Enter your e-mail address and password below.


Forgot your password? New User? Register Now.
   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2007

Be Compliant — and Profitable

An outsourcing strategy can mean you don’t have to pick sides

A mortgage broker’s business can be a real balancing act.

On one side, there’s a desire to focus on tasks that result in direct financial return. On the other, there’s a continuing need to comply with an ever-expanding list of lending laws and regulations.

It’s a difficult balance to strike, even under the best market conditions. Pile on the effects of the highly publicized nonprime fallout, creeping interest rates and an overall increase in competition for loans, however, and it’s no surprise that more loan professionals are finding it hard to stay on center.

In this period of change, brokers must understand the value of the time they dedicate to compliance-related activities. More important, they must determine whether an outsourcing strategy for some of those activities could improve their short- and long-term profitability.

Two common tasks, Fair and Accurate Credit Transactions Act (FACTA) fulfillment and document storage, seem to pass the outsourcing test.

FACTA fulfillment

Since 2003, all loan originators have been required under FACTA to mail a series of notices and disclosures to their prospective borrowers. Although it’s a relatively simple matter of printing the Notice to Home Loan Applicant and Credit Score Disclosure pages, stuffing them into an envelope and mailing them, this fulfillment process still takes time and effort — and loan originators must perform these tasks within three business days following the application activity.

This process is a classic example of a seemingly small task that actually takes a growing amount of brokers’ valuable resources — and can be easily outsourced.

Outsourcing it to a trusted vendor, such as a credit-information provider, can give brokers an opportunity to recapture those resources and re-allocate them to loan consultation, customer service or other efforts that could have an immediate impact on their organizations’ financial health.

In addition, vendors who provide FACTA-fulfillment services through an automated process can typically generate reconciliation reports that summarize mailing activity. These reports allow brokers to stay organized and can provide a valuable backup in case of an audit.

For brokers, the move to outsourcing these tasks typically involves authorizing the vendor to send the required disclosures on the broker’s behalf. Once that’s done, the automated process kicks in, and the fulfillment vendor generates all of the required documentation each time a credit report is pulled.

Costs for this service are generally nominal, starting at around $5 per file (including all labor, materials and postage) and often decreasing with volume-driven discounts.

Compared with the prospect of having a salaried or hourly employee perform the same functions, it’s a small investment. And compared with the serious fines that brokerages can incur for overlooking or delaying the disclosure process — as much as $1,000 per violation — it’s a veritable bargain.

Digging for documents

Document storage is a necessary evil in the mortgage world. It’s also another great opportunity for cost-effective, compliance-related outsourcing.

Although regulations regarding loan-document retention aren’t consistent nationwide, many states require mortgage professionals to archive loan paperwork for an extended period following the close. In some cases, this can be for as many as five years from the date of the original transaction.

Brokers who want to comply with these storage requirements — but don’t want the headaches associated with storage and retrieval — can “go paperless” by enlisting the services of a document-imaging company.

Document imaging, the process of electronically scanning and digitally storing files on a CD, DVD, computer network or Web repository, is accepted in the majority of states. It yields an excellent return on investment for many mortgage professionals because it can reduce overhead and physical-storage requirements. It also cuts document location and retrieval time from minutes to seconds and presents opportunities to use archived information for future sales and marketing efforts.

Switching to a digital document environment often isn’t difficult. The vendor scans and converts pages, turning them into searchable files, and gives the originator a disc that can contain a few-hundred loan files.

Digital imaging work is typically priced in “grades.” These are letter designations ranging from A to E, with E being the most labor-intensive and, thus, the most costly.

Depending on the grade of the work and the volume scanned, brokers can expect to pay anywhere from 3 cents to 20 cents per page.

More-progressive digital-imaging vendors even offer specialized services that enable brokers to re-package the scanned loan information; brand it with their own company name, photo, logo and contact information; and pass it along to the consumer as a relationship-building tool.

•  •  •

While it’s not always financially feasible, or even cost-effective, to outsource every compliance-related activity, savvy brokers will use these types of services as tools to maintain the right balance of compliance and profitability.

By rethinking a few basic business practices and letting go of the little tasks that threaten to deplete resources, brokers can ensure their survival and success during this challenging industry phase.


Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Scotsman Guide Digital Magazine

Related Articles



© 2019 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy