#div-oas-ad-article1, #div-oas-ad-article2, #div-oas-ad-article3 {display: none;} The financial crisis of 2007-08 led to a lot of caution being exercised by the government to protect the consumer. The Dodd Frank Act and CFPB have created a world of rules and regulations that have added more complexities to the mortgage world. The mortgage process was already one of the most elaborate and time-consuming processes amongst all financial transactions. With increasing compliance, the process has become even more sluggish and expensive than it was before.
Origination and servicing costs are on the rise to such an extent that lenders are finding it increasingly difficult to continue on a profitable trajectory, thus leading to offloading non-profitable parts of the business. Mergers and acquisitions are on the rise. In such a difficult and dynamic time for a lender, what can they do to keep production costs low?
The only solution is in leveraging technology to automate predictable and repeatable processes. This is not an easy proposition for an industry that is considered to be at the very end of technological advancements. This industry continues to be a world that still relies heavily on manual operations. The best way to evaluate whether you are a traditional lender versus a new-age lender is to compare your technology spend with the operational spend. If technology spend is not higher than operational spend, there is no way you will be able to drive down the production costs, however efficient your operations may be.
Compliance costs are rising every month. There have not been any metrics as yet that are directly indicative of the real compliance cost as a percentage of the loan origination cost, and even if it were there, it would not be accurate. Take a look at the ground realities. In 2015, much of the technical staff were redirected for TRID implementation. This not only adds costs but it also delays the realization of other parts of the technological roadmap. If these opportunity costs are added, the cost of compliance will be significant.
Companies have added various offices like chief compliance officer and chief data officer, yet the teams dedicated to compliance currently still draw from the technology team, at least in part. Even though companies are in the process of beefing up their technology teams, it is difficult to justify the need for a fully loaded team especially as compliance technology needs arise in intermittent periods.
While the system is undergoing an overhaul across all enterprises, there are four areas that a lender should focus on to improve upon the cost per loan and make compliance a seamlessly non-intrusive underlying theme that is automatically enforced and guaranteed for the most part through checks and balances: customer experience, digital mortgages, self-servicing and the quest to build a unified data model based as the single source of truth. The first three together can help achieve proactive compliance, while the fourth area will provide a platform upon which you could run reactive compliance analytics.
CUSTOMER EXPERIENCE
Digitize customer experience and especially business-to-consumer communication through a marriage between high-touch and no-touch operational styles. This leads to greater transparency, effective customer engagement, personalization of services and thus increased customer satisfaction. More importantly, the compliance office is assured that the guidelines put into effect by them are being adhered to in principle by all field offices and officers.
Build one unified retail platform for all actors of the origination process like consumer direct, retail point of sale, processing, underwriting and closing, one system built around the loan origination system in place. Even if they are discrete systems, they should behave as if they are one enterprise system in a highly service-oriented architecture even to the extent of rendering everything as micro-services. All rules that require information exchange with the consumer like ECOA Rule and TILA Appraisals proactively benefit from this.
GREATER RELIANCE ON DIGITAL MORTGAGES
Moving away from paper-based processes is extremely critical as the burden of mortgage compliance rises and is felt in every corridor and every corner. Having a loan officer as an advisor and a guide is perfectly fine and needed, but what’s even more important is enhancing the reliance on electronic processes and increasing the adoption of electronic applications, disclosures, processing, underwriting, closing and third-party service integrations. Taking it even further to electronic signatures automatically helps operate within the compliance framework established by the compliance office, thus ensuring adherence.
This helps with maintaining an audit trail as an evidence of compliance, literally monitoring, tracking and recording every step through the life of a loan. The more natural your compliance becomes to executing business, the lesser the burden felt, both in terms of ease as well as cost effectiveness.
EMBRACING AND INVESTING IN SELF SERVICING
When servicing costs are on the rise, the only way to have them under control is by introducing unprecedented efficiencies, increasing reliance on automated processes and embracing self servicing.
Servicing compliance and associated increases in servicing cost is putting immense pressure on profitability to the extent where servicers are unable to build business cases for further investment asks. Customer service is taking a huge hit. Amongst all industries, the customer service in a servicing world is sulking in the bottom layer.
But with the CFPB watching over your shoulders, it is prudent to make the right investments for long-term benefits.
Whether it is about sending precisely clear periodic statements as required by Regulation Z, acknowledging receipt of the loss-mitigation application and informing the consumer about its completeness, a foreclosure notification or the diligence needed around the automatic termination of PMI as per the Homeowners Protection Act, mortgage servicing compliance is best adhered to with greater adoption of technology and self servicing through digital mediums.
A UNIFIED DATA MODEL, DATA WAREHOUSE AND BIG DATA
The mortgage industry generates a lot of data but fails to use the data to derive meaningful insights. The future of an enterprise is in its data. As costs rise and profits shrink, data reliance is what is going to provide the competitive edge.
But as things are increasingly becoming digital, organizations are now capturing data at a rapid pace where it could easily grow out of control if the foundational elements are not right. Most mid-sized mortgage companies only make technological investments to the scale that is necessary to keep them alive. The big companies are anyways drowned in the burden of legacy.
Every company struggles with a single source of truth. Thus building one foundational unified data model into which all incoming structured data fits in is critical. This will lead to higher data quality, which in turn will allow compliance rules to be written that will prevent operations that violate compliance guidelines.
But if the viability of such single sources of truth is questionable, then potential violations have crept through all gate checks. Here is where reactive compliance comes into play.
Build a data warehouse where data from multiple sources are extracted, cleansed, transformed and loaded. Once loaded, operational reporting helps look at compliance metrics with predictive on potential violations and prescriptive on remediation or improvements.
Every organization understands the role that analytics has to play. Yet the state of analytics in the mortgage industry is in shackles as compared to other industries that derive great insights in data and thus progress faster than the mortgage industry.
So the sooner we adopt a combinatory practice of proactive and reactive compliance measures powered by technology, the more natural and easy complying with all the rules and regulations will become — driving the cost of compliance down, which will significantly drive down the cost of origination
or servicing.
