Any time there are regulatory changes, such as those recently put forth by the Consumer Financial Protection Bureau, there is a direct and significant impact on the technology required by originators and servicers to conduct daily business. Instead of dreading the implications of regulatory changes, originators and servicers should know that adopting a flexible technology solution can help them be compliant and make a noticeable difference in their efficiency and bottom-line.
According to data from the Mortgage Bankers Association, originators witnessed a record-breaking year in 2012 with the volume of home loans reaching its highest point since 2009. In fact, the total volume of home loans increased 11.3% from 2009 to 2012. Industry observers anticipated this growth would occur, but many lenders were unprepared to handle the volume, especially in purchase loans. In fact, resources were redeployed in many cases; meaning that workforce and budget was redistributed to react to the decrease in purchase loan volume and handle the increase in defaults. However, in today’s reality, while default rates are still high, purchase volume is growing. This caught many in the industry off guard. Lenders face the challenge of implementing regulatory changes on both the origination and servicing sides while still maintaining accuracy and dealing with disproportioned resources.
Coupled with new regulations, lenders faced a stiff challenge integrating their disparate loan origination and servicing systems while simultaneously ensuring data accuracy and integrity. These are essential considerations since users must enter more data into the loan processing systems, and those systems must provide accurate analysis of the data to ensure consistency, from origination to servicing. This data entry is necessary now that the lender is required to ensure data accuracy and transparency throughout the process.
Volatile and voluminous regulatory change requires lenders to adapt their origination, servicing and default management technology. Regardless of the issuing agency, rules are mandating how a lender can do business and, as a result, the technology used must be able to support a variety of new and still evolving changes. For example, it is critical that all documents the borrower executes match the data found in the systems. Tight integration between origination and servicing platforms can provide a seamless flow of data, ensuring accuracy and integrity. Technology with that capability can enable FIs to focus on their customers, with the assurance that their systems enable them to adhere to regulations.
It’s also important that whatever technology platform is used helps financial institutions put more control in the hands of the consumer. An example of this is a borrower self-service channel. The lending industry has historically lagged behind banking in adopting robust online and mobile options even though metrics show there is a very high return on investment via cost savings and client retention. And today’s consumers expect—and even demand—the ability to take care of their business through online channels. Twenty-four hour convenience for the borrower and significant cost savings for the lender are primary drivers to online adoption of these self-service channels.
Another driver for self-service that should not be overlooked is the enhanced ability to obtain more—and more accurate—data. Self-service is also an effective way to gather sensitive information about reasons for changes in borrower payment behavior. Self-service provides borrowers with an easier way to report changes in their financial situation, which include a change in employment or marital status, since they don’t have to tell anyone directly. The lender can immediately analyze this information and present workout options to the borrower quickly.
Looking beyond 2013, modernization of lending platforms will be a key driver of customer retention and business growth. Lenders can expect the regulatory evolution to continue to be a catalyst for continued innovation. Servicers and originators that are able to deliver information in real time to investors, consumers, regulators and other third parties will have a clear advantage. Flexible and responsive lending platforms will enable tech-savvy lenders to keep pace with regulatory and consumer demand and leap ahead of the competition.
Monica Orluk is senior product manager for lending solutions at Brookfield, Wis.-based Fiserv Inc.
