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How Digital Can Drive Down Costs

In this era where smartphone and tablet usage permeates nearly all of life, it only seems logical that the purchase of a home would eventually move in the digital direction as well. This certainly creates a situation where the loan package can be digitally moved with minimal cost rather than printed (multiple times, most likely) and physically moved between geographies. Therefore, processing delays associated with in-transit time and cost can be reduced, improving the overall process for both lender and borrower.

However, while borrowers may be able to upload copies of their paystubs and bank statements for example, the data must still be gleaned from those documents as part of the underwriting process. Without the aid of sophisticated OCR, that gleaning process remains a manual process, even though the mortgage is “digital”.

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With the costs to process each mortgage continuing to rise, lenders must leverage automation to improve profitability and consistency in their business processes. With advanced mortgage OCR solutions, mortgage companies will reduce their level of manual document indexing and data entry activity, enabling them to process more loans per day at a lower cost per loan – yielding a leaner process and increased profit margins.

Paradatec’s Advanced Mortgage OCR solution does more than just convert document images to text. Once converted, that text is then processed by our artificial intelligence (“AI”) rules engine in the same way a human being would process the content. Based on these rules, documents are automatically indexed and relevant data points are extracted. This information is then passed to downstream applications for appropriate routing, decisioning, and archival.

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Our process begins with a full-page OCR scan of each image, typically completed in less than one second per page. This high-speed performance allows every word on the page to be included in the scope of the AI rules engine analysis, just as a human being would interpret the content. This content evaluation process is unique to Paradatec in terms of the combination of speed and ability to include all page content in the evaluation scope, thereby making it extremely flexible with documents of varying layout (for example, bank statements).

Other OCR solutions typically expect relevant data points to consistently appear in the same locations (or ‘zones’) on a document. If the data shifts due to changes in layout (again, think of bank statements), the zone-based approach will fail unless another layout template is created, making for a greater administrative burden with these solutions.

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A high volume, scalable OCR automation initiative requires the flexibility of Paradatec’s Advanced Mortgage OCR solution to process an unlimited number of document layouts without needing to develop specific templates for each layout variation. This capability is unique to Paradatec and a vital feature for creating an effective unstructured document classification and data capture solution.

Applying the right technology in the digital lending world can drive down cost providing lenders with a significant competitive advantage.

About The Author

Mark Tinkham

Mark Tinkham is Director of Business Alliances at Paradatec, Inc. Over the past twenty-five plus years, Mark has worked for technology companies that deliver innovative solutions to the financial services industry. For the past ten years, his primary focus has been bringing efficiencies to the mortgage market through industry leading Optical Character Recognition (OCR).

And The 2018 Winners Are …

Prominent mortgage executives gathered to see who the Executive Team of PROGRESS in Lending named the top industry innovations of the past year at the Eighth Annual Innovations Awards Event. This honor is the Gold Seal when it comes to recognizing true industry innovation. All applications were scored on a weighted scale. We looked for the innovation’s overall industry significance, the originality of the innovation, the positive change the innovation made possible, the intangible efficiencies gained as a result of the innovation, and the hard cost and time savings that the innovation enables industry participants to achieve. The top innovations winners are:

Lodasoft

PROGRESS in Lending has named Lodasoft a top industry innovation. To address the CFPB requirements of improving the borrower experience, the first big wave of innovation has come out of Silicon Valley. Hundreds of millions of dollars have been invested in the consumer facing aspect of the borrower application. The term “digital mortgage” has been coined and a flood of shinny new mortgage websites and apps have been created to deliver borrowers an Amazon type borrower experience. However, the majority of dollars invested, have focused almost solely on the online application for borrowers. The problem is that mortgage lending is significantly more complicated than just a shinny new app. The right digital mortgage platform helps to drastically reduce the chaos in daily lending processes while improving communication to help lenders close more loans faster. Therefore, in 2017 Lodasoft introduced its truly innovative “Digital Mortgage Platform” featuring Intelligent Loan Manufacturing to address these industry challenges head on.

Capsilon

PROGRESS in Lending has named Capsilon a top industry innovation. A truly innovative mortgage process means more than borrower-friendly loan selection and document submission, it is an end-to-end solution that keeps all stakeholders in the loop throughout the process. In 2017, Capsilon introduced Point of Sale Portals (POS), enabling the creation and delivery of quality loan packages that streamline every process step from application to closing. Capsilon’s POS Portals are powered by Intelligent Process Automation to supercharge loan production from intake to delivery of complete and compliant loan packages. This is an industry first, dramatically improving loan quality and speed, while drastically reducing production costs. Lenders are pressed to meet the challenges of production, compliance and profitability, as well as soaring borrower expectations. Instead of simply streamlining the traditional loan process, in 2017, Capsilon launched Point of Sale Portals that are fully integrated with its patented back-end technology to deliver on the promise of a true digital mortgage.

WebMax

PROGRESS in Lending has named WebMax a top industry innovation. According to Inc. Magazine, Millennials make up 66% of first-time homebuyers and 66% of them plan to buy a home in the next 5 years. Moreover, the same report found that Millennials associate home ownership with the American Dream more than any other generational demographic. The October 2017 composite forecast of Fannie Mae, Freddie Mac, and the Mortgage Bankers Association for 2017 mortgage origination volume is approximately $1.8 trillion. If Millennials compose 50% of this mortgage volume, and two-thirds of them apply online via digital applications, that represents $600 billion in digital mortgage origination. This number is massive. Better yet, it’s conservative. Millennials expect mobile-responsive mortgage lending sites and applications with a responsive layout from their potential lender. They want their mortgage application to be as easy as buying a t-shirt from an online retailer. Therefore, WebMax developed its innovative point-of-sale solution in 2017, called START, to not only meet the demands of borrowers, but to exceed their expectations and revolutionize the entire process. With START, WebMax provides a single location for the loan to exist for both the borrower and loan officer. There’s no shifting documents back and forth or waiting for verifications. START’s integrations to mission-critical third parties allows for the technology to do the work, streamlining workflows, reducing costs, and minimizing frustration.

Paradatec

PROGRESS in Lending has named Paradatec a top industry innovation. Other OCR solutions typically expect relevant data points to consistently appear in the same locations (or ‘zones’) on a document. If the data shifts due to changes in layout (again, think of bank statements), the zone-based approach will fail unless another layout template is created, making for a greater administrative burden with these solutions. A high volume, scalable OCR automation initiative requires the flexibility of Paradatec’s Advanced Mortgage OCR solution to process an unlimited number of document layouts without needing to develop specific templates for each layout variation. This capability is unique to Paradatec and a vital feature for creating an effective unstructured document classification and data capture solution. Paradatec’s Advanced Mortgage OCR solution is designed to make mortgage lending faster and more accurate. In 2017, Paradatec’s Mortgage OCR solution processed over 1,500,000,000 images (representing over 2,500,000 loans), helping lenders and servicers streamline their onboarding and compliance obligations.

Asurity Technologies

PROGRESS in Lending has named Asurity Technologies a top industry innovation. In 2017, MRGDocs was acquired by Asurity Technologies and introduced MRGDocs’ cloud-based platform which revolutionized the security of its dynamic document generation software featuring a secure system infrastructure to increase the protection of consumer data and deliver safer, faster, and more user-friendly systems while maintaining the content and support quality that has long been the hallmark of MRGDocs’ services and document packages. This solves for several mortgage industry challenges: the costs to secure big data, protecting the myriad of personal identification information collected, and managing compliance through a hyper secure platform. In 2017, MRGDocs built a comprehensive data security capability on a robust foundation that allows for the type of growth and expansion needed to serve even the largest of financial institutions, implementing a hyper-converged, virtual server platform with 24/7 SIEM-managed security monitoring.

STRATMOR Group

PROGRESS in Lending has named STRATMOR Group a top industry innovation. MortgageSAT is an online customer satisfaction measurement program that allows consumers to provide direct feedback on their satisfaction with the mortgage process, and provides lenders actionable insights from the results, all available via an online portal. Put simply, it’s Business Intelligence based on consumer insights. Why did STRATMOR create MortgageSAT? For many years, mortgage lenders have struggled to capture actionable feedback from borrowers by means of post-closing email or closing-table-completed surveys. By means of its powerful borrower satisfaction management tool called MortgageSAT, developed in partnership with the CFI Group, STRATMOR has led the way to fundamental change the way lenders manage and apply borrower feedback. MortgageSAT is the first and only borrower satisfaction monitoring tool to score satisfaction at all levels of the organization as regards retail, consumer direct and broker production. As a consequence, many MortgageSAT clients tie their employee reviews and, in some cases, compensation both to these scores and a review of borrower comments. When everyone’s performance review includes a measure of their contribution to borrower satisfaction, a borrower-centric culture is fostered that is aligned with the emerging competitive paradigm of “optimizing the borrower experience.”

Maxwell

PROGRESS in Lending has named Maxwell at top industry innovation. No matter how digital the process, every mortgage is saddled with documents and data, over 500 pages, according to the Mortgage Bankers Association. As a result, an average of 20 days during the mortgage process is consumed by the search, preparation and review of those documents. Maxwell, the leading digital mortgage solution for small and midsize lenders, removes this friction with its platform. Sitting as the digital interface between the lender and their borrowers, Maxwell manages collaboration through the loan process, significantly reducing cycle times and driving delight. Originating teams on Maxwell are able to focus on what they do best, advising and coaching clients through the largest transaction of their lives, while Maxwell’s technology handles the rest. As one head of production attested, “Maxwell allows us to focus on what we love: working with real people. While loans get done faster and my team is happier.”

PromonTech

PROGRESS in Lending has named PromonTech a top industry innovation. The Borrower Wallet is the first offering from Promontory MortgagePath’s technology arm. From a lender’s perspective, the Borrower Wallet captures leads and fosters borrower/lender collaboration to drive enterprise efficiency and improve loan pull-through. In addition, its built-in collaboration tools deliver high-quality data and documents needed to feed and accelerate the downstream underwriting process. As a white-label offering, the Borrower Wallet makes the latest technology accessible and affordable to mid-size and smaller lenders, enabling them to compete with mega lenders. PromonTech’s culture of mutual respect between “techies” and mortgage industry experts made it possible to create a mass-market POS where both consumer and lender needs are equally important. The Borrower Wallet is not the first digital POS, but it’s the first to engage consumers while anticipating lender needs in such a balanced way. It combines creative design, industry analysis and data governance to create a unique user experience.

MCTlive!

PROGRESS in Lending has named MCTlive! a top industry innovation. Over the past year, MCTlive! developed a major mortgage technology advancement with the addition of what the company branded its “Bulk Acquisition Manager” (BAM) solution, which is accessible via MCTlive! BAM is a Digital Loan Trading solution. BAM completely automates the process of packaging and transferring bulk loan bids, which benefits investors, lenders and MCT’s team of in-house mortgage loan traders. The result is a much quicker pricing process for bulk bid tapes, greater data security, better communication between counterparties, increased transparency for all parties, process consistency for investors within their existing platform, and centralization of data. BAM helps facilitate digitize loan trading on the secondary market. The effectiveness of the BAM technology has already gained 100% adoption by the ENTIRE investor community on the secondary market — across the board. And the level of transparency it offers between buyer and seller is hugely attractive and makes investors and lenders feel at ease.

Ellie Mae

PROGRESS in Lending has named the Ellie Mae Encompass NG Lending platform a top industry innovation. The Encompass NG Lending Platform allows lenders, service providers, and independent software vendors the ability to build custom applications in the cloud, integrate external systems and data, and extend Encompass in order to meet any and all industry challenges. Mortgage lenders and mortgage service providers can build, integrate, or customize solutions, and get them to their customers and market quickly. Lenders, partners, and third-party providers gain access to data and systems across the mortgage ecosystem. In the end, all participants can easily view and share loan date, sales pipeline, loan events, documents, and order services. A shared system of record allows all parties in the loan process to see the same up-to-to-date information in the same format. Everyone in the ecosystem can easily share, interact, and collaborate without having to create and support new channels.

 

 

Tried & True Innovation

As we all know, mortgage lenders are looking for an edge. How do they get that edge? They can start by replacing a paper-driven mortgage process with an automated process. This is where industry specialists like Paradatec can help. For over two decades, Paradatec has focused its skills towards delivering the most efficient, accurate, and flexible freeform document classification and data extraction solution available anywhere. Specifically, Paradatec’s advanced OCR solutions offer significant efficiencies for classifying large quantities of differing document types and extracting key data elements from those documents. In the mortgage market, these out-of-the-box capabilities allow for the quick and accurate identification of nearly 500 unique documents in the typical mortgage file, along with capturing over 6,000 data elements from those documents. Our editor talked to (left to right) Mark Tinkham, the company’s Director of Business Alliances; Paul Fischer, the company’s Director of Professional Services; and Neil Fraser, the company’s Director of US Operations; about how lenders can use technology to improve the mortgage process. Here’s what they said:

Q: So, what does Paradatec specifically do that would be compelling to a mortgage servicing, or lending operation?

MARK TINKHAM: Paradatec streamlines and monitors processes which otherwise require significant human labor. We minimize the need for managing large costly staffs of trained loan file indexers and data key entry operators. We do this while at the same time providing statistical feedback and measurement of accuracy and automation. We provide these efficiencies so that our clients are able to better focus on their customers, manage workload peaks and valleys more easily, and measure results over time.

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A good basic example is our ability to automatically identify all the documents in a 500 to 1,000 page loan package, and capture every one of the hundreds of fields on every version of every TRID document (Loan Estimate and Closing Disclosure), every one of the dozens of fields on a Loan Application, Appraisal, Transmittal Summary, Note, Deed of Trust, 4506-T, Income Tax statement and whatever else a client may require.

Q: How does OCR (Optical Character Recognition) technology provide value in today’s Mortgage Industry?

PAUL FISCHER: There are vast differences between some of the lower cost OCR technologies, and the advanced OCR offered by Paradatec. The advantages to using our technology are a dramatically faster, more accurate and less costly process for indexing and capturing data from mortgage loan documents.

The short answer to your question is: we provide our clients with an ability to do in seconds what many operations, using 100% human labor, take hours to do. And, at the same time, we provide results which are more accurate.

Our unique approach to OCR allows us to extend these broad benefits to originators’ and correspondent lenders’ indexing and data ingestion validation, and servicers’ loan onboarding processes.

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Our capabilities, out of the box, today include rules to identify approximately 500 mortgage loan document types and extract more than 6,000 fields from those documents.

In addition, we have helped our clients with automating their compliance processes with HMDA loan audits, UCD creation and TRID capture solutions.

Q: Has the industry fully embraced your automation technology?

NEIL FRASER: We think lenders do understand the need for automation, but many may not be aware of the significant and unique competitive advantages our clients continue to realize.

Lately we have been spending more time sharing our many success stories and getting the word out that we can provide powerful efficiencies related to loan automation.   These advantages range from compressing the time it takes to process borrower-provided documents to expediting the loan onboarding process and making compliance audits significantly more automated.

We offer an ability to dramatically reduce the manual efforts related to indexing loan documents, and capturing key data from those document images. Our sub-second per image processing speed is unique and it allows us to take an approach which others are unable to match due to their OCR performance. This speed and ability to scale our processes to tens of millions of images per day on a small hardware footprint are waking up the industry to the possibilities of how their operations will benefit.

So, we are seeing more and more lenders embracing our technology. And, because we continue to add enhancements and find new ways to provide value with our technology we believe our current and future clients will continue to find new and exciting ways to further embrace our solutions.

Q: How is Paradatec’s OCR technology different than others?

MARK TINKHAM: Our extreme focus on OCR technology began more than twenty-five years ago, and since 2007 we have been applying our unique, sub-second per page, small hardware footprint OCR technology to the mortgage industry. With every implementation, we have continued to build more and more out-of-the-box capabilities specific to processing mortgage loan documents. Over the years we have seen various fads and splashy marketing campaigns touting various OCR technologies and approaches, which in reality were not effective.

Recently we’ve seen an increase in the hype with alternative automation strategies. One approach, which isn’t new, and we have seen in years past, is something called visual classification, in which the image ‘fingerprint’ of a page is used for identification rather than the text itself. This approach is fast and used in an attempt at matching our sub-second per page processing speed.

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For documents that are graphically focused with minimal text, this may work fine, but mortgage files are loaded with text, and in many cases that text will be key to correctly identifying the document type. For example, many Deed and Rider signature pages can look similar, in that the content many times pushes the signature block to its own page. Our clients want the delineation between these docs, and even between the various Riders, but at a ‘fingerprint’ level these pages can look quite similar, leading to many indexing errors. It’s only when the footer text is discovered and read as “PUD Rider,” “MERS Rider,” or “Deed of Trust” that the correct automated decision can be made, which our solution completes with sub-second speed.

Q: How do you ensure quality control and data accuracy?

PAUL FISCHER: We implement database validation of captured data, and reasonability rules for indexing and data capture. In addition, we provide a process for statistically random reviews and measurements of loan indexing and captured data along with an ability to track user efficiency over time. With the Paradatec Statistics database, our clients are able to generate an unlimited number of useful reports which track processing time, by loan, by user, by time period, even down to the document type and extracted data field level.

In addition, we provide an ability to create a quality review and learning process from production output with our analytical tools. This process is performed as part of the testing and implementation stages, and provides deep insights into the accuracy and automation levels which have been achieved.

As part of an ongoing quality measurement and learning adjustment stage, our clients can be confident that their processes are continuing to perform at the highest levels of quality.

Q: Your Company has released an Application Programming Interface (API). In layman’s terms, what does this do?

PARADATEC: We provide a Web Services API which allows end users to submit loan documents and data for validation to our workflow processes from virtually anywhere.

A use case example would be our OnDemandOCR process, which utilizes our API to allow lenders to submit final Closing Disclosures remotely and receive a MISMO formatted GSE compliant Uniform Closing Dataset (UCD) back as output for review and ultimately submission to the GSEs when loans are presented.

Another use case for our API will allow borrowers to submit documents as part of a loan origination. Our OnDemandOCR process will then identify the document or documents submitted, and automatically extract the key data fields from them.

Q: What are some other manual processes that you have automated within your clients’ operations?

NEIL FRASER: Since our focus on the mortgage industry began, we have continued to find more and more new, and many times dramatic ways to enhance our clients’ processes.

A little over a year ago, we were asked to re-index approximately two million loans due to some compliance pressure our client was getting to make sure their loan portfolio accurately accounted for the necessary source documents. We were able to assist by processing over 1.2 billion document images in a matter of weeks. In other cases we have been asked to help meet new compliance obligations by significantly streamlining what would otherwise have been extremely costly, labor-intensive efforts.

Our new HMDA Audit capability enables our clients to quickly validate the data on their Loan Application Register (LAR) against the data found on the associated loan source documents. Each loan is processed at less than one second per page and each of the final source documents’ data is compared to the values on the LAR. This process allows our clients to ensure compliance with the Federal Reserve Board’s Regulation C before submission to the Federal Financial Institutions Examination Council (FFIEC).

Our UCD Audit capability enables our clients and the GSEs to automatically compare the MISMO 3.3 data found in a Uniform Closing Dataset against the corresponding values found on the final Closing Disclosure which is embedded in that UCD. This process is performed at an average of one second per page and each of approximately 300 fields extracted are then compared. Differences found between the MISMO data and the extracted data are reported in a MISMO compliant “differences” file. Along with this, we also produce a corrected UCD based on the embedded Closing Disclosure.

Our CCAR FRY_14M offering helps our largest clients comply with the latest CFO attestation requirements related to the Dodd-Frank Stress Test rules for large financial institutions. This process uses our high speed OCR capability and pre-built rules to classify documents, find the final version of key document types, and validate source document data against attestation data. This process can be performed in seconds per loan, and allows our clients to find and correct much of the inaccuracies typically found. In fact, because the original attestation data is typically key entered with human labor, and final document versions are often confused with non-final versions, prior attestation data is often incorrect. Without automation, this compliance risk mitigation step would be cost prohibitive.

Q: Paradatec has more than a decade of experience within the mortgage industry. What new initiatives and innovations have you recently brought to market or have coming up in the near future?

MARK TINKHAM: Some examples of new initiatives, new capabilities, and product features, some of which were mentioned earlier, include:

The Paradatec WriteUCD module for automated creation of GSE compliant UCDs from final Closing Disclosures.

Web Services API to enable our clients to seamlessly integrate our technology using our OnDemandOCR feature.

An ability to capture every field on every version of both the Closing Disclosure, and the Loan Estimate in an average of one second per page.

Our Paradatec WritePDF module for creating fully indexed loans with data fields highlighted in a PDF which includes a table of contents which virtually maps a loan’s documents and key source data.

An ability to automatically identify and capture all the fields on the new HMDA compliant URLA and the new HMDA addendum to the old URLA.

Our new HMDA audit process which can greatly streamline this process for our clients.

Our UCD Audit capability has attracted some significant interest from the GSEs and some of our larger clients.

We’re developing a new handprint discovery feature that will provide large leaps in automation for our post-close clients, which need to validate the required initials and signatures on key loan documents.

Q: How do you see the mortgage industry and the mortgage process of the future evolving?

MARK TINKHAM: Like many other industries, the mortgage industry is experiencing an evolution through the aid of technology. Staying competitive and reducing per-loan processing costs require the use of technology like ours. Industry leaders such as Amazon and Orbitz have made the self-service model, albeit in other market segments, much less daunting, and the speed at which transactions can be completed has decreased significantly through this evolution. While the magnitude of the buying decision for a home is obviously much greater than that of buying an airplane ticket or a pair of shoes, the consumer has become comfortable with online transactions to the point that a paper-bound process is viewed as slow and stodgy.

INSIDER PROFILE

Mark Tinkham is Director of Business Alliances at Paradatec, Inc. Over the past twenty-five plus years, Mark has worked for technology companies that deliver innovative solutions to the financial services industry. For the past ten years, his primary focus has been bringing efficiencies to the mortgage market through industry leading Optical Character Recognition (OCR).

INDUSTRY PREDICTIONS

Mark Tinkham thinks:

1.) The digital mortgage won’t eliminate the need for manual data entry.

2.) Our UCD Audit process will be found to be an invaluable tool for those lenders selling loans to the GSEs.

3.) The 20 largest lenders and servicers will all embrace advanced OCR by 2020 out of necessity.

INSIDER PROFILE

Paul Fischer is Director of Professional Services at Paradatec, Inc.  For nearly 15 years he has focused on the design and installation of document capture, content management, and workflow automation systems for clients in a variety of industries.  Since joining Paradatec in early 2013, his primary focus has been on helping mortgage clients improve their operational efficiencies with Paradatec’s advanced mortgage OCR solution.

INDUSTRY PREDICTIONS

Paul Fischer thinks:

1.) Cycle times and cost pressures will continue to drive automation initiatives in the mortgage origination and servicing space.

2.) Document ingestion for mortgage servicing rights (MSR) transfers will become an entirely automated process.

3.) Robotic process automation (RPA) will reduce manual labor by 20% and much more in many cases.

INSIDER PROFILE

Neil Fraser is Director of US Operations at Paradatec, a mortgage OCR technology organization that automates the data entry operations of large lenders through intelligent document analysis. Neil was Paradatec’s first US employee and has grown the organization every year since the company incorporated here in 2002.

INDUSTRY PREDICTIONS

Neil Fraser thinks:

1.) Redaction of personally identifiable information (PII) will become ubiquitous for any mortgage documents leaving a lender.

2.) Audits involving regulation such as TRID, RESPA, HMDA etc will become automated.

3.) As more investors move back into the secondary markets, the need for an audit trail from documents to elements in a loan servicing system database will become a requirement.

Coping With Doc Management Complexities

The lending industry faces the challenge of managing very large volumes of unstructured documents that contain immense amounts of critical data. The process of classifying and keying data from these documents is labor intensive, time consuming and costly due to the sheer volume and complexity of the documents. In an industry where standardizing forms is not possible due to their varying sources and wide variety, an acceptable solution must be able to cope with this complexity.

Founded in 1993, Franklin American Mortgage Company (FAMC), a privately held mortgage-banking firm located in Franklin, Tennessee, is a full-service professional mortgage banker licensed to provide residential mortgages across the nation. FAMC, which offers a host of diverse, flexible mortgage packages for customers with a variety of backgrounds and needs, is committed to helping families and individuals achieve the dream of home ownership through its three divisions: retail, wholesale and correspondent.

FAMC offers borrowers, brokers and lenders the strength and security of a forward-thinking national mortgage company, dedicated to remaining an industry trendsetter. FAMC truly values its relationship with each customer and mortgage professional they work with, maintaining a company tradition of responsiveness and personalized service characteristic of a much smaller organization. This philosophy has enabled FAMC to become one of the fastest growing mortgage bankers in the nation.

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The Challenge

The Mortgage lending industry presents a number of unique challenges for manually classifying and managing very large volumes of disparate documents, which are ubiquitous within this industry.

>>It is common for a single mortgage loan to be comprised of over 250-500 pages of various size documents.

>>A mortgage loan may include over 275 different possible document types.

>>Manually sorting each set of loan documents can be a very labor intensive and error fraught effort.

>>When scanning loan documents, significant labor is required to simply establish the first and last pages of the multiple page documents. This is most often done using the costly process of inserting “document separator” sheets prior to scanning.

>>To compete in this extremely competitive business, organizations need to look at cutting costs and streamlining their processes.

Manually preparing a batch for scanning by inserting document separator sheets and manually classifying loan documents is a labor-intensive process. Not only is it critical that this process be done accurately, but also that it be done efficiently in order to allow downstream underwriting and servicing decisions to be performed in a timely way.

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Project Description

Franklin American Mortgage Company (FAMC) had been looking for an OCR technology vendor to streamline their ADR process and had spent a significant amount of time performing a due diligence process, which compared vendors of these technologies.

“We had attempted to use OCR in the past for Automated Document Recognition (ADR). Due to our prior experience and a variety of technical issues we were very skeptical about OCR.”

Because of the extremely large number of, and variations of forms FAMC encounters, they required the flexibility offered by a non-template-based solution. In addition, the ideal solution needed to offer pre-built mortgage logic that would “understand” the vast majority of the document types and variations FAMC was required to recognize. This logic would allow FAMC to rapidly develop a customized ADR solution to their specific needs using the ideal solutions copyrighted mortgage rules as its foundation.

Today, FAMC scans millions of pages of mortgage documents per month. They no longer require their employees to insert document separator sheets to prepare a loan for the scanning process.   Once scanned, the loans are processed using the industry leading OCR solution for automated document recognition.

Documents’ boundaries (first and last pages) are defined and their types are automatically identified. These processes are now done faster and with a fraction of the labor formerly required. To ensure extreme accuracy, sophisticated mortgage-lending business rules have been implemented as part of the solutions exception process.

Additional capabilities leveraged successfully at FAMC:

>>Verification provides list of very likely document types to further increase speed of verifying exceptions.

>>Ability to customize how documents are handled based on the division of business the documents come from.

>>Ability to quickly add new document types using the Paradatec exclusive automated learning objects.

>>Database lookups and business rule logic checks to ensure the highest degree of accuracy.

>>No scripting interface, easily configurable rules to manage FAMCs highly sophisticated ADR processing application.

Outcome

The project was completed and is currently in production. The system is able to achieve 80% document recognition while keeping error rates low. This has allowed FAMC to position itself for an anticipated future increase in incoming document volume and provides them with a powerful competitive advantage. Today FAMC is processing Millions of images per month and doing all this more accurately and with less production time than was formerly required.

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“We asked a number of vendors including the Paradatec team to help us perform an extensive due diligence process which included a proof of concept test with our own documents. Paradatec was the clear winner based on our comprehensive vetting process”.

Paradatec’s PROSAR-AIDA is an advanced and unique OCR recognition technology. It is unique in that it utilizes neural networks technology and Artificial Intelligence (AI). PROSAR-AIDA is able to read structured, semi-structured, and unstructured documents. It makes ‘decisions’ about document characteristics in much the same way as a human being does, only many times faster and without human intervention.

PROSAR-AIDA takes a very different approach than other technologies. Because the recognition engine (a Paradatec exclusive) incorporated in PROSAR-AIDA is faster than any full page OCR product on the market, it is able to process each image, in less than two seconds on average. It does this without making any assumptions about content location on the page or attempts at matching zonal OCR templates. PROSAR-AIDA is capable of processing thousands of documents per hour with a single processor core, and provides even further almost unlimited scalability by offering seamless utilization of the latest in multi-core processor technologies, and multi-server environments.

Because of Paradatec’s unique approach, and their ability to leverage a vast quantity of intellectual property, which they have built over the years specifically for mortgage loans, implementations can be completed in a fraction of the time normally required by others.

About The Author

Mark Tinkham

Mark Tinkham is Director of Business Alliances at Paradatec, Inc. Over the past twenty-five plus years, Mark has worked for technology companies that deliver innovative solutions to the financial services industry. For the past ten years, his primary focus has been bringing efficiencies to the mortgage market through industry leading Optical Character Recognition (OCR).

Loan Document Automation

The mortgage lending industry presents a number of unique challenges for classifying and extracting data from key documents, due in part to the large volumes of disparate documents in most loan files.

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New documents and the regulations related to them put a new emphasis on the need for quick and very accurate data. Lenders in particular face significant penalties for inaccurate data and missed delivery deadlines. Sorting and capturing critical data from thousands of diverse documents has historically been labor intensive, slow, and expensive. To stay competitive, and meet these new and constantly changing challenges, automation through technology is no longer optional.

The key is finding a provider that specializes in automated document classification and data capture specifically for mortgage lending and the financial services industries, which scales to process millions of pages per day.

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Leading edge OCR solutions offer significant efficiencies for classifying large quantities of differing document types and extracting key data elements from those documents.  In the mortgage market, these capabilities allow for quick and accurate identification of over 500 unique documents in the typical mortgage file, along with the ability to capture nearly any data element from those documents that an organization requires.

Here are some examples of applying this advanced technology to specific mortgage documents:

Application Processing

Extract relevant content from borrower-provided pay stubs, W-2s, bank statements, and tax documents to expedite underwriting and reduce origination costs.

Post-Close Processing

Identification of each document in the loan file, bringing structure to what was a 300+ page blob of content.

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Verification that relevant documents have been signed

Compare key data elements from loan file with your systems of record to verify changes haven’t been made without your knowledge.

UCD File Generation

Create the Uniform Closing Dataset (“UCD”) file required (as of Sept 25, 2017) when selling loans to Fannie Mae and Freddie Mac

Reporting And Audit Automation

Extract key loan file data elements to support the following reporting/audit activities:

HMDA reporting – our system is ready to capture the additional demographic data on the new Uniform Residential Loan Application (effective Jan 1, 2018)

RESPA audit

TRID audit

Lenders can longer afford to manually classify and manage large volumes of disparate documents. Manually preparing a batch for scanning by inserting document separator sheets and manually classifying loan documents is a labor-intensive, inefficient and error prone process. Not only is it critical that this process be done accurately, but also that it be done efficiently in order to allow downstream underwriting and servicing decisions to be performed in a timely way.

At the end of the day it is about finding a provider that focuses its skills towards delivering the most efficient, accurate, and flexible freeform document classification and data extraction solution available. The time is now for lenders to reduces manual labor costs and increases accuracy levels associated with classifying and capturing data from loan documents.

About The Author

Mark Tinkham

Mark Tinkham is Director of Business Alliances at Paradatec, Inc. Over the past twenty-five plus years, Mark has worked for technology companies that deliver innovative solutions to the financial services industry. For the past ten years, his primary focus has been bringing efficiencies to the mortgage market through industry leading Optical Character Recognition (OCR).

Make Sure That Your OCR Tech Works

Paradatec, Inc., a provider of advanced Optical Character Recognition (OCR) solutions for mortgage file processing, announced the availability of their One-Day Blind Test Challenge. Paradatec’s OCR library identifies nearly 500 unique document types in the typical mortgage file, along with extracting over 6,000 data fields from those documents. Combining this library with Paradatec’s sub-second OCR processing engine creates a high level of performance and scalability. Through this new One-Day Blind Test Challenge, qualified organizations can see the power of Paradatec’s out-of-the-box OCR solution for themselves, providing a final buying decision validation point using samples of their own mortgage files.

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“Many of our prospects have been disappointed in the results of past OCR initiatives, so they’re understandably cautious. Our One-Day Blind Test Challenge lets them run samples of their loans through our solution to validate our out-of-the-box performance claims. The Challenge will be conducted on-site rather than at our facilities, due in part to the confidential nature of the content, but to also minimize concerns about our skewing any results behind the scenes,” said Neil Fraser, Paradatec’s Director of US Operations.

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Fraser continues, “Our mortgage OCR library offers clients a short implementation timeline while other solutions require development from the ground up. This One-Day Blind Test Challenge demonstrates the validity of our claim so prospects can be assured that Paradatec offers a robust and scalable solution ready to deliver productivity improvements in weeks rather than months or years.”

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In the course of the Blind Test Challenge, the provided loan files will be indexed by document type; 100 data fields will be extracted from various key documents like the Note, Deed of Trust, Closing Disclosure, Appraisal, and W-2; and a bookmarked PDF of the loan will be produced, with the data extraction fields highlighted using Paradatec’s new WritePDF module. Fraser concludes his statements by saying, “Unfortunately, many companies base their buying decision primarily on price, only to be disappointed with the lack of true out-of-the-box mortgage-specific functionality offered by the product. In other cases, great claims are made regarding OCR automation rates, while the typical experience found with other products is something less impressive. We believe ours is the most expansive OCR offering available, such that we’ll gladly test it on a blind set of loans to show a prospect what makes Paradatec different.”

The Future Of Digital Mortgage Technology Innovation

High-powered mortgage executives gathered at the Seventh Annual ENGAGE Event in Denver, Colo., to discuss the future of the mortgage business. The discussions that happened were both lively and informative. Here’s how they see the future of digital mortgage technology innovation:

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“We have to move this industry forward by streamlining the process, and cutting the cost to originate,” said Michael Hammond, Chief Strategy Officer at PROGRESS in Lending Association and the Founder and President of NexLevel Advisors. NexLevel provides solutions in business development, strategic selling, marketing, public relations and social media. “This is far more then just hype. This is something that the industry has to do and it is not just about one technology or one platform, it is about coming together as an industry.”

Neil Fraser, Director of U.S. Operations at Paradatec, believes that this will be an evolutionary process. “You don’t need a revolution to convert the document into data that you can believe. You need technology to read the documents, and convert that to data that can be both read and understood. I see that as an evolutionary step in mortgage technology innovation.”

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Paradatec is a mortgage OCR technology organization that automates the data entry operations of large lenders through intelligent document analysis. Neil was Paradatec’s first U.S. employee and has grown the organization every year since the company incorporated here in 2002.

As the mortgage industry embraces innovation to become more digital, everything starts at the point-of-sale. Realizing this fact, a lot of new POS vendors have emerged claiming to offer the true digital mortgage experience. Curt Tegeler, President of WebMax, warns lenders not to be fooled by vaporware as they march toward more digital processes.

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“There’s a lot of buzz today around the digital POS. Why is that? We’ve found that 90% of homebuyers start the process online,” Tegeler notes. WebMax’s digital lending platforms expedites the borrowing process, helps maintain compliance, delivers dynamic online lending tools, and provides a highly innovative borrower experience. “Make sure that the executives behind your POS have deep mortgage experience. You have to understand the market so you know what you’re fixing.”

One area that everyone agrees needs fixing is the appraisal process. If the industry is going to move to a more data-driven process and a fully automated point-of-sale, slower processes like the appraisal need to be addressed.

“Appraisals were really left on the side,” noted Arturo Garcia, the Senior Vice President of Account Management at Mercury Network. He leads all customer retention efforts and strategies for the company, responsible for continuous improvements and increased returns for customer investments and overall satisfaction. “Appraisals didn’t get a lot of attention. However, it’s antiquated to send an appraiser out to the field time and time again. I envision a day when you have a system that can automatically flag issues with the appraisal, fix them or send them right back to the appraiser for fixing.”

The big takeaway from this discussion was that the digital lending process is coming and must touch all parts of the mortgage process in order to make a difference in how loans are done.

About The Author

 

Tony Garritano

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

Tackling Industry Change

We are gradually morphing to a more next-generation mortgage process and some say it’s about time. Lenders are notoriously slow to embrace change. So, why are things different this time? There are so many new outside factors that are forcing lenders to evolve. To discuss how change is impacting the mortgage industry we gathered a panel of experts that includes: (left to right) Neil Fraser, Director of US Operations at Paradatec, a mortgage OCR technology; Brandon Perry, President at TTP Enterprises, a leading CRM firm; Michael L. Riddle, the Managing Director at Mortgage Resources Group, LLC.; and Paul Wetzel, EVP, Product at Mortgage Cadence. Here’s how they see the future of mortgage lending:

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Q: How have recent mortgage technology vendor M&As changed the mortgage industry?

NEIL FRASER: It is common, and often a natural progression in many industries that they start out fragmented and consolidate as they mature. The purported advantages to consolidation can include: economies of scale, more resources for research and development, and better marketing and market reach.

Paradatec monitors the M&A activity of companies that we know well. The reality of consolidation, in many cases is very different from expectations. Just like in other verticals.

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The consolidations we see appear to be aimed at allowing the larger mortgage technology providers to become one-stop shops for all things tech and to move that technology further down the food chain to smaller banks and credit unions.

But M&A is a risky approach. Some recent consolidations have led to organizational confusion, and a general loss of focus.

Ultimately they find that the organizations’ cultures have little in common, and the perceived synergies between the two companies are illusive. In fact, in some cases we have seen this mistake repeated multiple times over several short years. Generally, a great deal of marketing hype follows such consolidations. So, the goal of increased marketing reach is often realized, but is only short term. However, the reality is that the loss of focus can be devastating to both their clients and employees.

We believe these risks are common in the case where unique and significant differentiators make a particular technology company’s products and services clearly superior. For a technology vendor in this position, there are many potential disadvantages to consolidation. In the recent past we believe we have been witnessing the negative results of some of these mergers, especially in our niche of advanced OCR technology for the mortgage industry.

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Paradatec has historically made its living by licensing our sophisticated mortgage OCR solutions to some of the largest banks and lenders in the country through OEM relationships with larger partners. Our solutions traditionally were only used in very large lenders. The net effect of the consolidation of the last few years is that our current and future re-sellers are able to leverage very sophisticated OCR technology to smaller organizations that never could support such platforms themselves.

PAUL WETZEL: Leading vendors are looking to add to their product offerings and/or customer base with acquisitions. Where the reason for the acquisition is augmenting the product offering, this can frequently be a faster time to market versus building the functionality natively. Having said this, acquisitions are not always guaranteed to be successful. Considerations like cultural fit of new teams vs. the acquirer, and compatibility of technology stacks are two key considerations among many others.

MICHAEL L. RIDDLE: I think it depends on whom you talk to and which specific companies that you are referring to. In some instances, larger technology providers have acquired smaller providers for a specific technology, market niche or just to gain market share. Traditionally, these types of M&A don’t always work out because there isn’t synergy between the technology platforms, corporate cultures don’t mesh, and customer bases don’t align.

However, when the right companies merge, ones that have a shared vision for the future, corporate cultures that align, technology platforms that easily integrate, and where the sum is greater than its individual parts, there can be significant advantages for industry participants. This type of merger or acquisition has the power to disrupt an industry.

Speaking from experience, the second example is what has transpired with our new merger. MRG has formed a partnership with Asurity Technologies (Asurity) that brings together Treliant Solutions, LLC, Risk Management Solutions, Inc. (RMS) and Mortgage Resources Group, LLC (MRG) into an integrated best-in-class compliance platform.

In addition to delivering legally defensible compliance expertise, in-depth compliance insights with state-of-the-art technology to document mortgage transactions, we can now also provide HMDA, CRA, Fair Lending, and Redlining solutions. This provides our clients with a significantly more comprehensive compliance solution.

BRANDON PERRY: The mortgage technology vendor space seems to be mirroring the mortgage industry in regards to M&A activity. With the mortgage lender M&A activity, the competitive landscape with technology vendors is extremely high. Smaller boutique vendors are strategically acquired by larger well-funded looking to expand or enhance their product offerings.
The current trend is for the larger vendors to serve as one-stop shops for mortgage lenders. This is good news for the mortgage industry as it nicely sets the table for further innovation by start ups or boutique technology vendors looking to plug the holes left by the larger players.

Q: How has new regulation changed the mortgage industry?

NEIL FRASER: Regulation equates to reporting in order to attain measurement and control. As regulation has increased in this market, the need for originators and services to quickly extract meaningful content from their loan files to support such regulatory demands has increased as well.

The Paradatec solution can assist with data gathering for many regulatory events, but one that’s especially burdensome in terms of executive liability is the Fed’s Comprehensive Capital Analysis and Review (CCAR). The CCAR is an assessment of the capital adequacy of thirty-four large U.S. bank holding companies and was introduced as part of the Dodd-Frank Act. The effects of the Dodd-Frank Act in general are widespread and relatively well known. CCAR is focused on, evaluating capital adequacy even under stressful conditions. Reporting for CCAR came through the FR Y-14M forms in June 2012 which support a dictionary of around 250 data fields to be collected and presented to the Fed.

One of the early effects of CCAR 14-M reporting has been that large lenders have taken extra responsibility for the accuracy of data presented to the Fed for their loans. That includes loans originated via the correspondent channel or acquired otherwise. For Paradatec, as a specialist in automatically reading mortgage documents via Optical Character Recognition (OCR), this presented an opportunity to provide automated audit of LOS data vs actual scanned images of original paperwork in order for entities to comply.

For 2017 CFOs of CCAR entities are obliged to attest that, not only is their CCAR 14-M data is “materially correct to the best of their knowledge” but also to “the effectiveness of internal controls and include those practices necessary to provide reasonable assurance as to the accuracy of these data”. In other words “I’ve checked all my data”. This is a big task especially for banks that acquire loans they did not originate. CCAR entities are effectively now required to check all their loan paperwork vs LOS data and attest that they match. That’s a huge undertaking without sophisticated OCR technology.

MICHAEL L. RIDDLE: The regulatory environment for today’s mortgage lender has become exceedingly complex. Compliance becomes more difficult each day, as a cascade of new disclosure and lending requirements are imposed by federal, state and local regulators.

With this avalanche of regulation, it is becoming very difficult for mortgage lenders to gauge whether their internal compliance systems are functioning properly and whether the continuing cost, in both human and financial terms, of adopting and maintaining adequate regulatory controls, can be sustained in a volatile origination market.

Lenders, in order to cope with these added regulatory compliance risks, are faced with an immediate and compelling need to re-evaluate and upgrade the capacity of their internal systems to recognize and incorporate mandated regulatory changes. Static document systems and templates simply will not suffice to keep you compliant. To en- sure compliance, mortgage disclosure and documents systems need to be dynamically constructed.

At the same time, the absolute risk of non-compliance has become intolerable. Audits by regulators and investors alike are now commonplace and fines, penalties, and loan repurchase demands are escalating. As tough new regulatory standards increase the scope and absolute number of loans that must be evaluated carefully for compliance, investors have become acutely aware that several regulatory changes impose liability on the purchase of a mortgage loan for compliance errors made by its originator. It is no surprise that investors are increasingly demanding, prior to funding a loan purchase, that originators provide loan specific data in an electronic format complete enough to permit comprehensive automated compliance reviews on each loan to be purchased.

PAUL WETZEL: New regulations and GSE requirements have pushed technology providers to look for creative ways to address both the ongoing release of requirements themselves but also what kind of technology upgrades might be necessary to better accommodate the strong likelihood that this level of change will continue for years to come. While new regulations must always be accommodated as a priority, customers will not tolerate regulation support being the focal point of a technology vendor’s roadmap. Leading vendors always need to be upgrading their technology platforms and better accommodating the ongoing drumbeat of regulation is one key driver for this. The pressure of regulation is also a key driver for ongoing consolidation of mortgage technology vendors as some vendors will look to exit the market by selling their business vs. investing to upgrade their technology per the above.

BRANDON PERRY: With the heightened awareness of compliance with new regulation in the mortgage industry, many lenders have paused delivery and implementation of solutions, which drive new business. I’ve mentioned “compliance doesn’t matter” quite often in the past couple of years and it still holds true today. While compliance can’t be ignored, lenders must not fall into the trap of hypersensitivity to rules and regulations and then completely ignore the basic need to grow your business. The most successful lenders have been able to find a nice balance between regulation and business growth.

Q: How has talk of and interest in the digital mortgage changed the mortgage industry?

NEIL FRASER: In this era where smartphone and tablet usage permeates nearly all of life, it only seems logical that the purchase of a home would eventually move in that direction as well. This certainly creates a situation where the loan package can be moved electronically at no cost, rather than printed (multiple times, most likely) and physically moved between geographies. Therefore, in-transit time and cost can be reduced, which is great for the market.

At the same time, we don’t believe the digital mortgage negates the need for certain underlying technologies, including OCR. While a borrower may be able to upload PDF copies of their paystubs and bank statements, as an example, the data must still be gleaned from those documents as part of the underwriting process. Without the aid of sophisticated OCR such as that provided by Paradatec, that gleaning process remains a manual process, even though the mortgage is “digital”.

Organizations looking to embrace the ‘digital mortgage’ concept should look to not only eliminate the paper that exists in their process today, but also lean-out their business processes with the aid of technology so the per-loan processing costs can be reduced.

BRANDON PERRY: I believe much of the interest and talk of digital mortgage rose from the ashes of the constantly fluctuation regulatory environment. With the birth of compliance as a new cost center in most lenders, the pressure to absorb these new expenses must be released. I previously mentioned the importance of new business growth, but pressure can be released internally by finding ways to more efficiently process loans. Mortgage executives challenging their current processes helped pave the way to embrace technology allowing for digital mortgage.
One of the biggest challenges with digital mortgage is information security. With the ever-growing list of data breaches, cyber security will never be more important to the mortgage industry as we enter the digital mortgage world. The nature of the extremely sensitive information held by mortgage lenders makes them prime targets for cyber attacks.

PAUL WETZEL: Core concepts related to digital mortgages of course are not new but there is certainly growing interest in these topics over the past couple years and that is a very good thing for the mortgage industry. Fintech has been an underinvested segment and lenders’ interest in spending to improve digital outcomes is driving investment into mortgage technology. When executed correctly by a vendor, digital mortgage becomes a menu of options open to each lender that improve borrower experience, speed time to close and staff efficiency, and increase the transparency and security of the transaction. This will help both the lenders top line and bottom line as well as improving their standing in the industry.

MICHAEL L. RIDDLE: The first thing that comes to mind is the user experience. All the talk of the digital mortgage has changed borrower expectations. Since that now famous Super Bowl Ad that launched Rocket Mortgage and borrowers expectations, consumers demand technology that delivers a quick and simple user experience that matches the type of every day experience that they have on the Internet with the likes of Google, Apple and Amazon.

This has forced the industry to focus attention on delivering a dynamic and mobile digital experience. Many companies have invested heavily in technology and on being able to provide the types of tools consumers are look for on the front end. But what lenders must realize is the fact that to truly deliver on the digital experience the entire mortgage process needs to be streamlined not just the point of sale.

This includes compliantly documenting each and every financial transaction digitally. To be able to maintain a competitive edge in the digital age requires an understanding of data-security, technical capability, industry experience, compliance insights, legal expertise, matched with seamlessly integrated systems and robust data interfaces to actually streamline the lending process while delivering on the digital mortgage experience.

Q: Lastly, how do you see the mortgage industry and the mortgage process of the future evolving as a result of these and other big changes?

PAUL WETZEL: It’s an exciting time to be in the mortgage industry with respect to how technology can be used to dramatically improve outcomes. Lenders should be pressing their mortgage technology vendor partners for their view and strategies related to the above. Healthy vendors who plan to not just survive but thrive need to be active in the M&A space, have new a creative ways to accommodate ongoing regulation, and established but growing digital mortgage capabilities. Seismic shifts like the end of paper won’t happen overnight for the industry but they won’t happen at all leading lenders being willing to be front runners and we’re starting to see more lenders being willing to be just that.

MICHAEL L. RIDDLE: As mentioned earlier, the regulatory environment has become exceedingly complex, and I don’t see that changing anytime soon. That will continue to put pressure on lenders to comply, which will highlight the need for an advance compliance ecosystem— One that is comprehensive, can track, monitor and provide real time insights for all of a lenders compliance needs.

In addition, borrower expectations will continue to push the envelope on delivering the digital mortgage experience that today’s borrower demands. That requires the right balance of advanced technology, deep mortgage expertise, legal insights, industry integrations, with the ability to constantly evolve.

BRANDON PERRY: We’ve become a culture accustomed to instant gratification with nearly everything in our daily routine. Rather than heading to the store, how about same day delivery? We’re upset when a website has a two second delay loading. I’ve heard countless radio commercials from car dealers touting how fast they get you in and out when buying a car.   We are kidding ourselves if we believe obtaining a mortgage is the only exception. The next big competitive environment is time. I believe the time to pre-approval, approval and closing in the next few years will be fractional to the current process timeline of today.

NEIL FRASER: This industry is experiencing an evolution through the aid of technology like many others before. While the regulatory requirements will certainly control what the experience looks like for the consumer, automation within the process will continue to expand…the increasing per-loan processing costs dictate as much. Industry leaders such as Amazon and Orbitz have made the self-service model albeit in other segments, much less daunting, and the speed at which transactions can be completed has decreased significantly through this evolution. While the magnitude of the buying decision for a home is obviously much greater than that of buying an airplane ticket or a box of diapers, the consumer has become comfortable with online transactions to the point that a paper-bound process is viewed as slow and stodgy.

The process will continue to evolve, both due to competitive pressures as well as consumer-driven expectations. But, like a lot of the other ‘digital transformations’ that have occurred, we believe the mortgage market will be “both…and” situation, as in both paper and digital, rather than an exclusively digital model, at least for the foreseeable future. Until the entire consumer community is ready to embrace a digital-only approach, paper will continue to be a part of the process, and therefore vendors that automate paper reading will continue to add value.

Vendor Releases Innovative Web Services API

Paradatec, Inc., developer of an Optical Character Recognition (OCR) solution for mortgage file processing, has released their web services API for real-time integration to their clients’ line-of-business applications. This new functionality can seamlessly transfer documents from the loan origination system (LOS) to the Paradatec solution for page classification and data extraction, with the Paradatec-produced results transferred back to the LOS in place of manual data entry.

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“As application integration becomes tighter in response to the ongoing compression of service level timeframes, Paradatec’s new web services API stands ready to serve as the OCR extension to our clients’ line-of-business applications. Our first solution to leverage this capability is our new WriteUCD module, in which the final Closing Disclosure (CD) is submitted to us through the web services API, our OCR functionality extracts the relevant data from the CD, and WriteUCD then produces the corresponding Uniform Closing Dataset (UCD) file required by Fannie Mae and Freddie Mac” said Neil Fraser, Paradatec, Inc.’s Director of US Operations.

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“This new functionality allows for seamless OCR processing scaling from small document sets like borrower-provided paystubs and W-2s up to full loan files. With the ability to integrate tightly with any other web service-enabled application, we’re helping our clients create a very rich and efficient application ecosystem.”

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Paradatec’s OCR solutions offer significant efficiencies for classifying large quantities of differing document types and extracting key data elements from those documents.  In the mortgage market, these capabilities allow for the quick and accurate identification of over 500 unique documents in the typical mortgage file, along with capturing nearly any data element from those documents that an organization requires.

About The Author

Tony Garritano

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

OCR For Mortgage In Action

The financial services industry is challenged with managing large volumes of documents with varying layouts containing immense amounts of data – part of which is highly critical with regards to compliance. The traditional manual process for classifying and keying data from these documents is time consuming, error prone, and costly due to the sheer volume and complexity of the mortgage documents. In an industry where standardizing forms is not always possible due to their varying systems and points of origination, an acceptable automation solution must be able to properly and compliantly handle this variability.

Client:

Top-Five Originator. This bank is one of the largest in the United States. It is a leading lender offering a range of quality home loans, including government and conventional. These loans are provided through multiple channels.

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Challenge

The mortgage lending industry presents a number of unique challenges for classifying and extracting data from key documents. This is due in part to the large volumes of disparate document variations found in most loan files.

>>A typical incoming mortgage loan file may contain 250 to 600+ pages of various size documents, comprising more than 250 potential document types. Older loans files may grow to well over 1000 pages.

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>>Manually sorting each set of loan documents is a labor intensive and error prone effort, typically requiring the addition of document separator pages if the file is to be scanned.

>>Due to the sheer labor effort required, the typical level of detailed document sorting possible with a manual approach is very “coarse”. In other words, only the most critical documents and document groups are classified rather than attempting to identify all specific document types. An example of this limitation might be a manual grouping of a series of specific documents into a “Credit Documents Group” rather than breaking these out specifically by document types such as bank statements, credit reports, and brokerage statements.

>>To compete in this extremely competitive market segment, organizations are looking for ways to reduce costs and streamline their processes.

In addition to the challenges described above, this top five originator was looking for a solution to help automate the laborious task of providing data for a number of audit-centric applications. These ad-hoc projects commonly had tight timelines and included wide ranges of loans, and millions of pages to be audited.

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Project Description

At the start of the Project, this top five originator had a sophisticated document capture infrastructure feeding a well-known enterprise content management system in place. What was missing from this infrastructure was an advanced recognition module that could deal with the document variations expected in an organization serving borrowers across the nation.

The ideal solution needed to provide a seamless interface to this current capture infrastructure. This would greatly simplify the implementation by allowing the existing interfaces to both front-end scanning and back-end image storage to be largely unaffected by the addition of the recognition technology.

Prior to the installation of the new recognition components, a large team would manually classify incoming documents into a moderately broad range of categories or Document Groups. Once these documents had reached the enterprise content management system, a team of underwriters would review, manually enter data, and process the loan.

Limitations of this approach included:

>>Heavy reliance on the skills of the people manually classifying documents and extracting data. Error rates varied from operator to operator. Thus, a loss of a skilled operator for any reason had a negative impact.

>>Time is of the essence in any mortgage-processing environment. Using a human-centric approach meant that processing times were proportional to staff availability at any given moment.

>>People tend to be more expensive than computers and software.

>>Regulatory bodies as well as this originator would have preferred a greater granularity in the way documents were classified. However, this need was outweighed by the complexity and difficulty presented when attempting to teach and maintain a group of individuals in how to classify documents among over 250 possible choices.

The new extraction system was selected after an exhaustive evaluation process. A competing solution was initially tried. However, after months of tests, it was determined that a more advanced solution was available which had a number of capabilities that surpassed other solutions previously tested or reviewed:

>>This new solution was by far the fastest technology available to read OCR mortgage documents. Pre-production technical due diligence empirically showed a system that was capable of processing approximately 1 million images per day on a single twelve-core server.

>>This solution was able to use one set of rules to process and recognize all document variations. Because of the extremely large number of documents (and variations of each), which this top five originator encounters, they required the flexibility offered by a non-template-based ADR (Automated Document Classification) and data extraction solution.

>>This solution offered pre-built mortgage logic, which “understands” the vast majority of the document types and variations that were required to be recognized. This solution allowed this originator to rapidly implement an ADR and data extraction solution for their specific needs.

The initial focus was to implement an ADR solution that supported more than 250 different document types and potentially hundreds of variations of each document type. The vast majority of the pages in a loan are now identified automatically with no human intervention. The remaining exceptions are presented to operators who either accept the first choice page type or choose an alternative.

This system is able to narrow down the page types that are lexically possible based on the text on the page. Because of this, in most cases, the operator can choose from a list of no more than five alternate page types. This reduces errors and review time in the verification process.

Upon production implementation of the ADR solution, the focus shifted to automatic data extraction. A list of more than 1500 fields was identified for the first implementation phase of data extraction. Both this project and the ADR work that preceded it were initially implemented in one of the originator’s major channels in order to ensure a wide variety of document sources and variations.

Today both of the projects described above are in full production. The amount of manual labor previously required for these tasks has been reduced significantly. Error rates are lower than the human processes that preceded implementation. The end to end processing time has been vastly reduced due to the fact that much of the human labor has now been replaced by lightning fast computer CPU cycles. Additionally, this top five originator has implemented sophisticated downstream mortgage lending business rules to take advantage of the valuable data generated by the new system.

This top five originator, like any other mortgage lender, is subject to a variety of time-sensitive requests such as internal audits. These audits require that specific data be tabulated from each loan file and reported to the appropriate entity. In some cases, the volume of loans included in these audits can reach into the tens of thousands, with a very limited response timeframe. With the system now in production, it is possible for this organization to be more agile than in the past. New data fields can be configured and tested in a few hours and a million images can now be interrogated for salient data overnight.

Additional capabilities leveraged successfully at this customer include:

>>Verification provides a list of likely document types to further increase speed of verifying exceptions.

>>Ability to customize how documents are handled based on the type of process to be conducted (e.g. origination, servicing, audit, etc.).

>>Ability to quickly recognize additional document types using the automated learning facility.

>>Database lookups and business rule logic checks to ensure the highest degree of data accuracy.

>>No scripting interface, with easily configurable rules to modify customers’ highly sophisticated ADR and data extraction processes.

>>Ability to add processor cores (including new servers) to the environment in a matter of minutes to quickly scale and meet tight deadlines or increased staffing demands.

Outcome

The project was successfully implemented and released to production on time. As a result of this experience with both the Paradatec staff and the Paradatec solution, this customer is prepared to act as a reference on behalf of Paradatec. Prospective clients are encouraged to take advantage of this opportunity.

Paradatec is rapidly approaching the significant milestone of processing 300,000,000 pages annually for this client alone. As a company, Paradatec processes several billion pages per year.

Paradatec’s solution is an advanced and unique OCR recognition technology. It utilizes neural networks technology and artificial intelligence and is able to read structured, semi-structured, and unstructured documents. It then makes ‘decisions’ about document characteristics in much the same way as a human being does— only many times faster and without human intervention.

Paradatec takes a very different approach from other OCR forms processing technologies in that it is a truly template-free design, allowing the system to easily cope with the varying layouts of each document. In performance terms, Paradatec is capable of processing thousands of documents per hour with a single processor. It provides even further scalability by offering seamless support for the latest in multi-core processor technologies and multi-server configurations.

Per Neil Fraser, Director, of US Operations, “To be chosen by such a high-profile client for a project of this size was a vote of confidence for Paradatec and our leading edge technology. I would encourage other similarly placed clients to reach out to Paradatec to setup a ‘One-Day Blind Test Challenge’. In just a day it is possible to see what this technology can do, right out of the box.”

About The Author

Mark Tinkham

Mark Tinkham is Director of Business Alliances at Paradatec, Inc. Over the past twenty-five plus years, Mark has worked for technology companies that deliver innovative solutions to the financial services industry. For the past ten years, his primary focus has been bringing efficiencies to the mortgage market through industry leading Optical Character Recognition (OCR).