PERSON OF THE WEEK: Brent Chandler is the founder and CEO of FormFree Holdings Inc., producer of AccountChek, an investor-accepted automated asset verification solution that collects and analyzes data directly from a borrower’s financial institution to help lenders save time, improve loan quality and reduce risk. MortgageOrb recently interviewed Chandler about the coming of the all-digital mortgage process, as well as the impact automated verification has on loan quality and mortgage servicing rights (MSRs).
Q: There has been a growing push to digitize parts, if not all, of the mortgage process. Is the market really ready for data to replace paper?
Chandler: Absolutely. We are on the verge of a revolutionary evolution. The mortgage industry is finally coming to terms with the fact that not only are paper records a risky means of documenting and retaining information, but they are also really easy to fabricate and manipulate. Furthermore, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and the Consumer Financial Protection Bureau (CFPB), have conveyed their desire for lenders to migrate to a more digitized lending process. The CFPB, in particular, views electronic or digital processes as critical to improving the consumer experience, and anyone who has ever had to track down and submit paperwork can see the logic in this view.
Whether lenders agree or not, a digital mortgage process is where the industry is heading. It will take some time, but I think that five years from now, the mortgage lending landscape is going to look completely different, and it is very likely to be paperless, or nearly paperless, by then, or possibly sooner.
Q: Managing the quality of third-party originators’ (TPO) efforts is always a challenge. What, if any, impact could automated verification have on a lender’s reps and warrants?
Chandler: The great thing about direct access data verification is that it is tamper-proof and absolute. Furthermore, with verifications provided by a disinterested third party, such as FormFree, the information is obtained securely, it is analyzed securely, it is delivered securely, and there’s no opportunity for anybody to forge or fabricate the information.
Verification of a borrower’s assets, income, employment and identity is the cornerstone of the calculations needed to determine ability to repay. When the integrity of the data underlying those calculations can be certified without question, it provides lenders with greater purchase certainty about their TPO production. The GSEs, for example, are looking into whether they might offer some form of relief when direct access data is used for verification for this very reason.
Q: What impact would an automated verification system have with respect to MSRs?
Chandler: Again, the greater purchase certainty that direct access data provides increases confidence in the long-term value of the loan. In addition, it also provides a level of transparency into the approval process for a loan. One of the messages that has been made abundantly clear after the economic crisis is that investors and regulators want transparency. During the real estate boom, there were an awful lot of people buying an awful lot of loans without having any idea about the quality of the underwriting decision for those loans, and as we all know, that caused a lot of damage. Using direct access data for borrower verification allows investors to quickly and easily dig into and engage with the data underpinning a loan to verify that the correct decision was made. They can see and assess for themselves whether they think that the records support the lending decision and, therefore, whether or not they want to buy that particular loan.
Q: The alteration of supporting documents has long been a threat to responsible lending. Explain the real-world impact of moving from paper to digital on fraud.
Chandler: Frankly, moving from paper records to digital data should be a major kick in the teeth to fraudsters because it makes it nearly impossible for perpetrators on either side of the transaction to fudge the information to sway the lending decision. As much as it pains us as an industry to admit it, internal fraud is still a problem. With paper records, it’s all too easy for a loan officer to “suggest” to a borrower how he or she might improve his or her financials to qualify for a mortgage. Original paper records can easily be replaced to include manipulated information, and there’s no way to document or track when this occurs. Working with the original data set drastically reduces the opportunity for information manipulation to occur.
One need look no further than the recent Lending Club situation to see the consequences of data manipulation.
Of course, there will be detractors that look for the weaknesses inherent in direct access data, particularly with regard to data security. Banks have been especially vulnerable to security breaches, but the industry is working to correct that. More and more, we’re seeing banks move toward more secure authentication technology, such as biometrics for ID authentication and EMV chip cards for payments, to shore up the security of borrowers’ information. Even with current-state security measures, data still trumps paper in terms of fraud prevention.
Q: The CFPB has made it clear that it expects any processes the lender puts in place to improve the borrower’s experience. How does automated verification really benefit the borrower?
Chandler: Simply put, it’s a much better customer experience. A majority of borrowers today are already online and expect instant results. Having the ability to provide their necessary documentation via any device supports their lives and delivers against that expectation. Imagine being on a business trip or vacation when your lender calls and asks for an additional set of bank statements. What’s a borrower to do? Automated verification fits with consumers’ habits and alleviates the hassle of tracking down and delivering evidentiary documentation. The lender has direct access to the relevant information, which also eliminates the possibility of lost documents – a frequent issue from borrowers with regard to this process. It also reduces the risk of identity theft and other personal identifiable information that can be stolen from paper statements, bank statements, PDFs, email or fax machines. Automated verification of assets also makes the loan process quicker – what used to take days, or weeks, now takes only a few minutes. It bears repeating that a mortgage represents the largest financial transaction a borrower will undergo. The safer and more convenient the process, the happier the borrower – and we all love happy borrowers.
Q: The CFPB has issued rules governing the foreclosure process. How would automated asset verification help servicers evaluate a borrower’s loss mitigation options?
Chandler: A key component to the loss mitigation process is assessing the borrower’s financial position. Is forbearance going to make sense? Will the borrower be able to shoulder a higher payment down the road? What kind of financial resources and liabilities does the borrower have? Having that information readily available through direct access data enables servicers to more efficiently make their evaluation, which benefits both parties in the long term. Once again, working with direct access data also provides transparency to the process because it ensures the loss mitigation decision is supported by evidence and is in compliance with all of the rules of affordability.