PERSON OF THE WEEK: Jonathan Kunkle is president of LenderLive Network's GuardianDocs division.
MortgageOrb recently interviewed Kunkle to get his views on how document technology has improved lender and servicer operations, as well as how new innovations in document technology will help lenders and servicers with regulatory compliance.
Q: LenderLive recently announced that it would be re-branding its document services division as GuardianDocs, leveraging the heritage company name of Guardian Mortgage Documents. What was the impetus for this – and further, what services will the company offer under this new brand?
Kunkle: Starting at its inception in 1988, Guardian Mortgage Documents provided massive amounts of innovation to the industry. I was on the team when they revolutionized how to create HELOC documents in a distributive, correspondent network filled with varying licensure requirements that had to be reflected in the loan agreements and disclosures. Prior to that, Guardian created the first delivery mechanism to direct print documents into a banking network.
Our culture of innovation hasn't changed. We still believe there is always a better solution for any document processes in the mortgage space. What we've done with the re-branding is to tie that heritage brand, with all the prior industry innovation, to all the new and really exciting solutions we have built recently. The products we are launching will really catch the industry by surprise. They are that innovative. And we see the new GuardianDocs brand becoming the recognized leader in document technology, just as LenderLive Network Inc., the company we are a part of, has done in the mortgage outsource and fulfillment business.
Q: The industry is fairly steeped in its existing processes, and recently change seems to only occur when a regulatory body has forced an issue, whether inadvertently or as a desired consequence of the law, statute, order or act. You mentioned that your products are innovative. What innovations can be achieved in the industry?
Kunkle: I see too many organizations bound to an inefficient or ineffective process because of legacy systems and applications that require complex programming to adapt to these changes. As a result, these companies implement countless workaround Band-Aids rather than fixing the problem systemically. Conversely, I've met with several lenders on the leading edge of where the mortgage industry, and, frankly, all operational functions and related technology, are headed. These shops have realized that the lending industry, both in origination and servicing, needs to become data-driven with event-based actions and activities.
This really means a few things. First, the innovative lenders and servicers have realized that there are two kinds of data – bad data and really bad data. Creating a third option of 'good data' means new approaches to how lenders and servicers intake, store and move that data throughout the life cycle of the loan, from one participant to another, from one party to another, and from one user of that data to another. In this regard, very few people in the industry are thinking about a global, industry-wide data solution. Those that are on the leading edge of this can easily become the next mega-lender because the secondary markets are clamoring for better intelligence on what they're buying and securitizing.
Secondly, I see a much better solution to how a shop manages data to drive efficient and effective workflows and processes in its organizations. Innovation on this end will come from the lender that realizes that it is too costly to first pay a seasoned loan processor to validate data on a paper image and then have a highly paid underwriter miss the mistake and ultimately have closing docs go to a borrower with incorrect data. In some cases, the incorrect data creates a situation where an underwriting condition would never be met; and then, when this loan is delivered to the investor, it opens a high risk of repurchase.
To my earlier point, we are then trusting that the investor will catch and fix this before the loan ends up in the secondary market. My view is, 'why is the industry not addressing these issues at the beginning of the process?' Accurate and reliable data collection can be automated to add process efficiency at the originator and for every subsequent party part of the life of each loan. The innovative industry leaders understand the effect of bad data, or, worse, really bad data.
Q: What will happen to the servicing and origination industry in an environment of rising rates?
Kunkle: In my view, loan servicing will become busier in a rising rate environment. Loss mitigation, as it exists today, has become the standard in our culture. For example, now that the world knows the vernacular of 'loan modification,' each time a borrower gets into trouble, whether self-inflicted or because of unforeseen circumstances, it will look to the servicer for a modification and likely do that prior to all other financial options. In an environment of rising rates, it may become easier for borrowers to see significant savings from the available loss mitigation options – and they may be more attractive to the borrower than a refinance. Eventually, though, the increase in the bank's cost of funds will outpace its ability to further help a borrower with a loan with an interest rate below 4% originated in 2012.
In origination, it's a different story. Lenders that focused on purchase lending through the refinance boom of the last few years will likely still fare well. The refinance shops have already seen their numbers drop. However, the market favors a return to home equity lending and here's why – most homeowners who could qualify for a historically low rate have a mortgage they may never want to replace. When in the past has that ever happened?
Even when my own loan was at a sub-6% interest in 2006, I still thought I might have a chance to refinance for a lower rate. Now that it's near 3%, is that really a hope I hold?
Moreover, property values are increasing, so this same borrower may have access to that capital in its property. If a borrower has a sub-4% loan, capital in its property, and a new baby, will they move? Or borrow to add a new room?Â We are counting on the latter and are poised to put a lender on the home equity map as the first to be back with a high-return, relatively low-risk lending product.
Q: What advancements do you believe the industry needs to adopt and why?
Kunkle: In my earlier responses, I noted that how we collect, retain and transfer data needs to change. Let me expound on that concept to answer this question.
In the life cycle of a loan, the originator creates a data file related to the origination, approval and closing of that loan. The data required to close that loan is hardly comprehensive of the decisions that went into its funding. For example, why are there three or more different 1003 documents in the image file and all of them different? Did each of them trigger a change of circumstances and was that the correct decision based on the information requested and subsequently given by the borrower? Did the originator make the appropriate adjustments to the loan, the data in the loan origination system and properly alert the borrower?
If I am the investor, each of those questions should be critical in my decision to buy the underlying asset of the loan. Unfortunately, today the investor doesn't have that information. Sometimes the investor gets an electronic version of the loan file, sorted in the traditional left side/right side configuration, some data, and a push to buy it as quickly as possible to enable the originator to replenish its warehouse line. Frankly, a multi-trillion dollar industry should be doing something other than this.
But, of course, it doesn't end there. The investors then ask someone to service this loan or they service it themselves. At this point, it is likely that the servicer creates a completely new data file based on the documents and servicing tape received. The servicer, via its on-boarding process, doesn't care about the questions I posed earlier. In fact, it only cares about payment history, rate change dates and amounts, insurance coverage, and correct borrower information and addresses. But to board the loan, it must have to recreate all of the same data and the detail noted, because it simply doesn't typically exist in a data file.
More importantly, the end investor, especially if the loan is securitized, does care that each asset is returning the highest value to the owner. But because the loan data from one party to the next is inconsistent, manually collected, or not persisted, how does the investor know?
In my view the MISMO solution has only fixed one-half of the industry's data problem. The next step is to transform the industry so that every data point, collected by every party, persists and is available for every participant in the mortgage life cycle. My job and goal is to put forth solutions to make sure that the data is accurate – both in the collection and in the population of any document we have prepared during that life cycle.