The latest wave of industry reform has in many ways made a compelling case for more automated but flexible document management in originations, and set the stage for further advances.
Lenders have decided, "if we're going into a new phase, let's go into it right," says International Document Services EVP Mark Mackey.
"You want that process to stay electronic" as much as possible because of new rules that call for better/more efficient control and recording of the process as a means of managing associated liabilities, he says.
The majority of market participants do now use "paperless" or imaged documents at least when it comes to most initial disclosures delivered to and received back from borrowers, Mackey says.
"It's taken a long time get there, but I think it is a pretty streamlined process now," he says.
There is a lack of standardized rule interpretation that challenges the potential for broader efficiencies currently, but doc management systems are already flexible enough to handle variations by user and standardize whatever rule interpretation a particular company follows in a way that can reduce liability.
A new Equal Credit Opportunity Act requirement that lenders disclose "anything used to determine value on a property" to borrowers within three days unless they opt out is one example, says Platinum Data Solutions CEO Phil Huff.
"There are still a lot of questions about ECOA and when borrowers should get a piece of paper," Huff says of the requirement that is part of the Dodd-Frank Act rulemaking.
Borrowers have a right to receive automated valuation model results and broker price opinions under ECOA because they do reflect home values, Huff says.
However, his company's compliance experts are certain that its RealView appraisal quality scores lie outside this requirement because they lack quantitative information about what a particular home is worth.
Several small- and medium-sized lenders have wanted to send them to borrowers despite information the Platinum provides making this clear, though, according to Huff.
"Sending our RealView report to the homebuyer can further complicate the process," he says of the report, which provides compliance, credibility and complexity and overall appraisal scores. The scores reflect only the quality of the appraisal rather than the home's worth.
The recent ECOA change also has proved to be a challenge for automation because it shifted the way borrower appraisal notification occurred in origination, says Jonathan Kunkle, president of LenderLive's GuardianDocs division.
Previously lenders had to inform borrowers that they had a right to their appraisal information, but they had to request it to get it, according to Kunkle.
Now lenders must send it to borrowers with enough time to review it ahead of closing unless they opt out to receive it at closing instead, and this has been at odds with pre-existing loan origination systems' original configuration, he says.
Technology providers have had to change their systems to accommodate both this procedural change and the differing ways particular companies have wanted to handle it in line with their individual interpretations of the new rule.
Automatically sending the information regardless seems more efficient under LenderLive/GuardianDocs' interpretation of the rules, says Kunkle. However, he finds users' opinions are split about 50-50 on this.
Mortgage industry users' opinions also remain split in terms of their use of electronic signatures.
"The courts have proven that the e-signature process is valid" but there remains a lack of consistency in their usage, notes Kunkle.
Eventually the courts and regulators will set more clear boundaries for how new rules should be interpreted in the origination process, leading to more standardization in how users approach them, Kunkle says.
In the meantime, one thing users generally have agreed on in the wake of new regulation is that they have to have some kind of electronic, searchable archive for their documents if they want to mitigate their new potential compliance liability, he says.
Most users also are starting to work on the next step toward managing this new regulatory risk through electronic archives, which involves preserving information that shows the rationale behind data changes in documents during the origination process.
New regulation "has brought great momentum to the trend related to the 'why' behind the data. Liability and risk post-QM [are] forcing lenders to take a hard look at the technology and processes that they use," Kunkle says.
The transmission of data between documents is getting easier as the Mortgage Industry Standards Maintenance Organization and other technologists continue to work on the problem but it is still a work in progress.
Extracting data from images and electronically identification of data on nonstandard documents like bank statements continue to be challenges, but optical character recognition and programs that identify data based on where it is in proximity to other data are respectively making some headway, he says.