Will FHA’s overhaul of its technology and infrastructure help the agency be all it can be for lenders and brokers?
If the real estate market remains flat for the foreseeable future, one thing is absolutely clear for mortgage technology vendors and service providers: Their primary mission will be to help lenders and servicers lower their costs. Lenders will be looking to technology tools that leverage FHA Connection, electronic case binders and FHA TOTAL Scorecard to give them time and dollar savings.
At this writing HUD was contemplating, though it had not enacted, changes discussed in earlier Congressional testimony that would tighten credit and downpayment requirements, reduce allowable seller concessions from 6% to 3%, and tighten underwriting standards for manually underwritten loans. As noted in the July 19 edition of the National Mortgage News, the GSEs' tightening of their credit requirements is pushing loans to FHA, particularly in the purchase market. In the first quarter, according to Brian Collins' story, FHA insured 245,600 purchase loans while Fannie and Freddie together acquired only 184,500 single-family purchase loans between them.
Though the complexities of FHA lending are being mastered by more and more lenders, some find it easier to outsource FHA insuring and fulfillment. An outsourcer can deliver expertise and onsite personnel to take the headache out of FHA lending, said David Green, president of The StoneHill Group, Atlanta. While that option may be cost prohibitive for many smaller players, “For projects in a larger scope for bigger lenders, The StoneHill Group provides a level of expertise consistent with and or greater than what the lenders expectations are as well as a variable cost option for their business model,” he said.
Whether applied directly or via an outsource firm or business partner, mastery of the technology tools for FHA lending is proving to deliver clear competitive advantages, fewer headaches and increased loan volume.
Lenders can have greater peace of mind when FHA processes and compliance tools are baked into the LOS. At Lenexa, Kan.-based LenderOne Financial, reported president A.W. Pickel III, FHA loans for the first six months of 2010 are up 25% over the same period last year: $112 million vs. $79 million. A Mortgage Builder user, he said, “I don’t have any complaints about FHA. We’re getting stuff done pretty well.”
“Mortgage Builder was initially created as a fully integrated system with FHA in mind,” said Mortgage Builder sales VP Bill Mitchell. He noted that MB integrates 60 fields with FHA Connection, saving users like LenderOne and Michigan-based People's State Bank a half hour with every FHA loan they do—and reducing errors significantly.
"Moving through the 60 or more required fields happens more quickly and in a manner that is conducive to an ordered workflow," said Allison Renaud at Peoples State Bank, a Mortgage Builder user for over a year at this writing. "That additional 30 minutes per loan is reflected not only in the bottom line, but in the time required to respond to the borrower," she noted.
“Loan origination during the refinance boom was about volume and getting more loans closed regardless of the resources needed and their incremental costs,” said MB’s Mitchell. “These days, with more stringent guidelines and greater difficulty in qualifying, it is about efficiency. The resurgence of FHA has made the process less forgiving than in the past, and all the additional challenges have made the role of the LOS more important than ever.” He stressed that linking with FHA via the LOS saves lenders money as well as time and makes it easier to obtain case numbers, CAIVRS authorizations (Credit Alert Interactive Voice Response and System) and refinance authorizations.
In earlier stories we described how Xerox and Virpack mastered electronic delivery of case binders from their lender customers to FHA. “HUD requires delivery of a fully indexed case binder meeting very specific requirements that are compliant with MISMO’s e-packaging and SMART Doc specifications,” said Wayland Pond, VirPack’s vice president of sales and marketing. “VirPack’s e-delivery application allows lenders to efficiently deliver to HUD in just one click, simplifying their current paper process.”
Guarantee Title said VirPack has enabled them to reduce the time it takes to submit files to HUD by over 50%. “We literally can deliver a file in about a minute—and we no longer have to prepare paper files and ship them overnight,” said Debbie Marsteiner, vice president, Guaranty Trust Co. “In a market that continues to have daily volatility, it’s reassuring to know we can count on VirPack to support even the most detailed structured content and since integrating their solution into our processes, we’ve simplified not only our fully indexed electronic delivery to HUD but our electronic delivery to all our investors.”
Now surging way beyond e-binders and FHA Connection, FHA has embarked on an ambitious overhaul of its processes and technology, issuing a series of requests for proposals, and budgeting a reported $250 million to overhaul itself. In August 2010 the General Service Administration announced that Deloitte & Touche has been awarded a $62 million contract to aid HUD in carrying out the overhaul. “The identification and prioritization of the need to modernize FHA's technology infrastructure was articulated in great detail in the FHA IT Strategy and Improvement plan submitted to Congress in August, 2009,” said one RFP. “The FHA IT transformation team worked throughout the spring, summer and fall of 2009 evaluating the FHA's current systems capabilities and business processes and identifying weaknesses that require correction.” The RFP identified 25 priorities. The first four named were risk and fraud mitigation, multifamily business process re-engineering, FHA infrastructure (CHUMS replacement) and single-family automated underwriting system implementation.
The FHA has been looking for an AUS of its own. Time will tell how that plays out. Meanwhile, in an anemic market with fixed costs eroding margins and commissions shrinking, lenders and TPOs continue to endure the expense of reaching FHA TOTAL Scorecard via LP and DU. “Fannie and Freddie are raking in a quarter billion dollars apiece off of fees, $35 apiece for all their certs,” said MORTECH principal Jeff Lebowitz. “That hurts when you are hitting them just to get to FHA.”
While the development kit for TOTAL is openly accessible on the FHA website, since its introduction in 2003 until 2009, FHA had approved TOTAL scorecard interfaces for only a few AUS systems—LP, DU, Chase's Zippy and Countrywide CLUES. Now FHA has added four approved vendors to the list: Avista Solutions, Loan-Score Decisioning Systems, MeridianLink Inc. and Overture Technologies.
TOTAL (Technology Open To Approved Lenders) Scorecard interfaces beyond LP and DU can be an obvious boon for mortgage originators. However, that creates a divide between LOS systems that include an automated underwriting system and those that do not, because TOTAL Scorecard offers an algorithmic equation to use with an AUS, but is not an AUS itself. Mortgagees have to process requests through an AUS that has a TOTAL Scorecard interface if they want to underwrite FHA loans electronically. It is especially valuable to do that because now, reversing its previous policy, FHA allows lenders to score, process and underwrite streamline refinance transactions through TOTAL.
Last year Columbia, S.C.-based Avista Solutions made itself the first LOS to secure FHA approval of a direct interface between its decisioning engine and FHA TOTAL Scorecard. Said Avista CEO Mark Phlieger after announcing that his company received approval, "By interfacing our automated underwriting capability with the TOTAL Scorecard, originators can get answers very quickly, without data reentry and other inefficiencies that can lead to mistakes and delays." Phlieger said, however, that Avista has been too busy with new business this year to evangelize investor acceptance of TOTAL findings through its AUS. The company said it has grown its customer base by over 40% since the start of 2009.
Among AUS providers, Irvine, Calif.-based Loan-Score Decisioning Systems has been the trailblazer in gaining TOTAL Scorecard approval, and the first to gain investor acceptance. Loan-Score reported that Wells Fargo and Chase have started accepting Loan-Score’s TOTAL scorecard findings, with Bank of America and GMAC “in the final stages of acceptance analysis.”
To extend TOTAL access to originators beyond its existing customer base, Loan-Score built out Web services “that allow our LOS partners to enable their users to click a button from within their LOS and seamlessly return FHA eligibility results without ever leaving their existing application,” said Loan-Score SVP Joe Bowerbank.
In its most recent alliance, Loan-Score has embedded its product-and-pricing engine and AUS into the screens of Calyx Point, with a drop-down menu in Point “that allows the user to seamlessly connect to Scorecard” and obtain a certification insured by HUD’s Homeownership Centers.
For wholesale lenders like Kansas City, Mo.-based United Fidelity Funding, that Loan-Score integration with Point is an obvious boon. “We have a Calyx Point server independent of our other systems,” said United Fidelity COO Kevin Marconi.
“Regarding the savings which we realize each year by utilizing Loan Score FHA AUS vs. DU or LP,” he said, “we have saved over $80,000 the first half of this year alone. The true savings realized though is a lot more difficult to measure. The granular integration of the AUS into the front-end point of sale, as well as the field-by-field integration with the back end automated operations—which then flows into our vendor services and quality control systems—is where the savings are truly captured. The entire process starts at point of sale, though, with the AUS.”
Marconi stressed that this is not a benefit United Fidelity Funding could have enjoyed using LP or DU.
If you go to BrokerFHA.com you find technology that gives a double boost to wholesale lending. Deployed by Irvine-based Nations Direct Mortgage and leveraging the wholesale portal powered by Loan-Score, BrokerFHA.com uses Comergence Compliance Monitoring as an automated clearinghouse for performing TPO due diligence to deal with FHA’s new requirement of lenders to vet TPO compliance with FHA rules.
“Many wholesale lenders are waiting on FHA to clarify the rules of the game moving forward before taking on TPO approvals and management,” said CCM. “However, through the CCM TPO due diligence and monitoring system, lenders can rest assured that TPO review and approval procedures will meet and exceed any standard FHA chooses to adopt.”
Following a comprehensive due diligence process, CCM issues lenders a comprehensive report on a potential TPO partner “that allows lenders to quickly make a decision to approve or deny the TPO’s application.”
“I was a bit leery because we were doing it manually before,” recalled Nations Direct president Carl Vernon. But a demo of the site convinced him that Comergence performed a thorough check encompassing SAFE Act compliance and all state and federal loan officer licensing requirements. Once brokers are vetted and approved by CCM on theBrokerFHA.com website, they get a major bonus: free access to Loan-Score, saving them the $35 they otherwise would have to spend to run all their FHA loan applications through TOTAL Scorecard. “They don’t have to go through DU to get to me,” said Vernon.
Though not all Loan-Score clients among the wholesalers are likely to offer this free access, it seems obvious that many will continue to leverage providing TPOs that cost, saving in order to cement their loyalty.
Like many other veteran mortgage brokers, Guerneville, Calif.-based Cindy Wright went to work for a Big Four megalender after the market collapsed. Then, with loan closings taking too long and commissions too low to make a living, she left to do business on a net-branch basis with a nondepository correspondent lender, Utah-based Primary Residential Mortgage Inc. In the transition she swapped out Calyx Point in favor of Ellie Mae Encompass. When she found out there was a less expensive alternative than LP and DU for accessing FHA TOTAL Scorecard, she said, “I hope Encompass is going to be doing this, too. It kills you to pay $35 every time you look for an FHA decision.”
Knowing what a shot in the arm convenient access to TOTAL can be, Loan-Score EVP David Colwell encourages fellow vendors to endure the lengthy approval process. But is that slowpoke process really necessary? Maybe Deloitte can speed things up for the best-of-breed providers so they can all help FHA better perform its mission.
