Keeping the Right Technology-Manpower Balance
Palm Harbor, FL-A renewed industry focus on front-end loan data processing to ensure information is properly reviewed and recorded has highlighted the need to keep a better balance between technology and human intervention in mortgage document imaging.
"Imaging a loan is not enough, in terms of the collateral and the documents you need so you know you have them, or to know whether a loan is serviceable, should be assigned, or foreclosed upon," says Jeremy Pomerantz, senior vice president for marketing and sales for Nationwide Title Clearing, serving both the residential and the commercial market.
Typically the firm offers these services to investors, hedge funds and other private investors buying properties, as well as banks originating or servicing loans, which includes processing lien releases, assignments, MERS services, final document, document retrieval and imaging.
Minimizing loan risk and securing sustainable loan modifications remains a priority for servicers and investors.
Unless thorough reviews are performed, Mr. Pomerantz says, just imaging can give a false sense of security when, for example, the servicer does not have an original note or other documents that allow the bank to work with that loan. "It is important to track down the original documents and create a complete file before it is shipped out."
Judging from experience, he says, having an accurate inventory of the documents in a mortgage file before imaging them is the most important step. "Make sure originals are included, that the endorsement chain on the note is perfected ... that the mortgage is recorded and notarized. ... List any exceptions and then image the file."
Currently, market demand for sustainable loan modifications and government requirements that expect servicers to take on services that traditionally have been an originator's responsibility also demand servicers create accurate and complete document files. And the best way to face that challenge is by combining human and technology resources. Sophisticated imaging technology helps, Mr. Pomerantz says, but data indexing has to be correct.
"You cannot automate that first step where original data turns into a computer image and is indexed into the data system. People can easily overlook that first step of validating what information you have before it even goes to the custodian. Validating if the document you have is an original or not. You cannot rely on just images. Banks sometimes don't know what information is missing. Also, documents often are indexed wrong. Technology allows easy access to those documents."
The most common mistakes servicers should avoid?
"One is relying on your document imaging indexes as a reliable source of information of documents on file. Then when the time comes to actually sell that loan, or securitize it, and then realize that's not the case. And with today's number of properties in default and foreclosure, real estate-owned inventory and sales, this is very important."
Servicers tend to overlook document validity. For example, he says, they may think they have an original or recorded mortgage document in the file, but they only have a photocopy of a nonrecorded mortgage. Also, they may think they have all the assignment images they need but there may be a certified copy missing.
While servicers are different, many rely too much on what the index shows and fail to do a really thorough review. But also, Mr. Pomerantz notes, "if you're not imaged and you rely only on the custodial report, you will find they are not necessarily accurate either."
The industry has been challenged by legislators and the public to provide more loan data transparency from origination to securitization.
Since his firm deals with residential and commercial investors that purchase nonperforming loans, the executive says they are more scrupulous about having that second look at the collateral and imaging of loan data to ensure data inventory is accurate and complete.
Usually the best time to review data at the time of origination, but most of what banks are dealing with now is trailing documents after its origination and through the actual file of the note. It is why, he says, "it's an easy mistake, because it's not reviewed by an underwriter."
Right now, outside of loss mitigation things are slow for servicers and that's why they need to perfect their loan processing and not rely on imaging only. Make sure you perfect the process and make sure the indexes you have are accurate, that you know what you have.
The challenge is even bigger in the commercial marketplace.
"One of the big differences between residential and commercial loans is that a lot of the commercials are not cookie cutter, they are handled by attorneys, and so on, so when you try to make a process that is made for cookie cutters and apply it does not work.
"It is imperative to the cost of the loan, the cost of getting that collateral, to really put that human quality control when it comes to documents coming into the imaging and into the files. Even more so in a commercial loan."