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It’s Time To Change Course

For those of you that don’t know, I’m actually an English Major, with a great love of literature and theater. For the past 14 years I’ve been reporting on the mortgage industry, but before that I got my Master’s Degree in English and taught seventh and ninth grade. Covering the mortgage industry has ben an amazing adventure for me that peaked with me creating PROGRESS in Lending.

Why did I start this company? Because I felt at that time, and still do today, that the mortgage industry needs a place for thought leaders to come and express their ideas to encourage the whole industry to innovate, evolve and progress. Today I’m going to merge both the world of great literature and mortgage lending to make what I think is a very important point.

For those you that don’t know, Moby-Dick; or, The Whale (1851) is a novel written by Herman Melville in 1851. It is considered an outstanding work of Romanticism and American Renaissance. In the novel, Ishmael narrates the monomaniacal quest of Ahab, captain of the whaler Pequod, for revenge on Moby Dick, a white whale, which on a previous voyage destroyed Ahab’s ship and severed his leg at the knee. Although the novel was a commercial failure and out of print at the time of the author’s death in 1891, its reputation as a Great American novel grew during the twentieth century.

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D.H. Lawrence called it “one of the strangest and most wonderful books in the world,” and “the greatest book of the sea ever written.” In fact, “Call me Ishmael” is one of world literature’s most famous opening sentences.

The product of a year and a half of writing, the book is dedicated to Nathaniel Hawthorne, “in token of my admiration for his genius,” and draws on Melville’s experience at sea, on his reading in whaling literature, and on literary inspirations such as Shakespeare and the Bible. The detailed and realistic descriptions of whale hunting and of extracting whale oil, as well as life aboard ship among a culturally diverse crew, are mixed with exploration of class and social status, good and evil, and the existence of God.

In addition to narrative prose, Melville uses styles and literary devices ranging from songs, poetry and catalogues to Shakespearean stage directions, soliloquies and asides.

In the end of the story, Ahab plants his harpoon in the whale’s flank. Moby Dick smites the whaleboat, tossing its men into the sea. Only Ishmael survives. The whale now fatally attacks the ship. Ahab then realizes that the destroyed ship is actually the hearse made of American wood in Fedallah’s prophesy that was discovered earlier in the story. The whale returns to Ahab, who stabs at him again. The line loops around Ahab’s neck, and as the stricken whale swims away, the captain is drawn with him out of sight.

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In the words of scholars John Bryant and Haskell S. Springer, “Moby-Dick is a classic because it defies classification.” It is “both drama and meditation: it is a tragedy and comedy, a stage play and a prose poem,” they say, and add that it is “essay, myth, and encyclopedia.”

Now that I’ve probably put you to sleep talking about what others have said about Moby-Dick, I’ll come to the point. This is a tale of a great captain that is so blinded by revenge that in the end he perishes. Why? Because Ahab refuses to change course. I hope mortgage lenders learn a thing or two from this.

What do I mean? Many lenders are preoccupied with compliance. Surely compliance is important. However, if lenders don’t use the burden of compliance as a way to look at their whole process and actually improve it, I fear they will go the way of Ahab.

If we look at the new disclosure rule set to go into effect of August as an example, I fear that too many lenders see this as just a forms issue. It’s not. It’s bigger then that. Lenders need to look at each new rule as a singular rule, but also as a way to improve the way they transact business as a whole. Don’t be so blinded by compliance that you let it get the better of you and ultimately cause your demise.

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A Wakeup Call

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TME-TGarritanoThe mortgage process is still a mystery to many. ClosingCorp, a provider of residential real estate closing cost data and technology for the mortgage and real estate services industries, released the results of a nationwide survey which reveals that approximately two-thirds of Millennials, adults between the ages of 18-34, who plan to buy a home are unaware of closing costs. The survey also found that across all adult age brackets, more than one-third of potential homeowners are “Not Very” or “Not At All” aware of closing costs.

“Much has been written about Millennials because they are the largest generation so far in U.S. history, and their longstanding impact on the real estate market and economy is going to be huge,” said Brian Benson, CEO of ClosingCorp. “Their buying behaviors are much different than previous generations, and of particular concern to the industry is that they are waiting longer to buy their first homes.

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This study emphasizes the need to better educate Millennials, and really all consumers in general, on the real estate closing process. While interest rates are often the driving force in initiating a real estate transaction, the realtor, lender, title and other settlement fees also have a significant impact on the down payment and cash outflow from the borrower perspective. Not understanding how everything is related can be a real impediment for first-time homebuyers who want to get into the market.”

The “ClosingCorp National Closing Costs Survey” of more than 1,000 adults, also showed that most people learn about closing costs from realtors, or by doing their own research. In fact, Millennial homeowners are more likely to learn about closing costs from a realtor as opposed to a lender by a ratio of nearly two-to-one.

“This study is very interesting in that it shows Millennials are more dependent on realtors than previously presumed,” said Benson. “We know they are more tech-savvy than their predecessors, so we believe this really highlights the complexity of a residential real estate transaction. Whether they are researching a home on their own or getting help from an interested third party, the bottom line is that people need access to the correct information, and it needs to be simple for them to understand. With the upcoming changes to the disclosure process being made by the Consumer Financial Protection Bureau this August, we as an industry should be stepping up our proactive education efforts to ensure homebuyers are fully prepared to make the most significant financial transaction of their lives.”

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Closing costs are paid when a real estate transaction closes and the title to the property is transferred to the buyer. They typically equal 2 to 5 percent of the total purchase price of a home. The fees are incurred by either the buyer or the seller, and typically cover everything from appraisal, inspection and attorney’s fees to home warranties.

I find all of this very troubling. Borrowers shouldn’t be in the dark about closing costs or other parts of the mortgage process. The best way to improve this is to automate the origination process with technologies like e-signatures. For example, Capsilon has launched a new version of its flagship product, Capsilon DocVelocity, that includes support for the electronic delivery, signing and vaulting of borrower disclosures and other mortgage-related documents.

This new version of DocVelocity gives users the ability to automatically assemble disclosure packages and email them to borrowers to sign electronically. Borrowers access the new DocVelocity Signing Table, an intuitive user interface for electronic signing of mortgage-related documents, to provide consent to receive electronic disclosures and to review and e-sign the documents.  Compliant with the Uniform Electronic Transaction Act (UETA) and the Electronic Signatures in Global and National Commerce Act (E-Sign Act), the new DocVelocity electronic transaction capabilities further Capsilon’s vision of straight-through processing (STP) of mortgage loans by reducing the labor associated with printing, assembling, packaging and shipping documents that need to be signed by borrowers.

The DocVelocity E-Vault, a secure location where legally binding, authoritative copies of electronically signed documents and their related transaction documents are stored and managed, is also new in this latest release of DocVelocity. Fully integrated with DocVelocity, the DocVelocity E-Vault protects assets using robust encryption, time-stamps documents and wraps them with a tamper-evident sea, maintains an audit trail for every stored asset and controls access to these documents with customer-defined user privileges.

These new E-Signing and E-Vaulting capabilities also help lenders demonstrate compliance by providing tracking and evidence of electronic delivery, proof that disclosures were delivered within the required timeframes and support for the authenticity and non-repudiation of electronic signatures.

In addition to the new electronic transaction capabilities, this new version of DocVelocity includes significant enhancements to the document management and document workflow capabilities of DocVelocity. These document management enhancements include a myriad of new capabilities to speed the workflow required for Capsilon’s vision of straight-through processing of mortgage loans. These enhancements include:

>> The ability to assign tags to documents to enable richer contextual information about documents. Document tags provide structured data that can be leveraged for automation.

>> A new document review workflow that gives users the ability to review and mark documents as “Accepted.” Once accepted, the document is locked and further changes to the name or contents are prevented.  This ensures the integrity of documents throughout the workflow.

>> The ability to mark a document as a “Decision Document.” This identifies which documents were used for making underwriting decisions, speeds workflow and ensures loan integrity.

>> Document-level security that enables role-based access control to documents. The ability to view, sort and deliver specified document types, along with a number of other actions, is granted only to users assigned to specific roles.

“The pressure on mortgage lenders to reduce loan production costs while maintaining loan quality and compliance has never been greater,” said Sanjeev Malaney, chief executive officer of Capsilon Corporation. “Our goal is to deliver the technology that lenders need to realize an exception-based model of straight-through processing of mortgage loans, where up to 80 percent of labor is eliminated. This new version of DocVelocity delivers on that promise with support for electronic transactions and improved document management and document workflow capabilities that speed loan turn times and reduce labor-related loan costs, while ensuring compliance.”

This new version of Capsilon DocVelocity is expected to be available to customers in the second quarter of 2015. Current DocVelocity customers can access the new product features as part of their SaaS subscriptions, though some new features and services are available at an additional cost.

The bottom line is that we all have to do our part to make the mortgage process better.

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The Roundabout Mortgage Process

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TME-RGudobbaLast month I talked about embracing change and why we are so uncomfortable with change. We like to stay in our comfort zone. We are slow to adapt, but once we understand the proposed change and recognize the benefits, we can’t change fast enough. Let’s look at an example outside the mortgage industry.

Traffic circles have been part of the transportation system in the United States since 1905, when the Columbus Circle designed by William Phelps Eno opened in New York City. Subsequently, many large circles or rotaries were built in the United States. The prevailing designs enabled high-speed merging and weaving of vehicles. Priority was given to entering vehicles, facilitating high-speed entries. High crash experiences and congestion in the circles led to rotaries falling out of favor in America after the mid-1950’s.

The modern roundabout was developed in the United Kingdom to rectify problems associated with these traffic circles. In 1966, the United Kingdom adopted a mandatory “give-way” rule at all circular intersection, which required entering traffic to give way, or yield, to circulating traffic. This rule prevented circular intersections from locking up, by not allowing vehicles to enter the intersection until there were sufficient gaps in circulating traffic. In addition, smaller circular intersections were proposed that required adequate horizontal curvature of vehicle paths to achieve slower entry and circulating speeds. These changes improved the safety characteristics of the circular intersections by reducing the number and severity of collisions. Thus, the resultant modern roundabout is significantly different from the older style traffic circle both in how it operates and in how it is designed.

In the United States modern roundabouts emerged in the 1990s. They faced some opposition from a population mostly unaccustomed to them. Americans were confused about how to enter and especially how to exit a roundabout. By 2011, however, some 3,000 roundabouts had been established, with that number growing steadily. Surveys show that negative public opinion reverses as drivers gain experience with them. A 1998 survey of municipalities found public opinion to be 68% opposed prior to construction; changing thereafter to 73% in favor.

The fundamental principle of modern roundabouts is that entering drivers give way to traffic within the roundabout without the use of traffic signals. Traffic circles typically require circling drivers to give way to entering traffic. Generally, exiting directly from the inner lane of a multi-lane roundabout is permitted, given that the intersecting road has as many lanes as the roundabout. By contrast, exiting from the inner lane of a traffic circle is usually not permitted without first merging to the circles outside lane. Roundabouts have been proven to safely decrease traffic delays and congestion. When selected and designed correctly, roundabouts can handle a high volume of traffic, including commercial trucks and large emergency vehicles. The single greatest benefit of roundabouts is that they eliminate perpendicular/T-bone crashes. Roundabouts can cost less than traditional signalized intersections.

So, how does this relate to the mortgage industry? Let’s start by looking at a condensed view of the current loan process. It typically has been a sequential process with the next step not started until the previous step is completed. Look at it this way:

  1. Origination: After the loan application, we start the process of validating the information, ordering the services, such as appraisal, flood, credit report, and underwriting. We produce the appropriate disclosures and the new loan estimate. Assuming the loan is valid and approved, we move to the next step.
  2. Closing: We produce the appropriate legal documents, such as the note, security instrument and the new closing disclosure in collaboration with the settlement agent. We schedule the signing ceremony with the consumer(s).
  3. Post-closing: We record the security instrument at the county, register the note at MERS (assuming it’s an e-mortgage). Lastly, we sell the loan on the secondary market, if it is not retained in-house.
  4. Servicing: Set up the loan for servicing, either in-house or to an outside servicer.

I realize this is a very simplified rendition, but what stands out is the interactions between the consumer, lender, loan officer, numerous service providers, closing agents, investors, county recorders, servicing, etc. and the documents and/or data that is exchanged.

So let’s use our creativity. Imagine the loan process as a roundabout. The center could be the repository and system of record. The parties in the process would be represented as lanes connecting to the center. The road in would be the request and the road back would be the response. The lanes around the center would serve as the link between the parties.

This is very IMPORTANT. This architecture is predicated on the full use and compliance with the MISMO V3.x standards for data and documents. The data is essential for the receiving party to electronically analyze, validate and make decisions based on the result. Documents by themselves may require some manual intervention. The ultimate goal is when the data and documents are combined (SMART documents). Let’s look at the contributing parties and what might be different with this architecture.

  1. Consumer: Today’s consumer wants to do business online. They want the capability to research and understand the mortgage process. They want to analyze and compare the metrics of different loan options. The robustness of the lender’s offering will either ensure a loyal customer or lose him to a competitor.
  2. Lender: As more of the processing functions (appraisals, verifications, etc.) are automated, the lender should see a significant reduction in the time and effort to approve a loan application.
  3. Service Provider: The advantage of the request/response model based on the MISMO standard is that you can access multiple vendors with the same integration.
  4. Settlement Agent: This will be one of the most challenging areas for collaboration between the lender and settlement agent. It is imperative that they get it right.
  5. County Recorder: The volume of eRecordings and eNotarizations will continue to grow. 20% of the counties account for 80% of the transactions. The challenge is with the other 80% of counties. A paper process will probably be in effect for some time.
  6. MERS: The adoption of the earlier MISMO V1 Smart Doc has been slow due to the unique characteristics of the document compared to the other documents in the loan package. Hopefully, MERS and the GSE’s acceptance of MISMO V3 documents will improve adoption considerably.
  7. Servicer: They have struggled in the past with re-finances. Having a complete loan package available and a connection back to the origination process will improve that process.
  8. Secondary Market: The investors are anxiously awaiting the ability to get a data-laden loan package so they can independently analyze the loan before making a purchase commitment.

I did not address the LOS vendors in this scenario, but it’s conceivable the same process could be accomplished in their solutions. See what I mean? I bet you never thought to compare our business to traffic. My point in writing this is that we have to all think differently about this process if we are ever going to improve it.

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Don’t Make Mistakes

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TME-TGarritanoThese days lenders just can’t afford to get it wrong. Big brother is watching. There are too many new rules that are hitting the mortgage industry, and regulators are keeping a close eye on what lenders are doing.

For example, with heightened regulatory and media focus on Home Mortgage Disclosure Act (HMDA) data, more lenders will find themselves the subject of fair lending exams, according to Mortgage TrueView, a provider of data-driven business intelligence services. In a new independent study, the company found that many lenders are leaving themselves vulnerable to fair lending exams and significant penalties by not properly monitoring and managing HMDA reporting.

Mortgage companies and banks are not taking full advantage of the insights offered in HMDA data, said Mortgage TrueView President and CEO David Moffat. Additionally, Moffat said the company’s 2013 HMDA survey showed that many lenders are submitting their data with formatting errors, which could lead to non-compliance issues with regulators.

Specifically, the HMDA Survey and Case Study, Volume II: 2013 HMDA Data Insights details Mortgage TrueView’s findings based on 2013 HMDA date collected from nearly 400 of the country’s lenders, including seven of the top 10 lenders and 15 of the top 20 lenders.

Among the key findings:

>> 2013 regulatory risk indicators show a 13% year-over-year increase in loan denial rates

>> Denial rates for white applicants increased from 17% to 21%, while denial rates for non-white applicants increased from 23% to 28%

>> Denial rates for Hispanics increased from 25% to 30%. Denial rates for non-Hispanics increased from 18% to 21%

>> Denial rates for female applicants increased from 21% to 26%. Denial rates for males increased from 17% to 21%

For its survey, Mortgage TrueView requested the 2013 public loan application register (LAR) filings from the top 1,160 mortgage originators in the country. Notably, Mortgage TrueView found that a sizable number of the 388 respondents had critical errors in their filings, including missing data fields, incomplete data fields, incomplete records and incorrect data formats.

Another area of mortgage lending that is under increase scrutiny is the appraisal space, and lenders aren’t getting it right in some cases. “When lenders try to do their own appraisal assignments, they end up getting the wrong appraiser matched to the wrong property in some occasions,” said Alice Sorenson, Chief Investment Officer of LRES. “As a result, you end up with an appraiser who is asking more questions than should necessarily be needed, and the lender ends up with a longer turnaround time, which prolongs their ability to generate the loan.

“Lenders also use appraiser trainees or may not recognize when an appraiser trainee is being used by an appraiser. Why is that important? Depending on how well that trainee is supervised, it will drive the quality of the information that is put into an appraisal and then the lender could end up with a bad appraisal if that appraiser doesn’t catch the trainee’s error or if a lender doesn’t have the audit capability to perform and confirm that all compliance issues are being followed. I’d say that insufficient oversight is one of the biggest causes of lenders increased costs and ultimately, of course, consumer cost,” Sorenson pointed out.

LRES is a national provider of commercial and residential valuations and asset management for the mortgage, banking, credit union and real estate industries. Earlier in the year the company upgraded its DirectConnect framework, which enables a user’s technology to seamlessly connect with the LRES LINK proprietary order management platform to optimize and accelerate the valuation ordering process.

The latest version of LRES DirectConnect reduces the time for successful systems integration from 4-6 months down to 2-4 weeks. This release is flexible enough to connect any financial institution to any third party provider of appraisal and property valuation services. It also provides users collateral valuation reports as well as the supporting data in the MISMO industry-standard format.

Other industry players like Advantage Systems, agree that some lenders are not paying close enough attention to simple processes to ensure total compliance in all cases. “The right procedures have to be in place to make sure that these amounts for paying appraisers, or any reimbursables, are captured quickly and that they have the right technology in place to make sure that they’re seeing when these things are coming up,” noted Brian D. Lynch, the Founder and President of Advantage Systems. “So, being able to look at a report quickly and see who’s behind in their payment or whatever, so that you can take care of it quickly is essential.”

Advantage Systems is a provider of accounting and contract management tools for the mortgage banking and real estate development industries. Last year the company noticed a 20% increase in sales for its Commission Calculator Module. The Commission Calculation Module enables lenders to automate the calculation of commissions and bonuses in both retail and wholesale environments and utilizes the loan-level accounting capability of AMB software to minimize user input and increase accuracy. This eliminates the time and cost associated with manually calculating commissions. The technology enables users to set up commission calculations by loan officer and loan type as well as calculate bonuses monthly, quarterly or annually.Lenders can also choose to implement Advantage Systems’ web-based Loan Officer Reporting Module, which gives loan officers the ability to access their commission reports using an Internet connection.

“Lenders need to isolate their pain points and put the proper procedures and technology in place to eliminate errors. You can’t just throw spreadsheets and bodies at it these days,” said Lynch.

In general, according to Greg Marek, Chief Marketing Officer of Capsilon, the industry has a data integrity issue. “The most common types of errors that we’re seeing really all point back to data integrity or data quality. Lenders are making underwriting decisions and investors are making loan purchase decisions based on information that is, in many cases, out of date.”

How does this happen? Marek says that some times underwriters rush it to clear the pipeline. “Underwriters are not necessarily doing the type of rigorous audits that they need to do on the loan file before they underwrite or sell to an investor. One specific example of how this happens is they may be using expired documentation to make underwriting decisions, so the borrower may be providing investment statements or bank statements that are stale. The documentation is outside the window according to the lender’s guidelines, but there’s no time to get the right documents, so someone might not have verified the date, and therefore they’re making calculations based on data provided that may or may not be as accurate as it could be.”

To this end, Capsilon, a provider of document imaging for mortgage lenders and investors, released a Network Delivery capability, which enables users to deliver secure and compliant loan packages to leading GSEs and financial institutions. Users of Capsilon’s DocVelocity product can now deliver a single or group of loan packages for batch delivery to seven flagship institutions. Four supported major investor institutions include Chase, Citibank, Flagstar Bank and Wells Fargo Bank. Three supported government institutions include Fannie Mae, Freddie Mac and the Federal Housing Authority. With a single click, loans are sent directly to these institutions according to their prescribed formats and protocols. DocVelocity’s quality control features provide more efficient selection, mapping, translation and tracking of mortgage documents to ensure accurate and on-time delivery of quality loan packages. Using DocVelocity delivery, the correct documents are selected, properly named and reflect the desired stacking order.

The bottom line is that every area of a lender’s business has to be more controlled, even marketing, says Jim Blatt, CEO of CRM provider Mortgage Returns. “Given the amount of regulation that applies to how disclosures are made, what type of marketing and advertising is permissible and what isn’t, sharing of fees among clients with RESPA or sharing value of cobranded advertising, lenders have to have a tightly controlled marketing system, where everything is centralized and locked down. We see almost all of the good lending companies trying to consolidate marketing activities to control them better, and those that are not taking those actions are certainly putting themselves in a scary spot.”

Really any lender that is not relying more on technology to eliminate errors around things like appraisals, data integrity, marketing and a host of other functions is choosing to do so at their own risk.

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It’s About The Consumer Pt. 2

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TME-RGudobbaLast month, we looked at how the automotive industry as a whole responded to their challenges. They made improvements to their process and required their third-party suppliers to adhere to the same standards. They made improvements to the overall quality and efficiency of their product offerings. They made major commitments to enhance safety. They focused on the consumer and leveraged technology in ways not thought about just a few years back. Certainly, some of this was driven by government intervention and regulations. But, you can’t ignore the fact that the automobiles today are significantly better in all areas then what was produced in the past.

What can we say about the mortgage industry? Let’s start with an overview of the current market conditions. Doug Duncan, Chief Economist at Fannie Mae recently said, “The housing recovery continues to proceed in fits and starts. Rising mortgage rates and a lack of supply have dampened housing market momentum. Those who still harbor doubts about housing, tend to point to economic conditions as the primary issue.” The National Association of Realtors (NAR) annual survey showed the top response was the consumer’s desire to own a home and the desire to own a larger home came in a distant second.

What can we say about homeownership? According to Redfin, National home prices have experienced double-digit increases the past two years. In contrast, inflation-adjusted median household income is nearly the same as it was 25 years ago. “I don’t think people have necessarily stopped dreaming about homeownership; I think many are facing a nightmarish set of marketplace realities making that dream hard to realize,” said Rick Sharga, former mortgage company president and current EVP at Auction.com Those harsh realities can be boiled down to two key structural challenges, according to Sharga. “Wage stagnation, particularly in the middle class, and stringent new lending rules.” In three recently completed focus groups, Tom Ward, founder of Path2Buy Homeownership Coaching Program, discovered their top two home owning concerns are the status of mortgage interest and real estate tax write-offs and uncertainty about whether the value of the housing market will ever appreciate as it once did. Historically, the first-time buyer accounted for nearly 40% of all residential purchase transactions. But that number is trending downward.

First-time homebuyers are concerned: Do I buy or do I rent? A recent series of articles in The M Report covered this segment. Analysts at Realtor.com compiled a list of cities across five categories that have the biggest impact on buyers new to the market: list price affordability, time on market, employment rates, supply of inventory and location. Steve Berkowitz, CEO, explained how these market economies can expect to benefit from the crucial first-time buyer. “First-time buyers have a widespread impact on the local housing markets. In transitioning from renters to owners, new buyers pay property taxes and other fees and taxes associated with homeownership that benefits local services and services.”

“The focus needs to shift back to what it was when our parents made the decision to buy a home. Shelter and a place to raise a family were the primary concerns. If house prices go up, then it’s a bonus; it’s not automatic. Build equity the old fashioned way, one month at a time. If you take a 30-year fixed-rate loan, eventually your payment will be less than your rent, since that increases every year.”

Looking at loan origination in a new light. I have known Garth Graham, from the Stratmor Group, for many years and always found him to be very insightful, imaginative, inquisitive and entertaining. His recent article, “Why Can’t Mortgages Be More like College Admissions?” is a great example. His article states, Today, college applicants have something called the “Common App,” which allows the applicant to put in all of the pertinent information, your rough GPA, your class rank, extracurricular activities and then it automatically pulls in your SAT scores, in one place. Any college that accepts that is one click away from your application. Imagine what it would be like if mortgage banking worked that way. You could put all of your information into a common online app—your income, your assets—and the system then pulls in your credit score. So, in the perfect mortgage application process, the borrower could press a button and send out all the data, saying “I want to apply to these specific lenders.” Those lenders would then, through whatever process they choose, provide an answer. And we, by the way, are nowhere near that at this point in the mortgage industry.

In a follow-up article, Garth wrote, “Several folks commented that we already had automated decisioning in the form of the agencies’ automated underwriting engines (DU and LP) and therefore that my concept was not that radical.While it is true that we have a standard data set that we use for automated decisions through DU, what we don’t do is allow consumers (with or without help) to fill out one data package and submit it to multiple lenders. Instead, consumers are being forced to use a different interface for each lender, who then creates a single data file to submit to the AUS for a decision.”

Looking at the technology of the future homebuyer. Garth goes on to say:“The common application method used by colleges is not their only impressive use of technology.First off, every school uses email and text to communicate status, and encourages you to create an online account to monitor your status. I am still amazed at how many mortgage companies still don’t do this, or when they do they use mortgage jargon instead of real worlds to describe your status. Of course, many of these colleges are competing for the attention of a different generation of users, so they use email, text and social media to communicate. And guess what happens when this generation graduates, gets jobs, saves up money and wants to buy a house? They are going to expect that lenders are going to communicate with them this way, too.”

There are some positive signs that the industry is moving in the right direction. A recent article in the M Report stated, “According to the JD Power 2013 U.S. Primary Mortgage Origination Study satisfaction across the industry increased for the third year in a row. The study ranks originators by taking into consideration four factors: application/approval process, loan representatives, closing and contact with lenders.

Of note is the fact that Quicken Loans earned the highest ranking for the fourth year in a row.” Personally, I believe it is because of their focus on the consumer. Next month, we will continue this discussion.

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Quality Comprehension

Recently the president of a small mortgage company posted that his staff had successfully processed loans from origination to closing in just over 16 days. He included in his posting a picture of the measurements he used to track the production process. While I applauded his company’s achievement in completing loans in 16 days, I asked, well-intentioned, where his quality measures were and pointed out what I thought was self-evident, that speed does not automatically equate to good loans.

The response was immediate and derogatory. How dare I question the quality of his loans and besmirch the good name of his company. Other staff members responded in kind and blasted me for even implying that they did not produce good quality loans. But really, how do I or any investor know if these loans met the guidelines for origination, underwriting or closing based on the fact that they were done in 16 days?

Since 1985 when Fannie Mae first began requiring that companies have a quality control program, the industry has failed to comprehend what quality is all about. Oh, we use the word incessantly with every piece of the operation from “quality” loan officers to “quality” delivery, yet management appears to have a very poor understanding of what it is all about. I continue to hear from friends and colleagues regarding their frustrations about the lack of any useful information coming from the process and the continuing rising costs associated with it. Even with the more recent shift of Fannie Mae, Freddie Mac and FHA’s Quality Control programs to incorporate a “manufacturing” approach to testing for quality, the underlying program remains the same.

It is all about the checkers checking the checkers who already checked the checkers. How else can you describe a requirement for pre-funding review immediately before closing, a post-closing audit with lots of discretionary reviews and a 100% review of these same loans that are sold to the agencies? Based on what is required today, the output of QC is not to ensure the process is working properly but to CURE the bad loans found so that the customer can’t force repurchase. Of course, this doesn’t do anything for the bad loans that aren’t found, stop more bad loans from being made or really stop a repurchase.

Today’s process reminds me of the executive of a flashlight manufacturing company whose product was very pricy because it was highly rated for quality. When asked how he did it the CEO replied that he inspected every flashlight that came off the assembly line and if it had a problem it was sent back to be fixed. “How many have to be sent back?” inquired the reporter. “About 50%,” the CEO replied. “Why do you think I have to charge so much for the darn things?”

While many mortgage executives will continue to “curse the darkness” that is today’s QC, some CEOs will hopefully begin to light some candles. The agencies have gone on record, saying for the first time, that the program they prescribe is not the only way and are encouraging lenders to find methods that work for them. A good start to that would be to recognize that quality control is not about the loans but about the process. If the process works correctly then loans produced in 6 days, 26 days or 60 days will be quality, and there will no longer be the need to spend money “curing” the problems. Once people begin to comprehend what quality is really about, there will be no need to ask for quality measures.  They will be front and center of every good lender.

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Credit Union Sees Big Growth

Richland, Wash.-based HAPO Community Credit Union (HAPO), with 1.2 billion in assets and over 109,000 members, has increased its loan origination and processing with the Velocity loan origination solution from Fiserv. This tool supports consumer, business, home equity and indirect loans all on the same platform, and integrates all of the essential system components required for lending success, including loan origination, decision support tools, workflow software and image capture capabilities.

An enhanced version of Velocity, Velocity 3.0, is currently in beta testing and will include improved system administration capabilities and improved data mapping of forms and standardized interfaces. “HAPO has built a reputation for making good loans to good people and the Velocity platform has given us greater control in offering a smooth, efficient lending process to our members,” said Scott Mitchell, Chief Lending Officer at HAPO. “We use the system to support multiple loan types, such as boats, RVs, secured lines of credit and dealer direct auto financing.

“The customizable workflow tools allow our staff to tailor the processes that work best for our organization. We’re also looking forward to deploying Velocity 3.0, which will provide the foundation for additional self-service options in our lending operation,” he concluded.

“Credit union employees often have to wear many hats, and HAPO is committed to delivering exemplary service to its members across each of those experiences. With Velocity, HAPO has been able to provide superior member convenience by eliminating manual steps throughout the origination process using just one system to support a wide range of loan types,” said Kevin Collins, president, Lending Solutions, Fiserv. “Velocity has the capabilities credit unions such as HAPO need as they adjust to the current loan origination landscape.”

Velocity is a pre-configured solution with features designed for small and mid-tier credit unions and community banks seeking to grow their business. Velocity simplifies and expedites loan closing and provides greater control over business operations by integrating with numerous account processing systems and an extensive array of third-party applications.

Don’t Sit Back

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TME-TGarritanoYou know what they say: quitters never win. Sure, the compliance burden is increasing. Sure refinances are decreasing. Sure the cost to originate is increasing. To some this may all be bad news, but to the opportunistic lender this is a chance to grow.

How you might ask? First, you have to find a way to capitalize on the purchase market. “We’re looking at the evolution of technology from a marketing standpoint,” said Robin Blatt, the Director of Marketing at St. Louis-based Mortgage Returns, a provider of database-driven, CRM and automated marketing solutions for the mortgage industry. “When you think about it, technology can enable lenders to thrive in a purchase market. Here at Mortgage Returns we are trying to recommend to our clients to focus on their past customers as a great source of new business, both purchase business and for referrals.”

To this end, late last year Mortgage Returns enhanced its technology and services to enable mortgage originators to maximize their return on investment by marketing more effectively to their customers, prospects and referral partners. Enhancements enable mortgage originators to automatically upload new customers and prospects from the LOS directly into Mortgage Returns; order direct mail straight from Mortgage Returns’ new Storefront marketing solution; reach Spanish-speaking customers with one-to-one direct mail and email marketing; create company, branch and loan officer websites; and gather valuable feedback on the mortgage company and its loan officers through a post-close email survey for borrowers and realtors.

“We are trying to keep our clients really laser focused on the business they can get from the clients that they currently have is a big part of succeeding today,” added Blatt. “And with technology you can use methods like one-to-one messaging so you are marketing directly to a particularly clients about their loan, with unique messages sent directly to them. In the end, strategies like this are helping strengthen that relationship and a sophisticated technology enabled that to happen. You need to get more business from your past customers and keeping them close.”

A clear challenge for most lenders is knowing when it’s time to embrace new technology like a CRM solution, a new LOS, etc. “What we see happening in the market today is that lenders chose a given technology solution in order to solve a specific problem,” noted Steve Wiser, CEO of Cleveland-based Specialized Business Software, a provider of custom software solutions for insurance, mortgage and financial services companies. “At the time that’s great, but we all know one thing about problems, is there are always new ones popping up and old ones are continuously changing. In the any industry, problems continuously evolve and it can be hard for software systems to adapt to so much change over time. I think that’s a big issue that you run into when you are using older technology.”

Specialized Business Software experienced a lot of growth last year. Specialized Business Software attributes this growth to increased awareness within the financial and insurance industries about the benefits of automated custom software and a large number of repeat customers who value being able to reduce the time it takes to complete basic business processes by as much as 90 percent.

Specialized Business Software also released two new products in 2013. Docunym 2.2 is an enhancement to its Web-based document management and workflow solution, which helps users manage and retrieve mortgage loan documents faster and more efficiently. The X12 EDI Translator is a Web-based solution enabling mortgage servicers and insurance tracking companies to translate insurance policies from the X12 format into a more readable form, which eliminates the need to develop and maintain an internal electronic data interchange system.

“Another force that we’re seeing in the mortgage space is that lenders are looking to incorporate technology that they can roll out to the consumer,” pointed out Wiser. “Borrowers are used to dealing with their apps and their websites. As a result, these borrowers are expecting ease of use and they’re expecting that from all of their business partners, as well. And if you can’t provide that as a lender, you’re going to get left behind. I see this as a new phenomenon. Borrowers are evolving with new technology and that’s something that is never going to change.”

Another way that lenders are growing their business these days, aside from incorporating new technology and reaching out to borrowers more, is by acquiring new branches. “We are seeing a fair amount of growth coming through branch acquisition, and actually technology can play a major role in helping the lender the battle for those branches, “part of that is that the technology can help you win that battle for those branches, there’s a lot of that going on out there for branches.,” reported Brian D. Lynch is the Founder and President of Irvine, Calif. -based Advantage Systems, a provider of accounting and contract management tools for the mortgage banking and real estate development industries. In this position Lynch is responsible for managing the company’s day-to-day operations, and guiding the company’s strategic direction.

“With technology you can put real power in the hands of the branch person, and that’s attractive to them,” continued Lynch. “A lender can offer things like Web-based reporting, which might make the difference in terms of that lender’s ability to get that branch’s attention. There’s a lot of competition for good acquisitions today, so lenders have to stand out.”

From a lender’s point of view, growing in this market comes down to competitiveness, according to Dan Jones, Vice President of Technology for Churchill Mortgage Corporation, where he manages their enterprise technology infrastructure, operating platform, programming and web initiatives. Based in Brentwood, Tenn., Churchill Mortgage is a prominent and financially sound leader in the mortgage industry, providing conventional, FHA, VA and USDA residential mortgages across 30 states.

“I think competitiveness sums it up,” he says. “You can attribute growth to multiple things, whether it’s competitiveness to bring new people on board or competitiveness to retain your top performers, whether it’s your business and your market share, whether it’s bringing new customers on board or retaining customers, it’s really all the same in the end. Unfortunately sometimes it’s the pretty things that people latch on to, so we ask distracting questions like: Is my app prettier than your app? Is my website prettier than your website? So, as we as lenders move or don’t move to new technologies, a lot of times it comes down to training our people to use these new tools effectively. If you don’t get your people excited to use the technology to get that competitive spirit going there will always be another lender out there ready to pay that staff member more money and offer them a prettier technology to work with.

“The bottom line is that if lenders want to grow, they have to figure out how to enable their folks to engage better, whether it’s figuring out how to enable customers to do business with us better, whether it’s how to enable our operations staff to work more efficiently, that’s the key. The successful lender should always be looking for new ways to enable its business to get better across the board. Don’t be content to stay as you are today. That just won’t work,” Jones concluded.

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You Just Have To Do It

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TME-TGarritanoLet me tell you a story. I’m a married man with two sons. If you read this column regularly, you might feel like you know my family because I talk about them often. Guess what, I have another family story to share with you.

Right now we have a little Yorkshire Terrier. He’s little in stature and big in personality. He rules over the house demanding everything from food, to teats, to regular belly rubs. My wife and my youngest son have decided that having one dog isn’t enough. Being that I’m the one that is saddled with doing most of the work associated with the dog we have, I wasn’t easily swayed. I had to be convinced.

However, in the end, I caved to popular demand. As of this writing, the dog is on the way. He’s an 11-week old Maltese. I have to confess, he’s pretty cute. Now I’m prepping the house and getting as much sleep as possible in preparation for the new edition. Why am I telling you this story? Getting a new dog, especially a puppy, is a big transition. At first I wasn’t open to the idea, but after seeing how much my family wanted this puppy, I’m now very excited to welcome him to the family.

Looking back, I wasn’t too happy to get our current dog. I thought to myself, this is going to be an added burden. Now, I can’t imagine the house without him. I know this new dog will bring just as much joy. I think lenders often feel the same way about leaving behind paper processes in favor of automation. They see the paper processes as comfortable and the new technology needed to eliminate them as a burden. In the end, though, once you get that new technology you find that it brings huge benefits.

“Automation in general is going to create the opportunity to do more,” said Brian D. Lynch, the founder and president of Irvine, Calif. -based Advantage Systems. “In our world, which is the accounting world, if people are bogged down doing transactions just to get month-end work done, they really don’t have the time to analyze those transactions. With the automation capability in our system we’re importing transactions and we relieve the burden from people. People shouldn’t have to go through each file. In the end, automation gives them a chance to do more in terms of analyzing the data, looking at profitability by loan, by loan type, by loan officer. It just opens the door to do a lot more.”

Advantage Systems is a provider of accounting and contract management tools for the mortgage banking and real estate development industries. In this position Lynch is responsible for managing the company’s day-to-day operations, and guiding the company’s strategic direction. Lynch has more than 30 years of experience in the accounting industry.

Prior to founding Advantage Systems, he worked as an auditor for Arthur Young & Co., an international public accounting firm, and as a senior internal auditor with SmithKline Beckman, a multi-national pharmaceutical firm. After joining a consulting firm that provides computer software and hardware solutions, Lynch became involved with the CONTRACK software package to handle project management and accounting needs of real estate developers. Lynch formed Advantage Systems in 1986 to market CONTRACK. The solution was tailored in 1991 to meet the loan-level accounting needs of the mortgage banking industry, thus creating Accounting for Mortgage Bankers (AMB).

“If you have a systematic and automated approach then you have a degree of consistency that you can rely on,” Lynch argues. “I think as a business manager, having the competence that those areas are taken care of is a huge relief, then you have a lot more confidence in the system. On the cost side, again for the accounting world that I live in, without automation you’d be looking at much increased audit costs. The cost it takes to audit with the labor-intensive approach where you’re using a spreadsheet is much greater than if you had a systematic approach.”

“When I think about automation, I think about the obvious pick up and efficiency and compliance benefits,” added Sanjeev Malaney, co-founder and chief executive officer for Capsilon. “Technology standardizes your processes and makes more predictable output and a more predictable result for your business. We speak often to the operational efficiencies that we can create. But I think in today’s market, with more lenders chasing fewer deals, I think the opportunity cost is really where they need to focus on. If somebody can fund a loan in an hour versus two days, you are never going to be able to garner any market share.”

Capsilon is a provider of cloud-based document sharing, imaging and collaboration solutions for businesses. Capsilon’s technology facilitates both internal and external collaboration by connecting virtual workspaces and enabling transaction participants to work together in real-time, reducing the time and cost associated with paper and electronic alternatives.

In January 2013, Capsilon acquired DocVelocity, a document imaging distributor of Capsilon’s technology, from Flagstar Bancorp. Following the acquisition, the company adopted the DocVelocity name for its imaging system. Capsilon has continued to update DocVelocity to provide increased productivity and flexible access for customers. The updates offered throughout last year included batch delivery of loan packages to investors and service providers, improved performance and automatic updates for the Desktop App and camera capture for the DocVelocity Mobile App. In addition, Capsilon now offers users of DocVelocity access to a variety of educational classes designed to train them how to more successfully manage and process their mortgage documents.

Capsilon introduced new Network Delivery capabilities that enable DocVelocity users to deliver secure and compliant loan packages to leading GSEs and financial institutions in December 2013. Lenders can deliver a single loan package or a group for batch delivery to Chase, Citibank, Flagstar Bank, Wells Fargo Bank, Fannie Mae, Freddie Mac and the Federal Housing Authority according to their prescribed formats and protocols. The company also opened new offices in Troy, Mich. and Irvine, Calif. to better manage growth.

The reason why good vendors are growing is because they are introducing new forms of automation that lenders are adopting with huge success. For example, lenders are finding huge ROI associated with mobile computing, says Brad Durrer, mortgage operations manager at Wipro Gallagher Solutions, which provides end-to-end lending solutions to financial institutions.

“We find more and more mobility access is paying off for lenders. We’re working that into secure connections within the loan origination process,” reported Durrer. “Providing our customers the ability to have mobility solutions that they can funnel out either through their loan officers, or through to their customers in general is one area where we’re finding automation is an advantage for our customers today.

“Lenders need consistency across the entire value chain, whether that’s with buys backs and secondary marketing or whether it’s just in your operations. You just have to automate.”

And if lenders don’t automate, they’re losing out during a time in the history of the mortgage business where you just can’t afford to lose out.

“If lenders choose not to automate, they’re losing out on the efficiency,” noted Walt Thomasson, the managing director of College Station, Texas-based Rentsys Recovery Services. “Lenders are limited in resources, so the more efficient that you can become using technology and software to automate these processes, the company just becomes better.”

Rentsys Recovery Services is a provider of a provider of disaster recovery services for banks, credit unions, mortgage lenders and other organizations. In his position, Thomasson is responsible for providing the strategic direction of the company. Thomasson has more than 21 years of experience in the information technology industry, and founded the company in 1995 to offer organizations with a complete range of disaster recovery solutions.

“You need to take a step back and really think about your process,” concluded Thomasson. “Leadership really has to step up and let the experts that are there run through their processes and training to look for improvement. If you don’t have that culture in place, you probably don’t’ have the tools in place to handle the problems that will undoubtedly arise.”

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It’s Time For Lean Lending

Have you ever got out of bed and wished you could just go back to sleep? I’m sure that you have. We all lead busy and stressful lives. But the best of us move on and strive to be better every day. Here’s how one LOS is doing just that:

LendingQB, a provider of end-to-end loan origination software (LOS), has officially launched its Lean Lending strategies for the mortgage industry. Lean Lending utilizes lean manufacturing principles to help lenders reduce origination costs by up to 50%. Lean Lending guides lenders to streamline processes, ensure compliance, and drive continuous organizational improvement.

>> Streamlining processes by reducing costs by consolidating or eliminating certain functions. For example, lenders create a dedicated team to handle disclosure and re-disclosure activities instead of requiring a large staff of loan officers and processors.

>> Ensuring compliance by flagging compliance issues early in the process.  For example, a GFE Tolerance Monitor flags changes and detects when fees break the 10% tolerance, which prevents the loan from proceeding with a GFE tolerance violation.

>> Continuous improvement by LendingQB working with the lender to ensure that they’re fully utilizing the LendingQB platform.  For example, LendingQB will review and re-train the lender’s staff on the latest technology at no additional cost.

“It can take up to 3 years for lenders to understand a new LOS platform and create the best practices to take advantage of new technology,” said Binh Dang, LendingQB president. “LendingQB can shorten the learning curve to just 6 months by providing a lean set of best practices.”

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