Buybacks and other foreclosure crisis-related concerns are changing the mentality of originators. And nobody can see it more clearly than vendors who are trying to keep up with their clients’ mortgage technology needs.
Client demand indicates lenders are now focusing on loan management and automation that secures 100% quality control before closing, Michael Smaney of Pegasystems Inc., Cambridge, Mass., told this publication. Lenders are concerned about loan buybacks, a problem they expect “will continue to plague the mortgage origination space” in the next few years.
The ongoing crisis and an increase in GSE loan repurchase requests has definitely been a catalyst for change, adds Pegasystems financial services industry solutions principal Tony Young.
Vendors are expected to improve loan origination processes so they are error proof in structure and user friendly, Young says. Current market developments are also making clear that mortgage lending needs to be a customer friendly experience. And to do that, he says, lenders need to build a more manageable loan origination system.
Loan origination systems are not always structured to provide case management support that enables users to set up loan origination criteria and then automatically follows up to ensure the criteria are met.
Case management and process automation are key, Young says.
Such tools “start the clock” on a loan application and by design follow all the steps a loan officer needs to take within a specified time frame and in compliance with other origination requirements.
The Pegasystems origination platform is one such option that offers as an added bonus the flexibility to connect to and supplement existing LOS systems that serve as a clock-watcher for the lender, says Young. The “case manager” is the most important since it is the existing LOS that takes the loan application and registers borrower’s information.
The production site enables existing staff to triple their loan origination flow and maintain the required quality control level. In the longer run it is bound to help users minimize the number of requests for loan repurchases or buybacks. “It means once they go through the bubble of the existing repurchases,” lenders face a much smaller risk to accrue losses from buybacks. “Not only will they comply with regulatory requirements but also stay ahead of them,” he says, which is not an easy process.
A retail or correspondent lending operation requires the management of a total of about 2,500 regulatory compliance checkups. On average, executives said, once a loan is approved and gets a specific product assigned, anywhere from 300 to 400 regulatory requirements apply. So lenders need audit and QC systems that ensure these rules are updated.
Plus lender-servicers need to be alert and manage subsets of rules that may apply to each loan due to future changes to ensure they stay in compliance.
Young sees the discrepancy between a document and the data in it as one of the biggest challenges originators continue to face, which is why Pegasystems developed a solution that tends to the data and document integration problem by eliminating the need to engage loan officers in manually going through loan compliance checkup lists.
During this process recording mistakes could also play a role. For instance, a homebuyer initially intends to purchase a single-family home so the loan is recorded as such. But if instead right before closing the buyer opts for a condominium, then compliance requirements will change, too.
