Chatter surrounding the TILA-RESPA Integrated Disclosures is increasingly focused on whether the mortgage industry will be ready by the Aug. 1 implementation deadline. Hiring additional labor to deal with TRID requirements might seem to make business sense, but as the industry struggles with rising loan origination costs, lenders would be better served by adopting technology to automate the quality control process.
In fact, as many as 41% of mortgage lenders are not ready for the Aug. 1 deadline mandating TRID implementation, according to a survey of lenders who attended the Mortgage Bankers Association's annual technology conference in April.The survey polled more than 100 executives from leading mortgage lenders, and also uncovered that more than two out of three lenders have hired additional staff (or additional outsourced labor) to handle compliance-related tasks.
According to the MBA, personnel-related loan production expenses are now routinely averaging more than $4,000 per loan, expenses that have increased steadily over the past several years. And the increase has been dramatic. Today, personnel-related loan production expenses are more than double what they were in 2009.
The multiple touches that lenders now use to check and re-check loans have resulted in a dramatic slowing of the rate of loan production. According to the MBA's most recent Quarterly Mortgage Bankers Performance Report, the average number of loans originated per production employee is just over two per month, a mere fraction of the double-digit productivity of production employees before the housing bubble burst. (In this calculation, "production employees" include a number of other roles in addition to the underwriter.) Increasing labor costs and anemic production per employee are threatening not only profits, but for some lenders, their survival.
Hiring more staff to handle TRID compliance, or any other compliance check, compounds this problem and is an unsustainable model. Relying on labor is not only costly, but it isn’t scalable as loan volumes increase, or as more compliance regulations are enacted, because further increasing labor costs drives up production costs to the point where loans become unprofitable.
Human error can never be eliminated from labor-based activity. Adopting technology that automates much of the loan origination process, including quality control and compliance checks, is a much better option for lenders.
For example, data extraction technology can be used to mine critical data from a number of loan documents, compare values, run the data through a rules engine and flag any values that fall outside established rules.
This kind of automation replaces the "stare and compare" practice in which a person looks back and forth across two or more documents to verify that information is complete and accurate, and performs calculations on selected data. In the labor versus technology choice, the right technology wins every time.
In the same Capsilon TRID survey, four out of five lenders reported that they believe loan origination costs will continue to rise in 2015 as they deal with compliance-related activities. A major factor in the run-up of personnel-related loan production expense has been the increase in spending on labor to handle quality control and compliance activities, which have taken center stage. With nearly 1,000 compliance changes since 2008, the mortgage industry is struggling to keep up, and it’s getting expensive.
Technology not only expedites the process, but ensures a consistency of procedure that eliminates human error. Hiring additional staff, or additional outsourced labor, may be a temporary fix, but over time is an unsustainable approach.
The mortgage industry is finally beginning to see that technology, not labor, is the answer. According to the survey fielded at MBA Tech, 82% of respondents plan to spend more on technology in 2015 versus what they spent in 2014. Smart lenders will adopt innovative technology to automate much of the loan process, including compliance checks. How does that saying go? Oh, yeah. Innovate or die.
Sanjeev Malaney is the CEO of Capsilon Corp.