Pricing Engines Help Originators Comply With New Rules
Compliance with loan origination regulations is one of the features that product and pricing engines bring to table, said several expert on the topic.
Brian Fitzpatrick, president and chief executive of LoanLogics, Fort Washington, Pa., said his company’s background is the perfect example of that reasoning.
LoanLogics was formed in May through the merger of compliance technology provider Aklero and product and pricing engine firm NYLX. The company believes from a trend perspective that product and pricing engines have moved from a tool to help sell loans to a “compliance-ready tool” for use by originators, Fitzpatrick stated.
It started when changes to the good-faith estimate rules require fees to be stated more accurately. Lately, it has been getting more intense as the rules mandated under Dodd-Frank go into effect, he said. “So the trend is all about compliance right now.
“This is paramount to the industry. It’s not just about originating and maximizing revenue. It is about doing so profitably and through risk avoidance and proper risk management.
“And the pricing aspect of it is very, very critical to originating loans compliantly,” Fitzpatrick said. The company had looked at loans in doing its compliance work and came to realize pricing is a major component for the front end of the process.
But also, it is important for product eligibility criteria as the loan is examined pre-closing and post-closing. It is not a function that loan origination systems are not well equipped to handle and one they should not be handling, he continued.
Compliance is big part of all aspects of the origination and loan servicing processes today. And add in the new qualified mortgage rule, which is just one more rule that needs to be a part of product and pricing loans.
The Castle & Cooke situation shows that the Consumer Financial Protection Bureau “is not kidding” regarding pricing compliance issues, Fitzpatrick said, adding loan officer compensation needs to be addressed in a company’s pricing model. The product and pricing engine is the place that makes the most sense to get a handle on LO compensation.
Product and pricing engines are the first touch point with the borrower, said La Jolla, Calif.-based ClosingCorp’s chief technology officer Tim Armbruster. So it is important to take the data that is input and incorporate it into the GFE and preliminary HUD-1 and making sure those fees are compliant at the final closing table.
That is the ideal situation from the borrower’s perspective, he noted. If the information is not accurate, the customer is not getting a true price or correct product from the system.
“To really shop for a loan, you need more than annual percentage rate, lender fees and points. Different loan products can have different impacts on closing costs,” Armbruster said. For example, for a Veterans Affairs-guaranteed mortgage, there are rules on who can pay certain costs. Other products have other requirements.
If the intent of using a product and pricing engine is to give the borrower a true comparison among products, there needs to be a way to calculate the monthly payment, as well as the cash the borrower needs at the closing table and the overall closing costs.
To do that accurately, there needs to be a much larger data set and Armbruster recommended originators use the same provider starting at the produce and pricing engine and going through the disclosure process. The provider of the GFE data needs to stand behind that all the way to the closing table. This is the only way to have a consistent user experience throughout the process, he declared.
Brian Koss, the executive vice president of Mortgage Network Danvers, Mass., said his mortgage banking firm has its own proprietary technology. It built its own web-based loan origination system, including a product and pricing engine. One of the reasons is because other systems had flaws and there were always doubts about the information being returned, especially with nonconforming products.
The company sells loans to smaller banks which put them into portfolio. But those companies are not as information savvy.
“There was no one system that could do it all,” but Mortgage Express is able to link this LOS link with its hedge system and its secondary management system, as well as with automated underwriting systems.
Its system is loan officer facing instead of consumer facing. Besides figuring out the best execution it helps to avoid any mistakes in pricing. From the company’s perspective, Koss said it is vital to have these filter built into the system so no one, not the borrower, LO or company, gets hurt.