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Robots And AI Invade Banking

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From Rosie the Maid, a humanoid robot fictional character from the 1960’s animated TV series The Jetsons, to Fritz Lang’s Metropolis and Isaac Asimov’s ‘I, Robot’ and even WALL-E, C-3PO, Optimus Prime and R2-D2, robots have always fascinated and entertained consumers. But, in real life, they have been far less entertaining (or functional).

Sure, they have become a part of every factory room floor in manufacturing and have played major roles in space exploration and taken on difficult and dangerous tasks, but until recently, robots have not proven to be nearly as intelligently evolved (or financially viable) as projected.

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That is all changing. The exponential growth in the power of technology, digital sensors and information processing has improved the potential of robots at the same time as the innovation and investment in these devices is taking off. Both businesses and consumers can benefit from the rise of the robots.

While much focus is placed on making smart people smarter, the leading benefit of robots and artificial intelligence (AI) processes today is to standardize delivery followed by improved domain expertise and skills as subject matter experts, including language capabilities.

Robots and AI in Banking

The primary opportunity for robots and AI tools in the banking industry at this time is that they can extend the creative problem-solving capabilities and productivity of human beings and deliver superior business results, states Cognizant in a report on the use of this new digital technology. Their research shows that through these technologies, humans have the potential of attaining new levels of process efficiency, such as improved operational cost, speed, accuracy and throughput volume.

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The opportunity for cost savings is the first place where AI and process automation will impact banking. In the Cognizant study, 26% of banking respondents stated they have enjoyed 15%-plus cost savings from automation in their front office and customer-facing functions compared with one year ago, and 55% expect those same levels of savings (15% or more savings) within the next three to five years.

According to Cognizant, the top drivers for automation beyond cost savings include:

>> Reduced error rates (21%)

>> Better management of repeatable tasks (21%)

>> Improved standardization of process workflow (19%)

>> Reduce reliance on multiple systems/screens to complete a process (14%)

>> Reducing friction (11%)

Cognizant found that nearly half of the banks surveyed (45%) have also seen at least 10% revenue growth from analytics aligned with their front office and customer-facing functions, a number that is anticipated to rise to nearly three out of every four banks during the next three to five years. The result is that banking is more inclined than other industry surveyed to automate their processes, often due to their need to better focus on customers.

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While process automation and the processing insight from transactions can impact all areas of the banking organization, including human resources, finance and accounting, customer service and even new product development, the impact of FTEs is projected to be significant. In fact, 19% of banks surveyed by Cognizant believe there can be a 25% FTE reduction today, with 28% believing a 25% reduction in FTEs will be possible in the next 3-5 years.

So what jobs may be at risk? As noted in a recent post by futurist and best-selling author, Brett King on the future of AI in banking, a study released by Oxford Martin School’s Programme on the Impacts of Future Technology evaluated how susceptible are jobs to computerization. Evaluating around 700 jobs, and classifying them based on how likely they are to be computerized, the jobs in the financial services industry that fit the studies criteria include:

>> Bank Teller

>> Loan Officer

>> Mortgage Broker

>> Insurance Claims and Policy Processing Clerk

>> Insurance Underwriters

>> Claims Adjusters, Examiners and Investigators

>> Bookkeeping, Accounting and Auditing Clerks

>> Tax Preparers

When asked about the biggest challenges associated with efforts to digitize processes, executives across industries say that data security is the biggest issue they confront, now and in the future. Fifty-two percent of respondents to the Cognizant survey indicated that data security is the chief challenge today.

It is believed that as digital processes proliferate, and as leaders see the value they create, an entirely new ecosystem of value-added services will develop to ensure the security, risk, privacy and compliance of the value chain of information these processes generate.

Nao and Pepper Entertain and Serve Banking Clients

As a ‘living’ example of how robots can be utilized in financial services, Bank of Tokyo-Mitsubishi UFJ took a first step toward employing non-human staff in April, with the introduction of a customer service humanoid robot at its flagship Tokyo outlet. Standing 58 cm tall and weighing 5.4 kg, the Nao robot worked at the reception area, according to Mitsubishi UFJ Financial Group Inc.

The robot, named Nao, was developed by French company Aldebaran Robotics, a subsidiary of Japanese telecom and technology giant SoftBank Corp., speaks Japanese, English and Chinese and was thought to be the first among the world’s major financial institutions to employ a customer-facing robot.

The robot uses various gestures and analyzes facial expressions and behavior to provide context appropriate responses to customer questions. It operates in 19 languages, offering the bank significant opportunity to expand the language coverage should the robot service take off.

While the robot is not intended to replace branch workers with a robot, they are being used to meet and greet customers, answering simple questions with various languages, freeing up some of the branch staffs’ time to work on more value added services. High-definition cameras record and match different customers, so identification can begin as soon as the customer steps through the door of the branch.

“Currently, in a lot of branches, there are cases where quite a few customers don’t speak Japanese or English and so we can have Nao do an initial check (on their needs) so that it can lead to a trouble-free setting up of an account or other carrying out of other administrative issues,” said Tadashi Betto, Bank of Tokyo-Mitsubishi UFJ Chief Manager of eBusiness and IT Initiatives Division.

Using stored insight, the robot routes the customer to the appropriate person based on past experience, products utilized or current mobile activity. Nao uses each interaction to learn a customer’s preferences and personality which enables the robot to increase the accuracy of each subsequent interaction.

Nao lasts 12 hours between charges, costs approximately $8,000 and can remember details from more than 5.5 million customers and over 100 different products. While there are limits to Nao’s capabilities (currently), this is both cheaper and more product conversant than any human in the same role.

Meanwhile, local competitor Mizuho Bank also plans to use a robot to assist customers in the next few months. Mizuho will use Pepper, Nao’s big brother, at several of its branches in much the same way as Bank of Tokyo-Mitsubishi UFJ.

Pepper, roughly twice the size of Nao, could become the first humanoid consumer robot and the beginning of an era of mechanized, cloud-connected ’emotion-reading’ digital assistants. Having gone on sale to the public in June for roughly $1,600 (plus data charges), the robot communicates in multiple languages, using sensors and cloud-based artificial intelligence (AI) capabilities and having the ability to evolve its skills over time through ongoing learning.

“Thanks to its ’emotion engine,’ Pepper can recognize human feelings and simulate them. It can also learn new skills as it spends more time with users and connects through the SoftBank cloud to thousands of other Peppers,”says its developers.

Robots Invade the U.S.

Sterling Bank & Trust in California have introduced two robots as greeters at the bank’s new locations opening in Cupertino and Alhambra, in the Los Angeles area. As part of their ‘training,’ the two robots made appearances at the bank’s San Francisco branches.

More a novelty than providing any significant off loading of duties during the initial use at Sterling, the robots are highly popular with children and grandchildren, said Steve Adams, senior vice president of Sterling Bank & Trust. The robots demonstrate kung fu moves and dancing while also greeting customers and handing out bankers’ business cards.

Hello Watson

IBM previously announced that its Watson-based chat advisor application built banking is being adopted by banks and other financial institutions for customer service and scaling wealth management. Genesys, a customer service company, will use IBM’s Watson system to better handle its clients’ customers’ needs. Banks are the service’s first clients. This same system is being used with the Pepper robot implementation discussed above.

IBM also sees artificial intelligence playing a big role in bringing wealth management to the masses. The intention is to take the expertise of wealth advisors and build it into a system so that people can interact with the system to get the first parts of the wealth management conversation handled. While using AI for wealth management goes beyond simple Q&A applications, Singapore development bank DBS as well as the Australian bank ANZ are already developing wealth management applications that are based on Watson.

“The goal is to take basic customer service and the wealth advisor to scale. Robotics are going to handle client interaction that doesn’t have to be face to face,” said Mike Rhodin, senior vice president of IBM’s Watson’s group. For more on robo-advising, Chris Skinner has discussed this well on his Financial Services Club Blog.

Barclays also made an announcement around the use of robot technology to make money transfers and to perform other rudimentary tasks. An artificial intelligence (AI) system similar to Apple’s iPhone personal assistant Siri may be used so that people will be able to talk to a device and receive the information they ask for.

“We’re very soon going to be entering a world where we may not have to be physically touching a device in order to execute transactions or to be able to engage with computers,” Derek White, chief design and digital officer at Barclays, told CNBC in an interview at London Technology Week. It is thought that Barclays could potentially design apps that integrate with such robot systems allowing users to do banking by talking to their mobile devices.

Preparing for the Robot Revolution

According to David Brear from Think Different Group, robots as the replacement for humans is a ways off. On the other hand, he emphasizes that, since the best customer branch experience is based on a deep understanding of the consumer, their situation and a good degree of empathy, artificial intelligence could definitely help in supplementing current, somewhat misguided and frustrating branch experiences.

“The better use of data and use of AI to standardize the decision making process should lead to every customer interaction being with empowered staff at the very top of their game. So rather than replacing them with an ‘android,’ we are heading towards improved technology and data facilitated discussions and meetings.”

Robotic process automation with sophisticated technologies is here to stay. Humans will remain essential to how knowledge work is orchestrated and managed, but technologies can now create more effective knowledge workers while simultaneously generating and capturing data that can improve processes and eliminate wasteful steps.

One of the insights of Asimov was that it is easier to ask such questions when the technology is more human-like. With this in mind, robots could serve as the collectors of new insights and perspectives – as people look at them and see them looking back … with some form of automated understanding of their needs, temperament and behavioral tendencies.

Start today, imagine how the future of work will look when digital machines, information and processes help humans do their jobs better, faster and with greater impact. By automating systems and interpreting data and insight, robots have the potential to work side-by-side with humans, allowing them to serve customers more effectively.

About The Author

Jim Marous
Jim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn, or visit his professional website.

Independent Mortgage Bank Gets Expansion Capital

Alterra Home Loans LLC, an independent mortgage bank headquartered in Nevada with offices in 12 states, announced today that it has closed an expansion capital and an equity investment commitment from Panorama Point Partners, an Omaha, Nebraska based private equity partnership that focuses on providing financial capital and growth-oriented services to help promising companies achieve their future growth goals.

Alterra Home Loans LLC, is a 100% minority-owned (Hispanic) lender.  Since 2010, Alterra’s retail outreach has been aimed primarily at the Hispanic marketplace and within the past three years, Alterra more than tripled its retail loan production, generating nearly $1 Billion in mortgage loan closings in 2015.

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“The results we’ve been able to achieve over the last few years have exceeded most industry metrics and has positioned Alterra as one of the largest independent mortgage banks devoted to the Hispanic borrower. Hispanics are the fastest and largest growing household market in the U.S.,” said Jason Madiedo, CEO and Co-Founder of Alterra. “Last year, 67% of our loan production were Hispanic borrowers, and additionally 56% percent of all loans were first-time homebuyers.”

Unique within the private equity community, Panorama takes a decidedly long-term and flexible perspective in their partnership with companies to build excellent businesses.  Stephen J. George, Managing Partner and Founder of Panorama, comments that “his firm was attracted to Mr. Madiedo and his management team, the Company’s unique Hispanic focus in serving first-time homebuyers, and Alterra’s distinctive brand and company culture that is rare to find among young, emerging growth companies in general, and within the mortgage banking industry of today.”

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“We wanted to find a financial services company with talented leaders that were focused on the Hispanic market” George said.  “On their own without the benefit of institutional capital, Alterra’s founders have built an exceptional and promising company on the foundation of a strong team-oriented culture, superb loan processing operations, and exceptional customer care.  Panorama looks forward to many years of helping Alterra achieve their aggressive growth goals and positive social mission of helping Hispanics and others create wealth through home ownership.”

Madiedo added, “The capital and liquidity required to sustainably grow in the housing market today, combined with the growth dynamics of our targeted borrower convinced us to seek out compatible capital providers.  We believe we found the right partner in Panorama.”

“We look forward to the new partnership with Panorama and the accelerated growth it will bring to our business” said Felix DeHerrera, Chairman and Co-Founder of Alterra and past President of The National Association of Hispanic Real Estate Professionals (NAHREP).  In addition, John M. Robbins CMB will be joining Mr. DeHerrera as Co-Chairmen of the Company.  Mr. Robbins, brings 43 years in the mortgage industry, was the founder of two major independent nationwide mortgage banking firms and the 2007 Chairman of the Mortgage Bankers Association.

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GMH Mortgage Appoints New President

GMH Mortgage Services, LLC, a nationally-recognized Mortgage Banker, headquartered in Conshohocken, PA, has appointed Joseph Nattans, Jr. as President effective June 1, 2016. Nattans recently served as GMH Mortgage’s Senior Vice President of National Retail Sales and has been with the company since 2010.

“Throughout my time at GMH Mortgage, I’ve been fortunate enough to be a part of the continued growth and record setting success of our brand year after year. GMH Mortgage has developed a reputable name built on strategic thinking, financial stability and the creation of a corporate culture that is completely unique within the mortgage banking space,” stated Nattans. “I’m excited to continue building on that positive growth to strengthen our foothold in key markets, to expand into new ones and to continually improve our process,” finished Nattans.

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Joining GMH Mortgage Services in 2010, Nattans successfully grew the Central Pennsylvania region from 2 to 12 branches in less than five years. In January 2015, he took over the leadership of all retail branches for GMH Mortgage. Joe is a dedicated, hard-working executive focused on the overall growth and processes of the organization while keeping in touch with the grass roots efforts of the loan officers in their various markets.  Ensuring all borrowers continue to have a world-class experience with GMH Mortgage is key to Nattans, along with delivering loan settlements on-time for both the realtor and the customer.

Former President and CEO of GMH Mortgage since 2012, Joseph Macchione, will remain active with the leadership of the company as a Senior Member of the GMH Mortgage Services Board, a GMH Associates company.

“Joe Nattans is an exceptional leader and seasoned mortgage professional, passionate about our mission, committed to our principles and values, and knows how to build a successful business,” stated Macchione. “As a Senior Member of the Executive Board, I look forward to remaining actively engaged with GMH Mortgage, its partners and customers, while supporting Joe in his new role as President as he continues to build on the amazing growth we have experienced in the past few years,” finished Macchione.

“Successful relationships with our customers, realtors and partners are the backbone of our organization. Our customer-centric platform puts the needs of the borrower first, and communicating quickly and effectively with them and their realtor throughout the loan process is how we continually succeed in creating a seamless and personable experience for everyone involved.  Our unique company culture focuses on empowering our employees,” finalized Nattans.

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Executive Spotlight: Wade Hamby of The StoneHill Group

Wade-HambyThis week, our spotlight considers the state of the industry and our guest is Wade Hamby, the new national director of sales and marketing at The StoneHill Group, based in Atlanta.

Q: You have just been appointed as The StoneHill Group’s national director of sales and marketing. What are your immediate and long-term goals in this new position?

Wade Hamby: The mortgage industry’s biggest challenge right now is meeting a constantly changing set of regulations and requirements. Nobody likes to change, and yet everybody has to. Our mission is to make these changes as easy and painless for our clients as possible. We do that by leveraging our nearly 20 years of expertise delivering quality control and fulfillment services to help companies meet all of their loan review and auditing requirements.

Personally, my goals are to enhance The StoneHill Group customer experience for our current clients and find opportunities for new clients to have the same experience. To achieve these goals, I’ll be building a more robust team to make sure clients and non-clients know about our services and are getting all the help they need in the current regulatory climate. The next step will be to introduce new technology that will greatly improve the auditing process for our clients. The mission there is to provide lenders with flexibility when it comes to QC, so they can reduce their time-in-file costs tremendously.

Q: How do you view the state of today’s mortgage banking industry?

Wade Hamby: It’s an exhilarating time for our industry. It’s a much more open market and there are more opportunities for mortgage lenders than we’ve seen in decades. There are no companies left that truly dominate the market. It’s a very diverse playing field, so as volumes return to more normal levels, I think we have the makings of a very robust recovery.

Will we ever see a large, dominating player like a Wells Fargo, Countrywide or Bank of America again? Given what has happened to the big banks in recent years, I don’t think so—not in my lifetime, at least. I don’t think the market can sustain that type of dominance, and I don’t think many companies want it.

I would also add that, to a large extent, the industry is also much healthier because mortgage bankers are self-governing themselves and improving the origination, processing and servicing processes. Of course, having new rules to comply with have pushed things along. But I’ve seen a large amount of self-awareness and growing desire among mortgage bankers to originate quality loans. Our clients know they need to take a very proactive stance toward compliance. They seek stronger controls and better policies as much as they want more production.

Q: Do you think that mortgage banking companies, on the whole, are doing a good job in marketing themselves? And if not, where they can stand some improvement?

Wade Hamby: Judging from what our clients are doing, I think mortgage bankers are doing a great job at marketing themselves. Where improvement is still needed most is servicing, though. With the meltdown, the rise of the CFPB and the advent of new regulations over the past five years, we’ve seen a lot of progress. But we’re not done yet.

When you look at all the consumer complaints that have come out over the past several years and the failure of some very large companies, it’s evident that the industry still has room to improve. Inefficient processes can be costly for servicers, too. More servicers could benefit from servicing audits that include escrow analyses, collections, investor remittances, tax and insurance payments and more. The StoneHill Group provides these audits and they are a growing part of our business.

Q: Housing issues played a somewhat limited role in the 2012 elections. Do you think they will be given greater priority in the 2016 race?

Wade Hamby: I do see housing taking a more prominent role in the 2016 elections. There’s a deep divide between the executive and legislative branches over the future of the GSEs, which I think we’ll see play out during the next presidential election. But it’s anyone’s guess what will actually happen.

Q: Where do you see the greatest growth potential within the industry – with community banks, credit unions, independent mortgage banks or other entities?

Wade Hamby: All of the above, actually. With the decreasing numbers of large banking and deposit entities and mortgage brokers, we’re already seeing a huge shift of activity toward community banks, independent mortgage bankers and credit unions. I don’t see this trend reversing anytime soon.

When you look at the current landscape, there’s an abundance of credit for mortgage originations that did not exist three or four years ago. We’re seeing large community bankers buying loans from correspondent lenders, and growing independent mortgage bankers now developing relationships with the GSEs – Ginnie, in fact, is becoming very popular in this regard. At the same time, we’ve seen a steady weeding out of marginal mortgage players over the past five years. The entities that are left are in it for the long run. And since our company’s focus is on quality control and compliance, our job is to help these companies not only make it but to thrive.

The StoneHill Group is online at www.stonehillgroup.com.

Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.

Industry Trailblazing

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Success is no stranger to Daniel Jacobs. He is known most for growing and selling 1st Metropolitan, but his resume goes far beyond just that one company. He has always had a passion for improving the business of mortgage lending. So, it should come as no surprise that he is involved with a new company and continues to push the envelope. What will the mortgage banker of tomorrow look like? How will mortgage lending change over the next five years? Daniel Jacobs sat down with our editors to answer these and other pressing industry questions. Here’s what he said:

Q: How did you start out in mortgage?

DANIEL JACOBS: When I bought my first home I worked with an inept originator who seemed to have all the trappings of success, except for knowledge of her job. She was unable to answer basic questions about the process and documents I was being asked to sign. When I asked why the APR on the Truth in Lending disclosure I was signing was different that the disclosed interest rate she spoke very slowly and loudly and said, “that means the AANNUAL PERCENTAGE RAAATE….” I knew I was neither hard of hearing nor particularly slow in my listening skills. When I heard her mention her newly purchased boat I immediately decided if she could do this job I could do it better. So, immediately upon closing on my home purchase I set out to get into the mortgage industry with the goal of being better than the originator I worked with and to create a better experience of other home buyers in need of home financing.

I started out as an originator and moved into various management roles as I uncovered painfully inefficient processes that I felt I could improve. Most of my positions in the mortgage industry were ones created by my own proposal after identifying organizational problems and proposing to solve them.

Q: How has the mortgage industry changed since you first got involved in the space?

DANIEL JACOBS: The industry has, for too many, morphed from a cohesive profession to a disjointed series of sales and clerical jobs. Mortgage professionals used to be expected to understand the lifecycle of a loan, underwriting guidelines and respect and understand risk. We were a live band with each instrument playing their part in one hall, together, to create cohesive albums. Each band member had to know the other’s parts so they could create songs together at once. Now we are an industry of studio musicians who play our respective part alone in a studio with faceless digital producers who splice and manipulate all the parts together to make singles. Do we still create songs? Yes. But we used to create music. There is a difference.

Originators have allowed themselves to shift from knowledgeable advisors in business development to mere sales people. Processors have allowed themselves to shift from inside knowledge banks and sales and process facilitators to clerks who blindly satisfy a series of checklists in indecipherable processes dictated by automated systems spitting out unpredictable requirements and checklists.

When I started in this business it was incumbent upon all originators and processors to gain a deep understanding of underwriting guidelines and underwriters were gatekeepers of risk, using judgment and common sense. Over the years originators, as a whole, have commanded a greater and greater share of the revenue while becoming less and less invested in the business. Processors have become more and more clerical with checklist satisfaction responsibility. And underwriters have become what processors used to be. The AUS black boxes have become what underwriters used to be. And no one really understands why we do anything anymore. We just do it because the checklists tell us to.

Q: You successfully grew and sold 1st Metropolitan Mortgage. How did you do it?

DANIEL JACOBS: I worked for a very entrepreneurial owner who wanted to grow from a small local broker to a significant national mortgage company. He was willing to invest in acquisitions as well as organic growth. In September 2002 we bought the assets of 1st Metropolitan Mortgage and quickly learned that it was a great sales organization but it was about to implode, as the company had little corporate infrastructure, controls, and systems in place to operate effectively. The company required a complete restructuring.

Step one of this restructuring was to set and establish our professional values and ensure that, even in the absence of sophisticated operational systems, everyone in the company operated with the same fundamental set of governing values. In the first year after the acquisition we had to part ways with well over half the sales staff whose values were not aligned with ours. We parted ways with our largest branches at times when they had differing governing values than the company. And that really helped set the tone for who we were and how we would operate.

We then scrapped everything we did procedurally as a company, unless we could clearly justify it as necessary and relevant at that moment. Doing stuff just because that’s the way we have always done it was not the answer. We had the flow chart hallway where once a week we’d print out poster size flow charts for every department and posted them on the walls. We had sharpie pens hanging on ropes along the wall and every week we’d cross out and change processes for each department and the next week we’d start the new process and we kept doing this until everything really started to work and synchronize into a cohesive system company wide.

Next, we automated everything we did. EDAC (Electronic Data Access Center), our Web-based integrated management system, was born. We established the manual procedures with the reports/output we needed for everything and then we started creating custom technology to support everything we did. We required one control repository for every data point to ensure we never had disparate systems with conflicting data. And every solution had to be able to scale. Nothing could be implemented as a solution unless we could do it 2,000 times per month for the same cost as doing it 50 times per month. We always started with the output we desired and that revealed the input we required. We ended up with a proprietary HRIS, licensing system, internal customer ticketing system, legal tracking system, vendor management, marketing automation system with management dashboard and reporting, all in one. It connected seamlessly into our GL system and LOS for one comprehensive management system that every person in the company used on a daily basis.

This system allowed us to grow our branch, loan unit and employee head count, across the nation with tight controls, scalability, and extraordinary efficiency. With more than $4 billion in volume, 1500+ loans funded per month, 150+ branches at any given time, we had five full-time accounting staff members and four full-time HR staff members. Our systems and automation were extraordinary and helped us get through those tough years when the downturn ravaged the industry.

Of course, the world’s best technology and systems are completely ineffective without dedicated, highly talented staff and management. By establishing an environment where everyone knew what we stood for, where we built technology to help people be effective, where having a lot of fun at work while working crazy hard and being extremely productive was the standard, we had an extraordinary employee retention rate. Companies often tout their culture to others. We found others touting our culture to us. It was really a special group of people with extraordinary dedication who made 1st Metropolitan a great place.

Q: You’ve also become involved with Pro Mortgage Branching Solution. How would you describe their value proposition?

DANIEL JACOBS: PMBS is a small boutique branch recruiting firm I founded with my business partner, Adam Sidle, in late 2010. Adam was a top branch manager and then recruiter at 1st Metropolitan Mortgage. At 1st Metropolitan we used to spend a lot of money producing new branch manager and LO leads to grow the company. Most of those leads did not qualify to become a MetroBranch, but we tracked many of them and found they landed at another company where they were a better fit. So, Adam and I founded PMBS, where Adam is the operating partner, to help retail branch managers and branches with the right lender for their needs. It is a very rewarding business, as the PMBS BranchMatch process is like a great personal matchmaker, trying to find just the right fit for long-term relationships. But at PMBS we are matching branches and companies for long-term business relationship vs. creating personal connections for marriages. Mortgage lenders and branches both love the value proposition because it is a lower cost sourcing model for companies and free to branch managers.

Q: What does it take to be a successful mortgage banker these days?

DANIEL JACOBS: Focus. Intense and multi-faceted focus. Mortgage bankers must be very good at business development, legal and regulatory compliance, secondary execution, efficient process management, and people management.

Ten years ago a mortgage banker could be good in one of these areas and mediocre in others and still remain viable. Today’s environment is so unforgiving in all areas, that mortgage bankers must employ the very best talent, and be committed to an intense focus on being excellent in every area of their business to remain viable.

The gap between viable and highly successful used to be wide. It’s razor thin in 2014, leaving little room for mediocrity or error as a mortgage banker.

Q: How do lenders manage the compliance burden and still remain profitable?

DANIEL JACOBS: The only way to effectively manage the compliance burden and remain both profitable and competitive is through constant process refinement. With costs rising and margins shrinking, lenders must constantly find more effective and efficient ways to operate to remain profitable. With every new compliance burden the entire loan manufacturing process must be considered in context to avoid undue layering of procedures and expenses to address them. Mortgage lenders must reinvent their way of doing business annually to remain competitive in today’s market.

Q: Where do you see the state of innovation in mortgage banking today?

DANIEL JACOBS: Innovation is largely on hiatus in mortgage banking. Non-QM is what is all the buzz, but let’s face it, product development is hardly innovation. Historically, it has been the standard. Perhaps once the industry knows where the secondary market stands, what the fate of the GSEs will be, and we believe we are beyond the danger of an imminent rising rate environment, and the CFPB is a more predictable regulatory body who has established largely known and quantifiable boundaries and risks, the industry will begin truly innovating again.

Q: Lastly, what will mortgage lending look like five years from now?

DANIEL JACOBS: Five years from now there will be fewer mortgage bankers. The barrier to entry to start a new mortgage banking firm will continue to rise with growing capital needs, rising compliance burdens, and greater experience and capital thresholds to gain direct access to the secondary market.

Additionally, we will see more diversified mortgage banking firms with multiple retail production channels ranging from consumer-direct online models to traditional branch models and some hybrid models. Consumers have become more comfortable than ever transacting refinance loans over the phone and Internet. Over the next five years we will see far more move-up home buyers willing to do business virtually, while first time home buyers and buyers with complex financial situations will continue to demand a local, face-to-face transaction.

In five years we will also find lenders offering more commonly offering service level guarantees, as the regulatory climate will have plateaued, the market will have cycled from refinance to purchase to a healthy blend of both again, and lenders will have time in the interim to better focus on perfecting their processes, technology and service value-proposition.

Industry Predictions

Daniel Jacobs thinks:

  1. The CFPB will make a splash with multiple “example fines” of name brand mortgage lenders. The industry will gain valuable insight as to where the new business risk lies.
  2. By spring 2015 non-QM lending will gain significant traction, approaching a double-digit percentage of overall loan volume. We’ll “party like its 1999” – when subprime lending was on the upswing but still made sense. That’s what Prince was referring to, right?
  3. At least two top 20 lenders will exit the industry or consolidate with other lenders.

Insider Profile

In addition to being a partner in Pro Mortgage Branching Solutions, Daniel Jacobs is the division president of American Financial Network. (afnretail.com). AFN is a national mortgage banker, in business since 2001 and has operated mainly in California until recently. Some key members of Jacobs’ management team have joined him to expand AFN’s presence on the east coast, and in 2014 the company has opened six branches. AFN funded $1.6 billion in 2013 and predicts year over year growth in 2014. The company received its Fannie Mae seller/servicer designation as well as its Ginnie Mae Issuer status earlier this year. AFN operates an east coast corporate office and operations center in Charlotte, NC.

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Compliance Hurdles Can Be An Opportunity

Compliance can be a burden, but it can also be an opportunity to progress. For example, Advantage Systems, a provider of accounting and financial management software for the mortgage industry since 1986, has upgraded  the Advanced Reporting Module within its Accounting for Mortgage Bankers (AMB) product to comply with version three of the Nationwide Mortgage Licensing System call report, which states that submitted XML files that do not adhere to new requirements regarding the order of items presented within financial schedules will be rejected.

The Advanced Reporting Moduleenables lenders to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which mandates all state mortgage licensees have to submit a mortgage call report on its financial condition and loan activity to NMLS on a quarterly basis. Using the updated module, these reports are submitted faster and more accurately so lenders can focus on other areas of their businesses, such as growth and enhancing profitability. The module also comes with prebuilt templates for the various schedules comprising the “Financial Component” of the NMLS call report.

“Our upgrade reduces the time and headache factor associated with keeping up with changing regulatory requirements,” said Brian Lynch, president and founder of Advantage Systems. “The Advanced Reporting Module enables lenders to significantly reduce the time it takes to complete the NMLS call report.”

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.

Mortgage People Never Die

What is it with the old farts of the mortgage business? They just won’t go away. For every Joe Reppert, who unceremoniously threw in the towel as vice chairman at Core Logic this summer, there are four or five “generians” of one sort or another who refuse to call it quits.

I count myself among the many who refuse to ride off into the sunset. But I’m a reporter, and I like what I do. And I’m the exception. For every reporter like me, who can remember when Fannie May was only a candy store, there are what seem like dozen of upstarts, many of whom have never bought or sold a house and have no clue what they are writing about.

But I am talking about people like Herb Tasker, a former chair of the Mortgage Bankers Association, who just keeps rolling along. And folk like John Robbins and David Kittle, two other former MBA chairmen, who just announced a start-up called the Mortgage Collaborative. Along with Gary Acosta and Jim Park, Robbins and Kittle’s new venture is a cooperative designed to empower member to compete more effectively by boosting their collective buying power.

There’s a story there, and it’s been reported in numerous outlets, including this one. But to me the interesting part is that Robbins is at it again. For crying out loud, the man has founded and operated several national companies over the course of his 42 years in the business. Hasn’t he had enough?

Apparently not. I know he likes to fish and golf – I’ve joined him on several junkets. But he’d rather work than play.

I don’t know whether Kittle can swing a nine iron, or even drop a line overboard. But he, too, has been around the bend a few times. And now he’s back, 35 years and still going strong.

I never did hook up with Robbins at the recent MBA convention in Washington, and chatted only briefly with Kittle. But I did spend sometime with Acosta, who also seems to have nine lives. He is a mortgage broker who has owned and operated several mortgage-related businesses, but his real claim to fame is as co-founder the National Association of Hispanic Real Estate Professionals.

(Park hasn’t been around as long as his partners, but he is the youngster of the group. Still, he’s no piker. He was a vice president for housing and industry relations at Freddie Mac, a co-founder of New Vista Asset Management, and is a former chair of the Asian Real Estate Association of America.)

“If there was a Mt. Rushmore for mortgage bankers,” Acosta told me, “John Robbins would be up there.”

He said guys like JR believe they can still make a contribution – and make a few bucks at the same time. “The market goes through cycles, which create new niches,” he said. “And independent mortgage bankers are more nimble, so they tend to want to fill those niches first.”

Acosta, too, wants to continue making a contribution, and he said he’ll keep coming back. As long as he and his compatriots can add something to the mix, he said, you can count on them for their knowledge, understanding and friendship. I guess it’s just the natural order.

About The Author

[author_bio]

Lew Sichelman has been covering the housing and mortgage markets for more years then he cares to remember, starting as real estate editor at the long defunct Washington Daily News and Washington Star newspapers and finishing with a three-decade stint with National Mortgage News. His weekly column, The Housing Scene, is syndicated to newspapers throughout the country.

Housing And Older Americans

Today, the Mortgage Bankers Association’s (MBA) Research Institute for Housing America (RIHA) released a new report entitled “A Profile of Housing and Health among Older Americans” authored by Professors Michael D. Eriksen of Texas Tech University, Gary V. Engelhardt of Syracuse University, and Nadia Greenhalgh-Stanley of Kent State University. Here are the highlights:

“The study found older Americans who own their homes are more financially secure and generally experience fewer impediments to good health than their peers who rent,” said Professor Eriksen. “Owning a home provides the single largest asset in most Americans’ retirement portfolios, while renters have far more difficulty modifying their living space to adapt to any of the myriad physical ailments that tend to affect older people. Our report serves as a useful reference for all parties interested in the implications of housing on an aging society, a situation America now faces with large numbers of the Baby Boomer generation rapidly heading into retirement age.”

This new RIHA report examines the housing and health status of older Americans roughly a decade after the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century released its report detailing the challenges facing all levels of government and society in ensuring support for housing and health needs as the population ages. This latest study provides a profile of the housing, functional status and health status of the near old (individuals aged 55 through 64) and older Americans (aged 65 and older) using the most recent data available from the Health and Retirement Study, a joint product spearheaded by the National Institute on Aging and the University of Michigan.

“Housing demand over the next decade will be significantly impacted by the aging of the U.S. population. Real estate finance must also evolve to meet these changing needs, whether older Americans age in place and continue to own their homes, or whether they rent,” said Mike Fratantoni, Executive Director of RIHA, and Vice President, Research and Policy Development for MBA.

The principal findings are as follows: There were more than 47 million near old and older American households in 2010, of which 80 percent were homeowners.

>> Housing is still the dominant asset in the portfolios of older Americans. Median housing equity for older American homeowners was $125,000; the median housing-equity-to-income ratio was 2.4:1; and 50 percent of the typical older homeowner’s portfolio was composed of housing wealth.

>> 44 percent of older renters spend more than 30 percent of annual gross income on rent, which suggests that the availability of affordable rental housing is a concern for older Americans.

>> Older renters have almost double the number of limitations in their ability to conduct daily activities relative to homeowners.

>> 36 percent of older individuals have fallen in the last two years, and one-third of these have been seriously injured in a fall. The likelihood of falls occurring rises steeply as housing quality declines.

>> 31 percent of older Americans have residences that have special safety features. 13 percent have modified their home to be either more accessible or safer between 2008 and 2010.

>> Approximately half of those reporting a home modification between 2008 and 2010 (7 percent) had associated out-of-pocket expenses. The median out-of-pocket expenditure was $800; the mean expenditure was $2,260.

This report, along with other RIHA studies, can be found at www.housingamerica.org

Progress In Lending
The Place For Thought Leaders And Visionaries

Old Bankers Never Die …

*Old Bankers Never Die…*
**By Lew Sichelman**

LewS***What is it with the old farts of the mortgage business? They just won’t go away. For every Joe Reppert, who unceremoniously threw in the towel as vice chairman at Core Logic this summer, there are four or five “generians” of one sort or another who refuse to call it quits.

****I count myself among the many who refuse to ride off into the sunset. But I’m a reporter, and I like what I do. And I’m the exception. For every reporter like me, who can remember when Fannie May was only a candy store, there are what seem like dozen of upstarts, many of whom have never bought or sold a house and have no clue what they are writing about.

****But I am talking about people like Herb Tasker, a former chair of the Mortgage Bankers Association, who just keeps rolling along. And folk like John Robbins and David Kittle, two other former MBA chairmen, who just announced a start-up called the Mortgage Collaborative. Along with Gary Acosta and Jim Park, Robbins and Kittle’s new venture is a cooperative designed to empower member to compete more effectively by boosting their collective buying power.

****There’s a story there, and it’s been reported in numerous outlets, including this one. But to me the interesting part is that Robbins is at it again. For crying out loud, the man has founded and operated several national companies over the course of his 42 years in the business. Hasn’t he had enough?

****Apparently not. I know he likes to fish and golf – I’ve joined him on several junkets. But he’d rather work than play.

****I don’t know whether Kittle can swing a nine iron, or even drop a line overboard. But he, too, has been around the bend a few times. And now he’s back, 35 years and still going strong.

****I never did hook up with Robbins at the recent MBA convention in Washington, and chatted only briefly with Kittle. But I did spend sometime with Acosta, who also seems to have nine lives. He is a mortgage broker who has owned and operated several mortgage-related businesses, but his real claim to fame is as co-founder the National Association of Hispanic Real Estate Professionals.

****(Park hasn’t been around as long as his partners, but he is the youngster of the group. Still, he’s no piker. He was a vice president for housing and industry relations at Freddie Mac, a co-founder of New Vista Asset Management, and is a former chair of the Asian Real Estate Association of America.)

****“If there was a Mt. Rushmore for mortgage bankers,” Acosta told me, “John Robbins would be up there.”

****He said guys like JR believe they can still make a contribution – and make a few bucks at the same time. “The market goes through cycles, which create new niches,” he said. “And independent mortgage bankers are more nimble, so they tend to want to fill those niches first.”

****Acosta, too, wants to continue making a contribution, and he said he’ll keep coming back. As long as he and his compatriots can add something to the mix, he said, you can count on them for their knowledge, understanding and friendship. I guess it’s just the natural order.

Lew Sichelman has been covering the housing and mortgage markets for more years then he cares to remember, starting as real estate editor at the long defunct Washington Daily News and Washington Star newspapers and finishing with a three-decade stint with National Mortgage News. His weekly column, The Housing Scene, is syndicated to newspapers throughout the country.

The Evolution Of The Mortgage Banker

*The Evolution Of The Mortgage Banker*
**By Ted Hicks**

***Who is the mortgage banker of the future?  It’s the mortgage broker of today.  The mortgage banking industry is seeing a return to basics. The future is becoming the past on a rocky path to recovery.  It’s cyclical as we’ve seen in the past.  We’re seeing more borrowers having to come to the table with 20% down which makes the number of qualified buyers with adequate funding less than optimal.  Competition for this smaller business pool is fierce, allowing borrowers a choice on a more personal level who they would prefer to do business with.  It’s the basics—customer service—that can make the difference.

****Rates will go back up, the economy will grow, and the cycle will begin again.  The trend is cautionary with a hope for stability.  As the industry cycles upward for mortgage bankers, opportunities for brokers begin to decline.  So what we are seeing now, and what we will continue to see in the next few years, is an increase in the number of brokers moving toward mortgage banking.  We’ll see them joining existing operations or branching out on their own.  We’ll see them shift focus from primary to correspondent and beyond to direct lending.

****With the shift to direct lending, we’ll see more sophisticated products and a move from best efforts to mandatory.  Because of this, they’ll learn how to hedge and how to pool the loan to create mortgage backed securities.  And for each step of the evolution, there will be a new wave of mortgage bankers taking it—one at a time.  Learning the process is the first step.  But what can these new breed of mortgage bankers do to be successful as they keep the evolution going?

****Technology is undoubtedly on the forefront of giving them a competitive edge.  Technology is a necessary tool for business effectiveness.  Being able to market online through websites and social media is a large part of today’s growth strategies.  Having an LOS that helps enforce compliance and allows control and oversight for growing businesses is a must.  Being able to access data and files on-the-go is also very important for evolving lenders.

****But as important as technology is during the process, getting back to the basics of personal business interaction is even more so.  All the technology in the world would be insignificant if there is no new business coming in.  Tech-savvy professionals cannot focus solely on the benefits of sophisticated technology.  What will become evident is that honing their technique, not their technology, will give them the edge they need.

****Getting back to the basics means building relationships in person rather than just online.  Form business alliances with industry vendors and help each other grow.  Refine your database and find new ways to grow your business.  Building relationships with your borrowers, your builders, realtors, and other vendors or potential clients gives you the edge that depending on technology simply cannot—service that gets you noticed.

****So while technology is indeed relevant to the evolution process of tomorrow’s mortgage banker, it’s customer service that will bubble to the top in the most successful business.  It’s not going to be enough to have the most efficient business technology.  Technology takes care of business but it takes customer service to grow it.  Lenders at any stage of the cycle need to be competitive in both the front end and the back end to maximize revenue and take the next step.

Ted Hicks is the Director of Product Management at Calyx Software. He started working for Calyx over 4 years ago and is responsible for the research and design of all Calyx products including all issues related to compliance and forms. Ted has spent the last 14 years working as a product management professional in small and large firms providing enterprise software solutions across a variety of industries including Siebel Systems (now Oracle), Aspect Telecommunications, and Epiphany.