How the industry inadvertently prepared itself for today's market over the past decade
Ten years ago, there was no such thing as an iPhone, a Prius, or Facebook.
Ten years ago, loan files were made of paper and prices were distributed on rate sheets.
Ten years ago, most mortgage lenders used a generic point-of-sale tool (like Genesis, Contour or Calyx) to start a loan application, created paper log files to track activity in the back-office, and relied on Excel for reporting and managing trades.
Ten years ago, there was no end in sight to the appreciation of real estate...and hence the money that could be made in mortgage banking.
As we tip towards the end of 2010, it is obvious that times have changed. Not only does the mortgage industry actually have limits on how much money can be made off of a single loan, but there are now also strict regulations to ensure that things don't get out of hand again. If that wasn't bad enough, we are also in a "vanilla" market where lenders essentially only have customer service as a differentiation tool to their customer.
The good news is that over the past 10 years the technology available to the industry has advanced in a way that has made it easier to cope with these recent changes.
Three primary drivers are empowering mortgage bankers to survive through this tumultuous period in the marketplace: automation, solution partnerships and paperless lending.
Automation in mortgage lending is the utilization of technology to supplement the decisions and tasks that humans traditionally do when working a file from origination to closing. An example of relevant technology that has developed over the past decade to automate lending is workflow control. By leveraging software throughout the lending process, a mortgage banker can activate business rules that audit the data being captured and compiled about a loan file and stop the process as soon as things go askew-before they become expensive mistakes. Because the lender can modify and add to the library of rules used to automatically audit files, this type of system enforces their business policies even as those guidelines change frequently (as they do today). They can also add field-level user security that can restrict what data elements a specific user can edit-and have those rights change as the loan progresses through the process.
For example, automation can be used to confirm that all of the data needed for HMDA reporting is captured prior to an underwriter approving or denying a file. If information is missing, instead of being able to record the file as approved, the system would alert the underwriter that the HMDA data is incomplete. If the HMDA reporting requirements change (due to regulatory adjustments) the business rule would simply be updated and the lender would continue to be in compliance.
Without this type of automation, which is fairly commonplace today compared with 10 years ago, keeping up with the rapid changes we have experienced (starting with the subprime meltdown in 2007) would have required a massive toll on staff to get and stay trained. Because keeping team members up to speed on current rules and regulations is easier said than done, many lenders would have most likely found they were unable to stay in control of their business-and would have paid the price over time.
By leveraging automation, lenders are more easily able to enforce corporate policies-mitigating their overall business risk. And the security around data manipulation further controls risk by limiting which people on their staff can impact a loan.
With vanilla products and razor-thin margins, customer service has become the one business element lenders can control to give a competitive advantage. Fortunately, the past 10 years has seen wonderful advancements in the automation that impacts a customer's experience. For example, when a borrower calls a loan officer with a question about their loan application, they want an instant and accurate answer. In today's world they should accept nothing else.
Pre-2000, it would have been acceptable for an LO to take down the question, hang up on the borrower, call the underwriter, pepper them with questions (disrupting the back-office workflow) and then call back the borrower (sometimes hours later). But today, they can leverage Web accessibility tools (like DataTrac Web) that empower the sales channel (wholesale and retail alike) with real-time information directly from the back office. So when the borrower calls, the LO can instantly access all outstanding conditions, lock status, loan file documents and fee information-all without ever leaving the borrower hanging or bugging the back-office staff.
Without this kind of customer service capability, a lender would be unable to compete in this market.
The second big factor that has evolved over the last decade to help us all cope with the current market is the alignment of service providers working together to provide what appears to be a unified, comprehensive solution for a lender.
There are nearly a hundred vendors offering services to mortgage bankers. Most have evolved their business so that they are indeed a specialist in a small part of the big picture of lending, compared to being a generalist across the entire process. For example, the folks at Optimal Blue are considered to be one of the most accurate and responsive loan pricing and eligibility platforms, while DocuTech is a leader in compliance through documentation, QuestSoft is the regulatory compliance expert, and DMD is the best at lending automation.
It would be nearly impossible for a single vendor to provide the depth of expertise and experience across pricing, compliance, regulations and automation that these four companies can offer.
However what has changed over the years isn't just the introduction of more and more service providers, but the fact that each provider has selected a specialty and hones in at being the best possible at delivering that service.
What truly makes this vendor specialization work for the lender, however, is the fact that most players in the space have found a way to integrate their offerings. By seamlessly trading and updating loan data across various systems, the lender's experience feels like they are working in one platform-no data rekeying, smoother workflow, a better user experience.
Part of what makes this vendor integration possible is that over the past 10 years a data exchange standard has been developed in our industry by the Mortgage Industry Standards and Measures Organization. A collection of vendors from across a variety of areas of the mortgage banking space worked together (originally under the direction of the MBA) to develop an agreed-upon method for vendors to share data. Although not a perfect solution, the MISMO standards significantly eased the burden that vendors faced in prior years in getting their systems to "talk nicely" to each other.
The result is that just as lenders have found the need to select expert systems to support each part of their business, the vendors they work with can deliver a unified, seamless experience for their customers.
The third advancement over the past 10 years that helped position lenders to survive the industry implosion was the advent of paperless lending. Note that being a paperless lender means more than just scanning documents into PDF file. It means that from the beginning to the end of the process the loan file is imaged. It means that users can mark-up pages, reorder documents, save old versions, and take advantage of workflow enhancements that naturally happen when you aren't tethered to a physical file.
One of the biggest impacts being paperless has had on lenders today is the ability to instantly deliver the loan file to their investor when they are selling the closed loan. Even better, with an electronic document management solution (like DataTrac EDM), the file is automatically audited to find any missing required documents prior to shipping the file-thus avoiding costly suspense issues. Over the past couple of years, facing a lack of warehouse lines, this instant delivery has been critical in helping lenders survive highly constrained funding capacity issues.
Further, unlike with paper files, in a paperless environment an unlimited number of people can be viewing and working a loan at the same time. For example, let's say an underwriter is working on an approval at the time that a lock request comes in. In a paper world, the lock desk staffer needs to walk over to the underwriter to "borrow" the loan file to review it for completeness before approving the lock. This disrupts the underwriter and is not an efficient workflow. When paperless, the lock desk can review the file while the underwriter is in it-without disrupting the underwriter.
Simultaneous access to files is particularly helpful for lenders that are making the switch from wholesale to retail by acquiring broker shops and converting them to branches. Additionally, not only does the multi-user support accelerate the overall workflow, but it also dramatically reduces the cost of overnight shipping physical files across the country.
Finally, being paperless also dramatically improves the audit process-and audits are becoming more and more problematic in today's highly regulated environment. In a paperless office, users can search for and retrieve the entire loan file in a matter of seconds. So, when an auditor shows up looking into loans from a couple years ago, lenders can instantly retrieve the entire file (including those facedown pages you were keeping just in case). Not only does this help the audit process go smoother, but it also shows off a highly sophisticated system to the auditor (putting them in a positive frame of mind).
Today's market is dramatically different than it was 10 years ago. But with advancements in technology around back-office automation, vendor solutions and being paperless, the ability to adapt to this new world has been relatively easy-way easier than if these changes had taken place 10 years ago. The question lenders need to ask now is whether or not they are leveraging everything they need today to thrive and grow in today's challenging marketplace? And, what should they be thinking about in their business today that will make them a viable and thriving company 10 years from now?
Rob Katz is the president of Del Mar DataTrac, San Diego, and a mortgage industry veteran with more than 20 years' executive-level experience.
