An Innovative Partnership

We’re closing in on the deadline for our Innovations Awards. If you have not gotten in your application yet, the deadline is this Friday. Apply HERE. In the interim though, I want to continue to write about what I think are innovative companies and partnerships. To that end, I just heard that a la mode’s Mercury Network, the leading appraisal management platform, and Platinum Data Solutions, a provider of collateral valuation and risk assessment technologies, have announced an agreement to integrate Platinum Data’s RealView appraisal quality tool into Mercury Network’s Appraisal Quality Management (AQM) system. Here’s the scoop:

RealView uses business intelligence to analyze and validate appraisal data in context with neighborhood information gathered from a database created from public and private sources.

More than 600 of the nation’s lenders and appraisal management companies (AMCs) use Mercury Network to manage more than 20,000 appraisal deliveries in compliance with burgeoning regulations and investor requirements.  Those customers, as well as the thousands of lenders and AMCs receiving appraisals via Mercury’s DataCourier service, will have integrated access to Platinum Data’s RealView from directly within their core appraisal management platform.

“This integration gives Mercury Network’s users more options to keep pace with the new quality control requirements,” said Phil Huff, CEO of Platinum Data. “Smart lenders know that if GSEs are using their technology to QC appraisals, they had better follow suit. Mercury Network users will have fast, easy access to a lender-focused version of the type of technology that GSEs have created for their own use.”

“Mercury Network is a central dashboard for efficiently and compliantly managing all aspects of a lender or AMC’s appraisal operations,” noted Jennifer Miller, president of Mercury Network.  “Each organization has their own quality assurance benchmarks, and their own workflow and automation needs.  We’ll continue to integrate the tools they request, so that Mercury Network is their centralized appraisal management software solution.”

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Appraisal QC: What’s Required?

Today’s mortgage origination environment is one where the focus is on avoiding regulatory hassles and eliminating potential buybacks – and for good reason. With new regulation like Dodd-Frank, restructuring the FHFA, the creating of CFPB, and new zeal in the Treasury’s OCC examiners, lenders have been threatened and fined into a corner. Mortgage credit is tight, the markets are reluctantly coming back and mortgage revenues are down. In times like this, the key is to focus on efficacy, the ability to produce the desired result.

To succeed in this environment, most lenders will need to implement a rock solid collateral valuation process. In addition to an efficient, accurate appraisal management pipeline, lenders will also need a quality assurance strategy, plus the compliance documentation required to keep the regulators at bay. To produce the desired result of no regulatory hassles and no buybacks, a lender needs all three features.

The quality assurance of appraisals is under the spotlight now, with several investors and regulators emphasizing their pre-funding QC requirements. Fannie Mae in their seller guide states there is a “[r]equirement that the lender develops and implements a QC program that provides a structure for identifying deficiencies and for implementing plans to quickly remediate those deficiencies and underlying issues.”

According to the OCC Bulletin 2010-42 a lenders is responsible for adopting and reviewing policies and procedures that establish an effective real estate appraisal and evaluation program.”

The bulletin in section four describes aspects of an “effective” program. To highlight a few of these, a program should:

  • Provide for the independence of the persons ordering, performing, and reviewing appraisals or evaluations.
  • Establish selection criteria and procedures to evaluate and monitor the ongoing performance of appraisers and persons who perform evaluations.
  • Ensure that appraisals comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance.
  • Provide for the receipt and review of the appraisal or evaluation report in a timely manner to facilitate the credit decision.
  • Develop criteria to assess whether an existing appraisal or evaluation may be used to support a subsequent transaction.
  • Implement internal controls that promote compliance with these program standards, including those related to monitoring third party arrangements.

In section five, the OCC reiterates the desire for lenders to create a process that provides for independence throughout the appraisal process. “The collateral valuation program is an integral component of the credit underwriting process and, therefore, should be isolated from influence by the institution’s loan production staff.”

Size is not an excuse: “[f]or a small or rural institution or branch, it may not always be possible or practical to separate the collateral valuation program from the loan production process. If absolute lines of independence cannot be achieved, an institution should be able to demonstrate clearly that it has prudent safeguards to isolate its collateral valuation program from influence or interference from the loan production process.” Implementing a platform with these functions built in is the most effective way for a small mortgage lender to comply.

In further compliance with the bulletin, a modern appraisal management platform provides a standard communication function that is automatically recorded in the audit trail.

For efficiency and seamless documentation, it’s good practice to have your QC process integrated with your appraisal management platform. Many platforms have some QC functions, but choose one that has a wide variety of options since all lenders have different QC requirements in addition to the regulatory minimums. Mercury Network’s platform also offers AQM as a risk assessment and review platform. The AQM platform provides native and third party reports and tools so lenders and AMCs can choose the best approaches for their institutions. For example, the native AQM report, called an AQI, automatically reviews an appraisal for completeness, UAD compliance, GSE and USPAP guidelines, and risk. This report produces a score to direct workflow and an action item list.

Integrating your QC process with your appraisal management platform provides consistent documentation of the appraisal ordering and review for regulators, makes the appraisal review process more efficient by highlighting issues and establishes a consistent framework for the review (a big plus with regulators). Including this documentation of your QC due diligence in your overall process reduces the chance of a buy back request and, if there is one, makes it more defendable.

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Is Your Appraisal Process Breaking The Law?


Jennifer-MillerLenders are under tremendous compliance scrutiny, from regulators, investors, and even consumers. It seems there’s a new privacy breach at major retailers and financial institutions reported in the news almost daily. At a time when the public regularly engages lawyers in foreclosure, valuation, predatory lending, and privacy breach lawsuits that have class action potential, lenders must take a closer look at how they’re protecting consumer data. Unfortunately, some lenders are discovering that the way they order and receive appraisals is in violation of the GLB (Gramm-Leach-Bliley) Act.

The Gramm-Leach-Bliley Act, effective in 2001, addressed overall financial industry reforms as well as emerging consumer privacy and security issues. It affects the technology policies used by anyone engaged in providing financial services either directly or indirectly to consumers.

The Act regulates how consumer information is handled, and even specifically addresses real estate appraisals. If appraisals are ordered or received using regular unencrypted e-mail, or even via fax machines in an unsecured area, then GLB is being violated, since those contain consumer data that GLB protects. Private data is even more vulnerable in situations where sales contracts are attached to appraisal orders and reports. GLB strictly forbids storage of printouts of those documents in cardboard boxes or unlocked file cabinets. Yet, every day, many lenders are subjected to every one of those vulnerabilities.

As an analogy, everyone has encountered new privacy requirements related to medical information under HIPAA. Medical providers, from dentists to insurance companies, are now required to provide additional disclosures to patients, cannot provide information even to other family members, and must provide checks and balances to ensure that information is protected. HIPAA dramatically changed how privacy of medical information is implemented and it affected every aspect of any medical provider’s daily interaction with the public, from phone calls to e-mails to paper storage.

GLB is effectively the financial counterpart to HIPAA, and its impact on even the most low-level tasks conducted in real property valuation can’t be overstated.

As we’ve all seen in practically every industry, a consumer privacy breach can be incredibly expensive, and everyone in the transaction is vulnerable. From compliance penalties, legal fees, settlements, fines, and reputational risk, the consequences can bring any institution to its knees. With consumers more militant and better armed than ever, most lenders are one non-shredded trash bin or accidentally forwarded e-mail away from a privacy lawsuit.

As an example in our own industry, Nations Title Agency was caught with discarded loan applications in its (unsecured) dumpster in 2005, and was also investigated by the FTC for other alleged privacy violations. The FTC’s complaint against Nations Title is sobering evidence of its expectation that third party vendors in the mortgage loan process — everyone in the “chain of custody” of personally identifiable information — have safeguards and compliant security policies. Nations Title will be required to, among many other things, obtain third-party assessments of its ongoing compliance with GLB standards and submit them to the FTC for the next 20 years.

Obviously, this case and others prove that even if you use an AMC or other third party, you’re not out of the woods. The CFPB and OCC have also made it clear even in recent months that they agree lenders are responsible for the actions of their service providers. Many AMCs use non-secure processes either internally or with the appraiser, loan officer, or real estate agent. Even under the GLB’s “Safeguards Rule,” the lender is specifically responsible for the actions of suppliers to whom the consumer’s private information is entrusted. If they aren’t 100% GLB compliant, then the lender isn’t either, and GLB holds the lender legally liable for not auditing the practices of business partners. Think of it as “SAS-70 with a $100,000 fine per audit violation plus a prison option.” It’s not a pretty picture.

The good news is that technology can help you mitigate these risks. Lenders need a fully GLB-compliant solution, with end-to-end encryption, a secure upload/download container for sales contracts and other sensitive documents, appraisal PDFs that are never directly attached to e-mail messages, and secure paperless storage of transaction documents.

Lenders, appraisers, and mortgage professionals are subject to the GLBA rules. All are required to implement at least the following:

>> Under the Safeguards Rule, secure the transmission, receipt, and storage of data relating to any consumer’s NPI at all times, via passwords, encryption, and physical protection, backed by a written information security plan.

>> Under the Privacy Rule, provide easily understood privacy statements to any consumers who engage the appraiser, lender, or mortgage professional directly, disclosing the gathering, sharing, and security of NPI data, as well as the methods the consumer may use to opt-out of sharing of the data with third parties.

NPI includes loan terms, lender or mortgage broker name, sales concessions, co-borrower, unpublished phone numbers, other contact information, and of course more sensitive information as well. Even the fact that a particular consumer is engaged with a particular lender, at the time of the appraisal, is considered to be NPI if it has not been recorded in the public record yet or disclosed in some other way. To be safe, any borrower or individual’s information, which is not absolutely known to be public at the specific moment you receive the information, should be treated as NPI.

NPI data is potentially received electronically under many scenarios:

>> Receiving an appraisal order via e-mail

>> Receiving sales contracts and other financial documents

>> Transmitting final appraisal reports to a lender (either a lender, appraisal management company, appraisal manager, et al.)

>> Ad hoc e-mails with other service providers – agent, mortgage broker, loan officer, et al.

In addition to unauthorized access, the data must be secured from loss due to environmental hazards such as floods, as well as from technological hazards such as system failures.

Obviously, you must implement secure means of sending and receiving documents containing NPI. Utilizing regular e-mails with NPI data in the message body or attachments, and even with password protected PDFs, is not sufficient. Each institution will adopt different levels of implementation. But at its core, NPI data must be secured at all times.

There may be cases where the institution receives no NPI, and therefore, in hindsight, encryption would not have been necessary. It would be tempting for an institution to decide therefore that security overall is not needed until the presence of NPI is certain. However, the institution would not be aware of the scope of NPI until the data had already been received, which would already be a security breach if NPI was indeed present. The safest route is to assume that NPI is present, so you must secure all communications appropriately.

Any time you receive or handle a document with a credit card number, a bank account number, a loan account number, or an SSN on it, you’re handling the most sensitive data in the consumer’s NPI, and the security and privacy standards go up accordingly. Since you don’t know when you’ll receive data that already contains something sensitive, it’s prudent to employ the strictest security all the time, up front, so that it’s not “too late” by the time you see it.

Regardless of the scope and type of encryption methods and processes used, developing a written security plan describing them is not optional. The law specifically requires that it be written and regularly reviewed. The institution must have it on file, and the privacy statement must refer to its presence.

An important consideration when evaluating your compliance solutions is to scale them to your needs, and remember that it’s not “all or nothing.” Improving security and compliance is a path, not a destination. It will never be “done” because the risks and methods constantly change. Don’t feel like you have to have it all done tomorrow. You don’t. You do need to start, and be educated, however. Security and privacy issues are not going away, ever. Now, more than ever, top-level privacy and security are good business, and those safeguards are appealing to your clients. When you decide to change your policies to enhance your customers’ protections, tell the market about it so you’re leveraging your compliance expenses for your institution’s benefit, too.

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Exploring The Big Trends To Come

The ENGAGE Event brought to you by PROGRESS in Lending had record RSVPs this year. Despite the tough mortgage market, executives gathered to share their ideas about how to improve the mortgage industry. Here is some of what was said:

Tim-ENGAGE-2014When discussing the new regulatory environment, Michael L. Riddle, the co-founder and managing partner of the Middleberg Riddle Group, a preeminent mortgage banking law firm, noted, “There is a new level of consistency from a regulator that is organized and effective. We some times think the larger lenders have the most trouble dealing with change, but that’s not the case anymore. We as an industry just went through a cycle of huge change and we’re still living with that. Going forward, when we talk about complying with new rules, it’s not just about mechanical change, it’s about improving the whole process and how all the different parties interact.”

“Quite frankly,” added Tim Anderson, the head of DocMagic’s eServices Division. “Lenders are wondering when the next shoe is going to drop. Regulators are going after everyone. Everyone is liable. So, these new rules are forcing fundamental change. What should lenders do? I have one word: ‘e’. I just don’t know how you comply with all these new rules in a paper world.”

Lisa-S-ENGAGE-2014So, what’s next for mortgage lending? According to Lisa Binkley, Senior Vice President at Platinum Data Solutions, “2015 is going to be the year of integration. Vendors are going to have to work more closely together. We’re seeing those talks happen now. There’s lots of interest.”

However, when it comes to implementing new technology, lenders are still going to take things slow. “Lenders are risk averse,” said Lisa Springer, Managing Director, Chief Operating Officer at STRATMOR Group. “As a result, technology vendors have to be more transparent. To the vendors I say: Do what you do best. Don’t try to step outside of your area of expertise. Don’t dilute your focus.”

From the vendor’s perspective, lenders are certainly automating more out of necessity. Kelly Purcell, Executive Vice President, Global Sales and Marketing for eSignSystems, pointed out, “People understand that we’re not just selling technology, we’re selling compliance.”

Jennifer Miller, President of a la mode’s Mortgage Solutions Division, added, “With manual processes, things start to break down. The liability is with the lender so they have to automate.”

Lee-ENGAGE-2014All around, industry participants expect there to be a continued focus on compliance into next year. “Proof of compliance is going to be the big issue in 2015,” concluded Lee Gillispie, Managing Principal, Financial and Risk Management Solutions at Fiserv. “Lenders have to ask if they have the right data, documents, policies and procedures. Beyond that, everything has to be fully documented and executed. So, lenders shouldn’t just automate to be more electronic, it’s about being more efficient and proving that you did what you said you were going to do when it comes to putting together every loan.”


Six Tech Tips: How To Get Your LOs To Love Your Appraisal Desk

The appraisal is one of the most critical lynchpins of closing, so it’s no wonder many loan originators have a love/hate relationship with their appraisal desks. The appraisal report is a big risk to closing anyway, and due to recent regulations and investor guidelines, production staff feel they have zero control over one of the most critical components of a deal. But you can still make your originators happy (most of the time) and have high quality, efficient, and compliant appraisal operations.

The appraisal desk can communicate better and deliver better service to production staff automatically with technology, so the LO is satisfied and knows their concerns are taken into consideration. A few large lenders have already changed their appraisal desk models to attract the top producers. The key to doing it successfully is to honor your production staff with the tools they need to be in the loop when it comes to the appraisals on their loans.

As competition for top producers continues to heat up, here are a few of the ways you can improve your appraisal desk:

>> Give them easy, fool-proof appraisal ordering: Make sure your originators have fast, easy appraisal ordering, preferably directly integrated in their LOS or through an easy-to-use portal. The ordering process has to be streamlined to avoid data entry mistakes and confusion that can cause closing delays.

>> Keep them in the loop on status: With a technology framework, you can still isolate appraisers from production staff, while continuing to provide automatic status updates throughout the process. LOs often complain that the appraisal process is like a “black hole”, so periodic updates will alleviate this stress.

>> Give a simple way to request changes: Your LOs should have the ability to ask questions, request revisions, and offer additional information to the appraisal desk. Even if you’re hiding appraiser identity through double-blind ordering mode, communication between loan officers and appraisers is possible with some technology providers.

>> Cause fewer delays and questions: Technology can definitely help when you can automatically pass loan information to the appraiser. Reduce the frustration from going back and forth with the appraiser by getting all the pertinent information the first time, automatically.

>> Have access to performance stats: The appraisal desk should have easy access to vendor performance history and be able to document how orders are assigned. When questions about particular vendors arise, this information can help your LOs understand the appraisal desk’s functions.

>> Have the flexibility to try new vendors and replace old ones: The best LOs out there have relationships with local area expert appraisers. Have a system in place that allows your appraisal desk to onboard new vendors easily and quickly. When you need to replace vendors due to performance, make sure your system makes it easy.

When regulations and investors demanded production be isolated from collateral valuation, some lenders went too far in building a firewall that frustrates their top producers and most valuable salespeople.  Through technology, you can get the best of both worlds, with full compliance in your appraisal operations and happy LOs.

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5 Reasons To Steer Clear of “Custom” Solutions

We talk with lenders and AMCs every day who have invested significant time and expense in building customized software tools. Unfortunately, these projects commonly fail so it’s important to understand the risks, as well as the disadvantages of totally customized software solutions.

There’s no shortage of software developers in need of work, and they’ll offer to build anything you need. Before going that route, consider these risks:

1.) You won’t always get what you want. There’s nothing wrong with software developers, but they don’t necessarily understand your business or your workflow, and they aren’t familiar with the critical compliance requirements of our industry. Even if you are experienced at writing software product specifications, there will undoubtedly be challenges in the project that neither side of the equation took into account. Sometimes these issues will derail an entire project, or they can add significant unbudgeted expense.

2.) Updating your software will be difficult and expensive. As you need modifications or updates to solve compliance issues, your expenses can skyrocket. Depending upon how the developer built the initial application, making changes could be harder than they should be and take longer than you can afford to wait.

3.) Compliant third party oversight can be impossible. Many software development firms aren’t equipped to support your business, especially if it’s a critical software application. The OCC and CFPB have made it clear that you must oversee your third party vendors, and smaller software firms may not have the disaster recovery plans or reliability ratings those agencies mandate.

4.) You risk missing out on profits and other benefits. If you choose a software platform used by a large sector of the industry, you’re essentially crowd sourcing efficiency tools. That means you benefit from the ideas of other firms in your industry as they get added to platforms. If you aren’t sharing knowledge, you’re undoubtedly missing out on workflow tools your competitors are enjoying to save expenses and time. You can try to copy these features, but again you’ll be hit with expenses and delays.

5.) You risk serious compliance vulnerabilities. Platforms used by hundreds of lenders and AMCs include tools that streamline their compliance with regulations. Again, these firms are crowdsourcing smart solutions for consistent compliance, and if you’re going it alone you could be missing out on critical safeguards that will save your firm from penalties and reputational risk.

Using a popular platform doesn’t mean you have to sacrifice customized features tailored for your operations. Most of the larger platforms have many customization options built-in, and reputable companies will even provide customized solutions that fit inside the platform to satisfy a customer’s unique needs.

If you’ve considered a custom software solution, take a look at the platforms available first. One of the criteria for selection should be how often the platform adds features and how responsive they are to their customers’ wishes. Ask the provider how they gather customer feedback to add new features, and ask to see a schedule of updates made to the software in the past twelve months. The new regulations continuously placed upon our industry mean successful platforms have to be nimble with new features, so require updates at least quarterly.

Custom software is tempting, but our experience has shown the risks outweigh the benefits. Even on the rare occasions that custom software is actually delivered on time and on budget, that’s just (literally) the beginning. The disadvantages are real and could end up costing you far more than the project did in the first place.

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Innovation Should Never Stop

Each year PROGRESS recognizes industry innovation. We also like to check back to see how our winners are doing. In this case, a la mode announced that Mercury Mobile, a free mobile app enabling appraisers to respond to new Mercury Network orders instantly, is now available for Android as a download using the Google Play store.

The iOS version was released to critical acclaim, earning our prestigious Innovations Award. Lenders and AMCs placing orders on the Mercury Network see instantaneous turn time improvements, since vendors can accept, negotiate terms, or decline an order while in the field instead of waiting to be back in the office. Appraisers using the app eliminate the risks of losing valuable orders that may be otherwise reassigned while they’re doing field inspections.

Since Mercury Network powers over 20,000 appraisal orders a day and is used by over 600 of the nation’s lenders and AMCs to manage scalable, efficient, and compliant valuation processes, the release of the much-anticipated Android version will have a significant and immediate effect on the industry’s efficiency.

Combined with a la mode’s industry-dominating mobile appraisal inspection and sketching product, TOTAL for Mobile, the appraiser can handle the entire order-to-inspection cycle onsite on their mobile device, further cutting turn times.

“Mercury Mobile is a critical innovation for the industry because of the immense transaction volume of Mercury Network, and our unique distribution network to appraisers”, noted Jennifer Miller, president of a la mode’s Mortgage Solutions Division. “Since more appraisers nationwide use our desktop software than all other brands combined, we have the market share to penetrate the appraisal market with sizable installs, so an industry impact is felt immediately.”

Learn from a la mode, innovation doesn’t stop once you’ve won an award, good companies never stop innovating.

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Innovation Is Continuous

Each year PROGRESS recognizes industry innovation. We also like to check back to see how our winners are doing. In this case, a la mode announced today that Mercury Mobile, a free mobile app enabling appraisers to respond to new Mercury Network orders instantly, is now available for Android as a download using the Google Play store.

The iOS version was released to critical acclaim, earning our prestigious Innovations Award. Lenders and AMCs placing orders on the Mercury Network see instantaneous turn time improvements, since vendors can accept, negotiate terms, or decline an order while in the field instead of waiting to be back in the office. Appraisers using the app eliminate the risks of losing valuable orders that may be otherwise reassigned while they’re doing field inspections.

Since Mercury Network powers over 20,000 appraisal orders a day and is used by over 600 of the nation’s lenders and AMCs to manage scalable, efficient, and compliant valuation processes, the release of the much-anticipated Android version will have a significant and immediate effect on the industry’s efficiency.

Combined with a la mode’s industry-dominating mobile appraisal inspection and sketching product, TOTAL for Mobile, the appraiser can handle the entire order-to-inspection cycle onsite on their mobile device, further cutting turn times.

“Mercury Mobile is a critical innovation for the industry because of the immense transaction volume of Mercury Network, and our unique distribution network to appraisers”, noted Jennifer Miller, president of a la mode’s Mortgage Solutions Division.  “Since more appraisers nationwide use our desktop software than all other brands combined, we have the market share to penetrate the appraisal market with sizable installs, so an industry impact is felt immediately.”

a la mode has a long history of mobile innovation, with over 300,000 downloads of popular apps for appraisers and real estate agents that are available in every major mobile marketplace, including the Apple App Store and Google Play.

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Avoid Common Pitfalls With These 14 Recommendations

As a technology company, Mercury Network is keenly aware of the importance of third-party oversight, vendor compliance and their implications for lenders.  Since it’s clear lenders are liable for their service providers, all technology companies are gearing up. We’ve already begun receiving questionnaires from several larger lenders performing due diligence on their service providers, so we can shed some light on what’s happening on this important front so far.

In 2013, both CFPB and The OCC issued bulletins with specific guidance on their requirements for effective Third-Party Oversight. Since over 600 lenders and AMCs use Mercury Network to power over 20,000 appraisal deliveries a day, so we’ve already been through several third-party oversight audits.

We can combine the OCC and CFPB requirements with some of the lessons we’ve seen many lenders have already learned in their audit process, and offer an industry guide to best practices when it comes to selecting partners.

To get a jumpstart, you can download our free report, “Third-party oversight: Avoid common pitfalls with solutions for compliance, efficiency, and control” at (NOTE:  In the online version, please make destination URL this for tracking purposes: It has links to all the agency bulletins, additional resources, and a good overview of what’s expected from lenders when it comes to compliance. In addition, we’ve added fourteen recommendations so you can avoid penalties and risk when choosing service providers.

Since most lenders are busy dealing with lower originations, Qualified Mortgage (QM) and other compliance burdens, many of you may not have scrutinized appraisal service providers. But as more and more lenders make progress on streamlining operations, service providers like us know our turn under the magnifying glass is coming.

As with all compliance-driven changes, third-party oversight can be seen as a hassle —adding extra burdens to lenders and service providers. But really digging into vendors who are critical to your success is always good practice. You will undoubtedly find that some of your valuation vendors present unacceptable risk, and lining up safer and better alternates has benefits beyond just ensuring your compliance.

With better vendors, you’ll find ways to be more efficient. You can reduce overhead costs, deliver better service to your borrowers, reduce delays and hassles, make loan originators more productive, and much more. As you start this process, also consider how flexible you are in switching vendors. Make sure you have a technology platform that can give you reports and statistics on your vendor performance, and make sure the technology you use gives you the flexibility to try new vendors easily and quickly. Vendor flexibility is one of the key tenants in the OCC requirements, so it’s important for compliance and for successful operations.

Compliance may be the trigger for your scrutiny and ultimately the reason you find yourself switching up some of your valuation vendors, but unreliable vendors are negatively impacting your bottom line. Like going to the dentist, vendor evaluation is painful, but better for you in the long run.

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The Future Of Innovation

You Can Download This Full Article as A PDF HERE

Over 100 mortgage executives came together to attend PROGRESS in Lending Association’s Fourth Annual Innovations Awards Event. We named the top six innovations of the past twelve months. After that event, we wondered what would happen if we brought together executives from each winning company to talk about mortgage technology innovation. Where do they see the state of innovation? And what innovation is it going to take to get our industry really going again? To get these and other questions answered, we got the winning group together. In the end, here’s what they said:

Q: Some say innovation has to be sweeping change. Others say innovation can be incremental change. How would you define innovation?

ADAM CAMPBELL: I think innovation can be either incremental or sweeping change, but I think it must result in a benefit that’s shared across an entire industry. Proprietary technology that doesn’t integrate with other software or that isn’t shared across the industry with open APIs and modern methodologies isn’t truly innovative in my opinion. Innovation has to contribute to our industry’s overall foundation of progress.

JAY COOMES:I would define innovation in the context of the value or significance of the impact its makes to those beneficiaries of the innovation, rather than the magnitude of the change.

KATHLEEN MANTYCH:While sweeping change may be the ultimate result of innovation, it is incremental change that helps maintain or improve a competitive position over time. The need for continual improvement on products with new features, adding new products and services as necessary and process improvement on service levels is critical, particularly in this chaotic climate. Creating and deploying incremental, breakthrough strategies via a well-executed plan for new customer growth and customer retention will create winning strategies, capture new growth opportunities and build lasting capability.

PAUL IMURA: My definition of innovation is not accepting the current status quo, finding a way to improve your process and opting to advance by taking risks. Innovation can be leveraged for success and is a critical component for the industry to thrive, survive and ultimately succeed. Innovation will be key to transforming the mortgage industry.

BRENT CHANDLER: If efficiency is improved, if a need is being met that was not met before, if a challenge has been overcome that seemed insurmountable at first—these are all signs of innovation. What you would call sweeping change is simply the resolution of an issue large enough to effect a lot of people. For example, a new challenge in the mortgage industry is meeting QM guidelines. Higher QC is being demanded, and more time has to be spent on each loan file. Lenders that don’t adopt a better way to process loans risk significant lost opportunities. Sometimes change is forced upon us, but everyone has a choice in how they respond. Do you innovate to succeed, or stick to what is familiar and hope it all works out?

SANDY NIETLING:Innovation starts with a step back from the traditional development or operational path. The traditional path is usually one of refinement: taking existing assumptions about a problem and user needs and building onto product concepts that are already in place. This type of refinement can make it possible for lenders to hold onto their spot, but it doesn’t move them forward, and it doesn’t position them to adapt easily to sudden or significant change. Innovation depends on a reassessment of the problems faced by mortgage lenders. Innovation creates a new perspective, and with it, new value and new opportunities for growth.

Q: How would you define the state of innovation in the mortgage industry? Is it thriving or in a state of decay?

ADAM CAMPBELL:I see examples of both thriving innovation, and decaying old methods still being used. There are many companies who seek to build upon the overall industry’s technology and those are the companies that will win out in the end. Old school technology companies that try to horde ideas or don’t play well with others will eventually be squeezed out.

JAY COOMES:I think it had been somewhat stagnant, but with the rebounding of the market and the continued regulatory pressure, this incentivizes innovation as an outcome of meeting the needs and demands of the current environment. As such, we are beginning to see a resurgence of innovation in the industry.

PAUL IMURA: Our industry is in a state of resetting against the new rules of the mortgage market, which includes cost constraints and regulatory requirements against a smaller origination market. Mortgage technology innovation is thriving because of the market opportunity for improvement and growth. In today’s market, there is an abundance of opportunities for process improvement that will drive a better consumer experience. For now, a significant focus on the compliance product development is a result of the newly mandated CFPB regulations.

KATHLEEN MANTYCH:In light of all the regulatory changes, there have been some outstanding and pioneering breakthrough technological advances to weather the storm and indeed, pave the way for continued automation and deliver true mortgage transformation yet to come. That said, the key word is transformation and an evolving need that drives the mortgage industry forward despite the current volatile market. This means the industry as a whole needs to start thinking outside the box for future technology innovation and advancements, which will propel long-term results. Emphasis on the fact that the reactionary must change to be proactive when it comes to the process of technology innovation advancement.

SANDY NIETLING:The term “innovation” is getting more airplay these days from technology providers, which is a direct reflection of momentum building in the industry itself to consider new thinking to address the mounting challenges lenders face. While it sometimes takes time for game-changing solutions to be readily recognized as such, real innovation is well underway.

BRENT CHANDLER: I definitely don’t think innovation in our industry is in a state of decay. The economic crisis was a wake-up call, and I doubt anyone out there thinks the way loans were handled before the crisis was ideal. This has led to an exhaustive review of the entire financial system, which has opened the door for innovation.

The mortgage industry is in a state of rebuilding, and there are a lot of smart entrepreneurs working on solutions to big problems. But change takes time. The larger and more regulated an industry is—and the more complex the regulatory frameworks are—the harder it is for innovations to receive acceptance. Innovation is happening, albeit slowly. Adopting new innovations requires thoughtful integration into existing workflows that must meet stringent guidelines, and sometimes that takes a mandate or government approval.

I remain encouraged. I believe we are breaking into in a new era for the mortgage industry. We are beginning to see the adoption of new innovations take place, which will form the foundation of a safer, more efficient industry for many years to come.

Q: Lastly, if there was one innovation that you would say the mortgage industry desperately needs to happen over the next twelve months, what would it be?

PAUL IMURA: One of the biggest gaps in our industry is the availability of a single data repository for origination and servicing. This innovation would increase overall efficiency by mending investor confidence, delivering life of loan transparency, reporting industry loan data trends and optimizing efficiencies. Developing a single repository will create a sense of transparency and support the industry as a whole, as well as control costs, increase productivity and increase accuracy.

JAY COOMES:Re-evaluating the life-of-loan methods of communication that we have with the borrower is critical. We are behind the times with respect to managing that conversation using mechanisms that are borrower centric and not lender centric.

ADAM CAMPBELL:There are so many excellent solutions out there, offered by a wide variety of companies. But to really make a difference in an operation, those technologies have to work together. I think the most critical innovations over the next 12 months must include a focus on open standards development so lenders can layer the options that are best for them on top of the systems they’re already using. After all, it doesn’t matter how great a new tool is if it can’t be integrated with the workflow systems in your office. That’s where the real impacts of innovation can be put to a real world test.

KATHLEEN MANTYCH:Now is the time for the industry at large to reassess their systems and products to find new ways to improve the loan life cycle from an automation standpoint and the overall customer experience by creating products for the new mortgage market environment. Very few integrate technological change in their strategic or tactical planning. That said, from a tactical standpoint, the industry needs to focus on how it can streamline all pertinent and relevant loan data to a data centric environment where true data lives throughout the loan life cycle from point of sale to post close and remain intact all the way through. This will effectively deliver not just the necessary elements for accurate, efficient and simplified automation, but will enhance the customer/consumer experience by eliminating any associated risk of inaccuracy during and after the loan cycle.

SANDY NIETLING:The next big innovations will come in response to the regulatory forces that are being applied to lenders. In order to address ongoing regulatory challenges from a position of strength, lenders can no longer rely on technology that focuses on a narrow understanding of their needs. Lenders will demand solutions-based technology and partner relationships that manage transaction risk. Innovations that address those needs will propel the mortgage industry forward.

BRENT CHANDLER: We need sweeping adoption of tools that provide access to direct source data. Technology opens gateways to new sources of information in ways that enhance the consumer experience, improve the quality of data, streamline workflows, and of course save time and money. Technology and automation contain the keys to transform our industry, for individuals and businesses alike.