Improved electronic document management can help mortgage originators manage expenses and boost productivity at a time when profits per loan are at a record low. It can also produce a side benefit: fewer annoyed customers.
Often, the information on a loan application fails to make it through the chain to the various parts of the origination process. The data entered into the point-of-sale system, the first point of interface between a consumer and an originator, is not effectively transferred to the underwriting system, and so forth. The results are costly for the lender—and frustrating for the borrower.
"I've been through the origination process as a consumer, and I don't know how many times I've had to supply information—what's my name, what's my telephone number—at various stages," says Joe Dombrowski, the chief mortgage strategist at Fiserv, based in Brookfield, Wis. "Underwriters never seem to have all the information they need; why is that? Well, because there are inefficiencies as data gets moved."
At one time it might have been cheaper to throw people at the problem to reenter data into the various systems than to improve a company's processes and workflow, but that is no longer the case, Dombrowski says.
Lenders have come to Hyland Software, the Westlake, Ohio-based technology firm which produces the OnBase enterprise content management software, looking to reduce or eliminate the costs involved with physically shipping loan documents to investors. For example, a bank in Mississippi came to the company looking to cut out $300,000 in document shipping costs.
"Customer service was down, the competition was getting an edge. That is a typical prospect who comes to us," says Michelle Harbinak-Shapiro, Hyland's financial services manager.
The financial institution is looking for a solution that optimizes and streamlines the loan process from start to finish, while maintaining accuracy and making all actions auditable and traceable, she says.
Systems like OnBase not only digitize the paper process but also automate the workflow of the loan origination process. The use of keywords to facilitate automatic indexing of documents—making sure the image goes to the right place in the right electronic file—improves productivity for loan processors and underwriters. This also includes email communications with the client which need to be documented.
"It is being able to have your workers, your loan officers and your underwriters stay in their familiar applications and be able to capture that information instantly and get it with the rest of the package," says Harbinak-Shapiro.
Proper workflow is a big part of the solution to the data-dissemination problem. In 2004, founders of technology company Capsilon went into a number of lenders' offices and did a detailed study of how the paper moved about during the origination process.
It found the real heart of the process of originating a loan was in the paper files, not in the loan origination system, says company founder and chief executive Sanjeev Malaney.
Documents must pass through four basic stages in the origination process. First, the information which comes in through various sources needs to be treated in a standardized fashion. Then the information is prepared in order to make it efficient for the underwriters to do their jobs. This includes communication with others involved with the loan; Malaney calls this the collaboration stage.
Third is the delivery stage, where the file is sent to the investor. Finally there is record retention, where the information (including who has worked on the file and when) has to be retained and kept accessible.
From the start, Capsilon realized, "if you are going to do this electronically, you have to make it more efficient, cheaper and have substantial reduction in cost or you are not going to get anybody to invest in any technology," he says.
So it developed and patented automated document recognition technology. Rather than requiring employees to go through several hundred pieces of paper, there is a user interface and search function to find the right document, Malaney says.
Time is not being wasted (and productivity is enhanced) and the information is centralized. "You don't have to go running around the office asking, 'Who has the Jones file?'" he says.
Most recently, Capsilon, headquartered in San Francisco, has introduced a method to scan a document for pertinent data to make it even easier for an underwriter to find and see the appropriate information.
People are not looking for the documents, they are looking for the data, he says. Rather than send the application to an underwriter, it should first be put through a rules engine for scrubbing. Only if the application has a piece of information outside of the rules parameter should it be sent to a human underwriter, he says.
This helps to reduce costs and standardizes the process. "That is the next big frontier in document management. It is not about the documents; it is about the data which facilitates a high quality business process," he says.
Starting with electronic documents is the most effective way to get to the electronic closing, which has been a goal for the industry and now for the Consumer Financial Protection Bureau, he continues.
Not only should the mortgage industry work to remove paper from the process as much as possible, "we have to eliminate it. It is a matter of time before lenders who don't make the effort will be written up by organizations such as the CFPB," Malaney says. This is because of consumer data protection issues; paper lying around an office is a severe point of vulnerability.
The government has also given its blessing to electronic signatures. For example, consumers are allowed to e-sign IRS Form 4506-T, which is commonly part of the origination package; this form allows the mortgage lender to obtain a copy of the borrower's tax returns.
The latest thing Hyland is working on is e-signature integration with its system. The aim is "making sure that the loan process 100% enables the e-mortgage," Harbinak-Shapiro explains.
"Everyone has been talking about this for years," she says. "With digital signature capabilities and being able to capture that, whether it is in the cloud or not, and getting that loan processed that much faster, that is really where we are focusing our newest lending technologies on."