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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2003

The Use of Business Rules Engines in Advanced Mortgage Closing Systems

Changing Business Rules on the Fly Essential to Productivity

Mortgage banking operations, along with companies across nearly all industries and market segments, face the ongoing challenge of adapting their processes and policies to reflect a rapidly changing business environment.  Years ago, people alone could provide the knowledge and experience needed to understand and apply rules like those that govern pricing, product features, and the many possible variables associated with business operations.  

Eventually, the drive for increased productivity and faster implementation helped spawn the creation of a powerful and diverse software development industry, with applications proliferating across a broad range of business processes.   Each system was built upon a set of assumptions about what it was supposed to be able to do, and what data it would receive from users. 

Most legacy mortgage closing software programs embedded these assumptions–or business rules–directly into their application logic.  What system users gained was increased productivity for their established processes. However, they lost the flexibility of introducing new processes and policies they enjoyed when only people were involved.  The problem?  To modify business rules that are embedded in the underlying application requires a time and cost intensive process, and the skills of a highly trained programmer.  As a result, when lenders or wholesalers want to make changes to forms, processes or policies, their technology is often working against them.  

Without a flexible solution that allows companies to change business rules on the fly, the hoped for productivity and quality is instead impeded, and costs can potentially soar.

Centralized management of business rules is in demand, for important reasons.

First, business processes are designed to help mortgage operations manage and implement their business strategies efficiently and effectively.  When those processes change, executives want them to be immediately incorporated across all users to fully leverage their benefits. Delays can create confusion across the organization, impact customer satisfaction and even result in fines or penalties in the highly regulated mortgage lending environment.  

Secondly, mortgage lending operations want more real time control of their business rules.  They want to improve the quality, consistency and compliance of their closing packages, while decreasing processing costs. With a clean separation of business rules from application code, business processes and policies are able to be automated and better managed, resulting in immediately improved productivity and bottom line profitability. 

Thirdly everyone does closing documents a little differently! Each lender has certain required forms and data values they require.  To meet this need most existing closing systems typically provide an all inclusive document set that requires the closing agent to sort through the package and discard any forms not required before final signatures are affixed.  Further, in many cases, closing agents also need to have their own custom forms, which they must sometimes prepare by hand and then combine with the final package provided by the closing system.

And finally, a closing package contains a complex mix of data elements that comes from multiple and often independent sources, resulting in outright errors and subtle changes in fields as simple as the buyer’s name which may appear as      “J.Q. Smith” from one source and “John Q. Smith” from another.  

Determining which one to use just adds delays and issues to the closing process.

An advanced mortgage closing package solution must address these key areas of forms customization, validation and transformation. Below are key process areas where an easily updated Business Rules Engine (BRE) brings strong benefits that can enhance and improve each closing.

I. Automatic Forms Package : Customization

While many standard mortgage loan forms are perfectly acceptable, occasions often arise when variations to the forms are preferred or required.  Lenders, originators and even closing agents may need or want to substitute customized forms in their closing packages to accommodate policies or processes; state compliance requirements; to make the loan package more saleable to secondary market investors; or even to provide “branding” recognition.   A Business Rules Engine (BRE) allows users to establish which forms they want used, and under what set of circumstances, giving them a greater measure of control and predictability.  

Wasteful printing of unneeded forms and error-prone, manual replacement and insertion of customized forms is virtually eliminated.  Only the forms specifically designated by the lender’s pre-established criteria are included in the closing package. This not only saves time in preparing for a closing but enhances quality and accuracy by eliminating the human error of inadvertently removing a required form along with an unnecessary one.

II. Customized Data Validation

Mortgage lenders have a tremendous number of variables to contend with, especially those with operations spanning multiple states, and offering a variety of loan types.   Maintaining control of key factors like prepaid finance charges, prepayment penalties, loan-to-value ratios and the varying conditions that affect them can be a staggering challenge. 

Busy mortgage processors, despite their experience and best efforts, will inevitably make keying or information transfer errors.  Inconsistencies like name spellings, addresses, dates, and other repetitive loan data can easily occur, causing accuracy failures and tying up valuable resources to correct.  However with a robust BRE, the acceptable criteria for these factors can be pre-established using simple “if/then” statements.  Using such rules, the BRE can automatically identify data inconsistencies and help maintain high quality results, by invoking human intervention. 

Should data be missing (e.g., no Title Insurance fee entered) or suspicious (e.g., Interest Rate of 66.5%) to the extent that a rule can not automatically correct it, the rules engine can flag these as “fatal” errors and pop-up an identifying message to alert users to make the needed corrections, before completing the closing package.  

Data validation is particularly useful when information is not within a prescribed range, but is still potentially permissible.  By generating a warning message, users can review “iffy” values to make sure a real error condition is not created.  This enables Lenders to make sure that, in spite of possible user error, certain values or fields in the loan closing documents will always accurately reflect the business rules they establish, along with the regulatory requirements imposed by federal, state or local authorities.

Even more powerfully, if the BRE is web services based, it can decide to “shunt” the closing package to another system or person for review or correction. A state-of-the-art BRE can even make such decisions based on “who” submits the order.  For instance, an originator may choose to let their more experienced processing staff review and edit their own closing docs, but set the business rules to automatically forward packages prepared by their less experienced staff to their doc prep vendor for professional review and corrections.

III. Data Transformation

This is maybe the most useful feature of a rules engine.  Changes to designated data or information fields can be triggered using a BRE or alternatively the BRE can assure that data isn’t incorrectly changed by replacing any changed data with original values where appropriate (for instance, data that the lender doesn’t want the closer to change).  

For example, when a mortgage processor enters a standard $13 fee for a credit report, it will be accepted by the system, unless a pre-established triggering event or circum-stance occurs (i.e., a more expensive credit reporting agency is used, requiring the fee to be increased to $15).  In that case, the business rules engine will “recognize” the name of the credit report provider, override the $13 entry made by the processor, and “transform” the amount to $15. 

It can also correct data that has been incorrectly entered, such as set fees, or late charges.  In addition, a well designed BRE will produce a list of all data that has been changed by business rules so the user is immediately aware of anything that has been corrected by the closing system. 

The benefits of data transformation are clear: increased accuracy and automatic quality control, resulting in lowered loan closing costs.  

IV. Automatic Data Population

Yet another important use of a BRE is automatic data population of factors that can be pre-loaded into the system, and updated as required.  For example, state and county tax rates can be incorporated into the system so when a processor enters the location of the property, the correct tax rates can be automatically populated, ensuring that the corresponding closing calculations are accurate.  Other information, like the late charge factors (percentage after what number of days) can also be automatically populated, based on the “if/then” criteria desired.

The Technology

As with any advanced mortgage closing package solution, the business rules feature must have flexible architecture, an easy to understand rules language that has been specifically created with syntax for loan data and document manipulation, and the ability to be scalable as operations expand and contract.  It should be seamlessly integrated into the mortgage closing solution, including the front end (GUI/Browser) and back end (actual processing system).  Closings are hectic enough that a user should not have to actually submit a loan and wait for the documents to be generated to find out if data is outside of pre-defined limits.  Instead, the system should immediately and very clearly show what changes or recommendations are generated as a result of the automatic BRE package review.

In addition, the system should be able to share business rules across all users of the system.  For example, if the mortgage closing solution utilizes an ASP model, all rules can be centralized and applied to any loan that is processed through the system.  Since the front-end GUI is connected to the back end system via web services, the GUI has visibility to the complete rule set while the loan data is being edited.  This means that a lender could add a business rule to one of its loan programs, and it would immediately be applied to any loans of that type being processed by brokers and their staff across the lender’s organization. This can make the difference between immediate compliance and an effort that can (realistically) stretch out over several months as individual offices must be updated, one at a time!

Finally, with the use of web services, a state-of-the-art rules engine is capable of sending the loan to another system or person for review and further editing.  The system should also be able to “lock down” certain data fields so that after underwriting, closing agents are not able to change key values, without contacting the lender for override authorization.

Conclusion

Today, the need for a robust business rules engine as part of a mortgage closing package solution is more important than ever.  Mortgage bankers may have hundreds or even thousands of brokers across multiple states, resulting in highly variable closing package quality,  unauthorized post-underwriting changes, miscalculations or Section 32 violations, and a myriad of other mistakes that cost lenders thousands and even millions of dollars each year.  By selecting a mortgage closing solution that includes an easily updated Business Rules Engine, and implementing it across their organization, lenders can take back control of the loans they are funding and immediately increase their profits.


 


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