This time of year focuses our attention on patriotic topics more than during any other season. As we celebrated Independence Day this month, many of us remembered the sacrifices of those who have gone before. We honor their commitment by renewing our own vigilance and keeping a close watch to avoid finding ourselves in dire straits.
Conventional wisdom tells us that most disasters can be averted or minimized through proactive steps. For myself, being watchful and aware conjures up the image of the Minuteman: protecting the colonists’ homes and families.
During the Revolution the Minutemen were there, responding immediately, assessing threats, and providing crucial intelligence. When the landscape was filled with doubts, delays, and risks, they were the first to confront the enemy. As the years of conflict wore on, they continued to improve in terms of assessing threats and bolstering defenses.
As a mortgage industry professional and recovering history buff, I can apply this same analogy to threat assessment in the lending world as well. From our shared history over the last several years, we can all admit that we have learned and re-learned lessons that exposed a lack of vigilance at our core. We failed to recognize the people and groups who posed threats to our industry. And in the cases where we did identify bad actors, our first lines of defense did not go far enough in tracking those participants.
During this same time period, lending technology has experienced an industrial revolution of sorts. In reaction to the mortgage industry’s woes, and in some cases in spite of them, technology has marched on giving us new tools, techniques, and tactics that enhance our ability to be vigilant.
Although enforcement efforts have increased, everyone should recognize by now that we will not prosecute our way out of these problems. Knowing your enemy remains the best possible deterrent.
Unlike the British Red Coats confronting continental militias, our enemies are not wearing brightly colored uniforms. Unless you have had some previous exposure to the enemy, how would you know to exclude them from your business? Would identifying their favored tactics be enough? Effectively sounding the alarm requires the power of consortium. Linking databases to exponentially increase the ability to identify enemies is key to success.
Regulatory groups have sought to promote collective action in order to provide a more robust response to activities negatively impacting mortgage lending. Through FinCEN, the Department of Treasury has increased focus on the AML/BSA through SAR filings, just as quality initiatives such as LQI from Fannie Mae increase loan quality. Both are aimed at strengthening the mortgage industry. These are profound and noble efforts to be sure, but they are strategic campaigns and lenders still need low cost tactics and tools to stop losses before they occur.
The new regulatory environment demands much better data quality at the same time it imposes higher penalties for failures in the origination process. Just as the Minutemen’s alarm system linked the Revolutionary frontier towns together, the linked databases that power today’s automated data integrity systems—with their ability to query the names of individuals and businesses—are the best defense the mortgage industry can field. Making immediate, actionable intelligence available prior to the point of sale is today’s call to arms.
To meet that call, we need to be able to assess the threat a particular person or entity poses to our business in the time it takes to swipe a credit card. What we really need is the right to share information within the industry. This is the approach used by the FBI, FinCEN and service providers such as Interthinx to turn data points into actionable intelligence. With the power of aggregated data powering its defense, a lender can make an intelligent decision whether or not to proceed with the qualification process well before time and money are wasted by processing loans for excluded parties.
We need the ability to “link arms” in order to meet the standards of the new regulatory environment. Only then will we know whether it’s “one if by land, two if by sea.”