s where people are critical. Data alone will not tell you the full impact of Apple (fictitiously) deciding to leave the Cupertino area. But employees with their ear to the ground can help fill in the blanks. Technology steps back in to provide a way for people to share this insight and intelligence. For instance, if you know on a personal level that a borrower is in trouble, there must be an easy way to communicate that back to the person managing the assets tied to that borrower.

Combining it All

In order to successfully combine the power of data, documents and people when it comes to risk management, an enterprise-wide approach must be taken. A platform is needed that connects all types of intelligence and then digests and monitors and communicates it in a centralized way. Silos must be broken down. Risk management cannot be viewed separately in the retail and the commercial sides of the house. High-level risk management must be viewed by all contributors to the process, above departmental partitions, and with accountability.

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Partnership Looks to Help Lenders Automate Strategically

Global professional services firm Alvarez & Marsal (A&M) has formed a strategic alliance between the firm’s Real Estate Advisory Services practice and METIS Financial Network, offering clients the benefit of A&M’s extensive real estate valuation, operational and consulting industry expertise, and proprietary tools, alongside METIS’ highly adaptable, scalable data, document and workflow solutions. Here’s how everything comes together:

The alliance enhances the best-in-class, value-added services and technologies available to financial institutions, private equity firms, and other sophisticated investors who look to A&M and METIS for real estate transaction support and valuation management.

Floyd W. Kephart, Chairman of METIS, stated “the breadth and depth of A&M’s real estate consulting practice, together with our unique customizable technology, provides a paradigm shift in how real estate information is transformed into actionable, value-enhancing strategies.”

METIS provides platform technology that automates key elements of a client’s process to enhance productivity, improve transparency and streamline communication between all stakeholders in the process. “We differentiate ourselves by listening to our client and understanding their workflow, strategies and business goals in order to develop and implement a tailored solution that addresses their unique needs. Our technology not only converts “big data” to user-focused data quickly, but produces key analytics and market information critical for effective management and decision making”, said Joy Hou CEO of METIS.

Privately-held since 1983, A&M is a global professional services firm that delivers performance improvement, turnaround management and business advisory services to organizations seeking to transform operations, catapult growth and accelerate results through decisive action. METIS provides custom-tailored platform technology for the management of data, documents and workflow, and has extensive experience in delivering solutions to the real estate industry, with a focus on financial institutions, equity funds and investors.

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