When asked to name a significant theme in automation, executives participating in a roundtable discussion at the SourceMedia Mortgage Technology Conference singled out the need to keep up with regulatory demands.
Automation has helped the industry keep up with Consumer Financial Protection Bureau regulations, good-faith estimate fee disclosures and single point of contact requirements that have challenged the industry, the executives said.
They noted that the concerns which various forms of automation aim to help the industry address include efforts to get GFE estimates in line with required tolerances in an effort to avoid monetary penalties for breaches, and the need to securely document operations and communications in order to mitigate the rising risk of an audit in today’s market.
Also of note in that context during the group’s discussion was one executive’s caution about the need to address the possibility of insufficient security in email communications and the growing role of electronically signed disclosures.
As for the latter, in another portion of the roundtable that can be found in the technology section on this publication’s website, the panel discussed how recently the Internal Revenue Service came out with its requirements for an e-signature of the form 4506-T, which is used when lenders seek to verify borrower income through a copy of their tax return. This is an example of an area where technology is making lender compliance much easier. Also in that portion of the discussion, panelists speculated on what the landscape for vendors might be like in 2013.
Participating in the roundtable discussion moderated by editorial director Mark Fogarty and Mortgage Technology managing editor Austin Kilgore were Kelli Himebaugh, vice president, Mortgage Builder; John Guzzo, managing director, Berkery Noyse; and Tim Armbruster, chief technology officer, ClosingCorp.
FOGARTY: Here’s a few technology trends that I’ve noticed over the last year and I want you to comment on whichever of them—and any other ones—that you might think are the most important trends of the business. Paperless mortgage, compliance technology, data standards, the mortgage cloud—any of those strike any significance with you guys?
ARMBRUSTER: The compliance side of things was really focused on the fees related to the good-faith estimate and the CFPB changes and how they will impact that. I really don’t feel that we’ve fully solved the issue as an industry. A lot of the lenders, I think, are still struggling with getting the fees right on the good-faith estimate and multiple problems related to that. Just getting the fees right up front, but also controlling the fees after that. Just in general, I think the CFPB changes are impacting everyone. It looks like we’ll be a narrow definition of what the application actually is—maybe more disclosures actually going out. The business day, I know, has been expanded to include Saturdays. So, it will be more pressure to get them out more quickly. We have some expanded tolerance buckets, which include affiliated companies that will be held to higher tolerance and appraisal management companies will be held to tolerance as well. So, I think in general those few tolerances are getting more and more stripped—much more difficult for lenders to comply. It’s going to be difficult to do that without some technology.
FOGARTY: Problems for lenders, but for vendors CFPB is a godsend, right? I mean you’ve been coming out with stuff that you can provide lenders solutions for, right?
HIMEBAUGH: Absolutely, like stronger reporting capabilities, conversation logs, audit trails, tracking, everything that you print and how things are delivered to the customer now. Email is just not secure enough today, so from that standpoint, electronic delivery of documents—exchange of documents—and electronic signing is all technology that is going to become, not only very important to protect the lender against the auditors, but it also what the auditors are going to be looking to track what that lender is doing. So, that scrutiny is going to be put on requirement for that technology—on the lenders—it’s going to be very intense.
FOGARTY: John, you think compliance is the big one?
GUZZO: The area I see most come up is SPOC, the single point of contact...Communications portals, for example, sometimes they would sit between the servicer and the borrower and there’s a mechanism for the borrower to exchange data with the servicer. And they were nice to have before SPOC, and now they seem to be more important than ever because really Dodd-Frank is pushing SPOC and it’s kind of been there before. But now the regulatory environment kind of heightened the need for single point of contact.
HIMEBAUGH: As far as servicing, it’s under more and more scrutiny all the time. And, so, you’re in that midtier market, the lenders are concerned for subservicing and because there is so much more intensity and scrutiny on those loans we’re actually seeing in the origination space lenders wanting to get back more into the servicing side. You’ve got to have well integrated information between your loan origination and servicing software and if you can combine those under one house—just pushing data back and forth still leaves room for errors and it can also be delayed. So I think more real time and better integrated servicing and origination systems is really something for what the midtier space and community banks are looking for now.
ARMBRUSTER: We need to have more integrated systems. It’s really hard to be compliant without a good audit trail. If you don’t have integrated systems it’s hard to really put the controls in place to really manage compliance. For example, if you were to start a loan and go through initial disclosures, quote the fees and then order the services associated with that fees at a separate point. If that’s all in disconnected systems, it’s tough to control changes to fees later on in the process. If your ordering system is completely disconnected with the system you used to quote the fees. So without the integrated and connected systems in one unified system it’s really tough to manage compliance.
HIMEBAUGH: Instead of talking forward in the loan process, this conversation is kind of leading us back to the beginning. And what now is prevalent—we’re talking about fully integrated systems—it goes back to the day that they go out to electronically price that loan again the pricing engine. Because to make sure that fairness is across the board with all the borrowers today as far being offered all equal and honorable programs, they are tracking everything down to every detailed pricing request or investor program that was looked at for each and every borrower and comparing those. So going even backward all the way down to where the right quotes are being requested for those and then you are talking to information from the appraisers and even down to the loan officers. I mean, that leads to conversation for mobile origination, because the demand for that delay of getting information from the borrower on paper and then getting it into a system somewhere—people want to take that immediately, electronically, in front the borrower for the most accuracy and submit at the time. And that’s what the auditors are going back to look for—what was it the borrowers said and the point and time they made contact with that lender’s representative?
ARMBRUSTER: We’ve had several product pricing engines and to that point—to the extent that they can document—the loan officer can document what the borrower is saying, what the potential borrower is saying. And a lot of times the advice a loan officer may give may not be taken. And the borrower might make a decision to go after a more aggressive loan and then five years or 10 years down the line if that loan can’t be paid they want to have that documentation and have that audit trail that said that the loan officer actually advised them to take a 30-year fixed as opposed to a 10-year, which is—you know—something they may have wanted. For technology firms, it’s almost like a candy store. What do I build to answer that technology? Or what do I buy if I don’t want to build it or I can’t build it?
HIMEBAUGH: What we try to do is to provide to the investors or lenders that are compliant to the best ability that we can. Help them understand what’s in the market and that candy store can help create issues. So the lender—there’s definitely a heightened level of fear or concern about what’s going on, not just with regulations and CFPB, but it’s how do we take the time away from the production and how to do things right and try to find that right vendor. In the market what we see is they’re truly looking for those vendors that can offer those bundled services, bundled technologies, that they can price the product so that they can stay in business, to keep the margins on their loans to where they can stay profitable. So all of that is probably the other concern apart from just regulations—how do they pick the best technology and then how do they implement that into what they are trying to do while they are trying to move production everyday? So, it is a candy store, but it’s really important to try to take concern and guide them on the products that they need whether it’s a service that their core origination system or what another system offers or very good integrated partners.
ARMBRUSTER: We need to have integrated systems and I think the loan origination providers—loan origination system providers—can really help to guide lenders to an all encompassing solution. Just examples out there of where we really need to have integration—disclosures up front, especially in the wholesale channel, if they are provided by the brokers, the lender then has to assume the responsibility for that. How do you without an audit trail, without one unified system, without the broker working in the same system as the lender? I think those types of issues—we really need to have one unified system. I think the loan origination makes sense as the one unified system of record and the services that the lender uses really needs to be tightly integrated with those systems.
HIMEBAUGH: It does need to be integrated. It doesn’t mean that loan origination systems need to own all the technology that is out there. You can’t do everything well. You can’t make the candies, and the cookies, and the donuts and do all that well.
FOGARTY: Fannie May is also a candy company!