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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2015

Don’t Let Technology Hold You Back

As regulations and standards increase, mortgage professionals must work hard to keep pace

Don’t Let Technology Hold You Back

Government-mandated regulations and standards are coming at a rapid pace. This month, some massive ones will take effect, as the Consumer Financial Protection Bureau (CFPB) implements the new Integrated Disclosure forms for the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), better known as TRID.

As these challenges mount, the technology now used by brokers and lenders is struggling to keep up. And if mortgage professionals don’t take a long look at their technology soon, they will find themselves falling further and further behind.

Mortgage originators face regulatory challenges from a variety of sources, none more notable than the CFPB’s implementation of TRID. In addition, the government-sponsored enterprises (GSEs) and governmental entities are mandating standardized data sets and forms. Just from a pure volume of change, this is daunting.

It is even more daunting for many mortgage companies because their technology isn’t helping the issue. In fact, technology is holding many shops back because of a lack of integration and data quality. The mortgage industry is moving quickly — and its current technology isn’t keeping up.

Over the last 25 years, automation in the mortgage industry has moved it from a mostly paper-dependent business model to one that is much more electronic. The GSEs, among others, implemented solutions for automated underwriting in the 1990s. In the 2000s, more and better models to value properties entered the market. Still, the current working environment requires multiple steps and a variety of vendor solutions. It also lacks efficient integration approaches.

The trouble with tech

There really aren’t any two mortgage companies that are alike from a technology perspective. Some follow a pattern where they purchase a suite of products from the same vendor or through the vendor-partner network. This approach may seem wise on the surface, because those who use it can gain some integration advantages and work with a small number of vendors. It is possible, however, to become beholden to a vendor — and if its product line doesn’t keep up with the market, a mortgage company may face a troubling situation that could require a major overhaul.

Other mortgage professionals have elected to procure vendor tools individually to more fully meet needs from a functionality perspective. This approach can be advantageous in the long run, but requires internal effort to integrate the tools, either point to point or across the shop.

Others elect to build their own tools. But none of these approaches will hit the mark when you look at what is happening right now in the market. When you look at what the GSEs and the Government National Mortgage Association (GNMA) are doing from a data perspective and how the CFPB is mandating changes — including TRID — companies need to leap frog the market from a technology perspective.

A standard challenge

Fannie Mae, Freddie Mac and GNMA are all working closely with the Mortgage Industry Standards Maintenance Organization (MISMO) to create data standards throughout the life of the loan. Currently, standards for delivery and appraisal are in the market, and the GSEs recently announced specifications for transmission of closing data that will be mandated at sometime in the future.

This is an interesting move by the GSEs’ parent agency, the Federal Housing Finance Agency (FHFA), because the GSEs don’t participate directly in the closing process with a borrower and mortgage originator. Expect standards for loan-application data transmission and perhaps servicing data in the future. Looking into the future, lenders and servicers could be required to send almost all of their data to the GSEs by as early as 2018. Mortgage professionals cannot ignore this trend.

The CFPB shook the market to the core with TRID and the mandatory move to two new forms. The biggest changes for originators, however, are not just new forms and formats. Instead, they are related to how the data on the forms must be provided, when it is provided and how it must be consistent from loan estimate to closing disclosure.

In the old world, it was acceptable — though not desired — if information was inconsistent and changed all the way to closing. Not anymore. One of the biggest reasons why this is so hard is that the information needed to fill out the loan forms comes from multiple systems of record in an orginator’s shop, and some probably comes from other sources.

The integration challenge amplifies this problem. Expect more data standardization initiatives ahead. The CFPB is laser-focused on making sure the borrower is protected, and the agency does monitor, sometimes up close, companies’ compliance with regulations. So mortgage originators had better be able to produce any piece of data that informed the loan forms. Even best intentions and diligence in creating the forms will be washed away if originators cannot show their work.

Looking ahead

Mortgage professionals need to figure out what to do from a technology perspective going forward. Two things can help any originator, regardless of their technology choices.

First and foremost, they must implement some sort of data-management and data-quality function — assuring that data coming in from outside sources is scrubbed and validated. In addition, originators should identify the “gold-copy standard” of each data element that needs to go on any form or to the GSEs. Secondly, mortgage companies should consider the creation of an integrated data store that contains this data.

The future will be different from a technology perspective. There will likely be new types of vendor software entering the market soon that will allow companies to leap frog from the current paradigm to a new one.

In the future, vendors will create tools that manage workflow for the life of the loan as it relates to the lenders’ cycle. The workflow will include a backbone, based on MISMO standards, that will allow information to move from vendor tool to vendor tool without regard to internal data structures or messaging protocols. This backbone will facilitate communication, both within a lender shop and to external vendors, counterparties and investors. This type of approach will solve many of the problems that mortgage professionals currently face.

Using a common messaging infrastructure, like MISMO and Extensible Markup Language (XML), will remove or reduce the need for translations of inbound data. Using a workflow tool will allow mortgage originators to modify the manufacturing processes as needed without wholesale technology modifications or manual processes. Tools like this will enter the market in the next two to three years, if not sooner. Mortgage companies will still need tools and vendors to complete their processes, but once they are integrated using standards, data quality and process flexibility will emerge.

•  •  •

Mortgage originators should consider facing their challenges now while business is somewhat flat. After the new requirements for TRID are ironed out, forward-looking companies must move quickly to modernize and solve integration and data challenges. By doing so, they will set themselves up for years to come. Not addressing new regulations will eventually become expensive — not only as a cost of doing business but also from a regulatory-compliance and risk perspective. 



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