Mortgage Lenders Must Embrace the New ‘Data Economy’


BLOG VIEW: The most significant legacy of the 2008 recession and economic crisis for mortgage lenders is not the advent of the Consumer Financial Protection Bureau and the reworking of an entire industry’s regulatory environment but rather the increased use of data and data automation in the mortgage process.

Lenders have always relied on data. Underwriting has always required accurate collection and analysis of a borrower’s financial data and a property’s value data. However, in the last decade, rapid advances in technology have led to a significant increase in the rate at which new data is being created and used. Due to pressures from regulators and the rapid adoption of digital commerce by consumers, lenders are collecting, analyzing and reporting vast volumes of data.

The rise in data availability and data-driven automations has spawned a new “data economy” – one in which data is used to reduce costs, increase speed and enhance accuracy for every aspect of the mortgage workflow. 

This reliance on data to drive automation is evident in Fannie Mae’s Day 1 Certainty initiative, which enables lenders to automate the pre-verification step within the lending process while benefitting from freedom of representations and warranties on key aspects of the mortgage process.

The providers of data under the Day 1 Certainty program provide lenders with reliable data in a more efficient manner, resulting in an improvement of the production processes and a reduction in overall buybacks.

This program takes technology integration a step further by giving borrowers the ability to authorize the use of electronic data to verify application information earlier in the mortgage process. Utilizing this process ensures a seamless and secure validation of information that is accurate from the start. 

The push to automate all aspects of pre-underwriting data validations also provides a stronger borrower experience and reduces the need for manual labor. Traditionally, obtaining borrower income information was a very hands-on process. Lenders had to spend hours verifying employment, income and debt obligations.

Today, lenders use automated employment verification solutions and the IRS’ automated 4506-T process to verify income data quickly. This leads to process efficiencies, as less time is spent obtaining and reviewing information manually. This leads to a simultaneous reduction in personnel and related overhead.

The Impact of the Data Economy

When it comes to a timeline for a completely automated, data-driven mortgage process, services like Fannie Mae’s Day 1 Certainty are still in the pilot phase of their lifespan. Not every loan is submitted to Fannie Mae, and not every lender is relying on the reps and warrants relief of a service like Day 1 Certainty.

However, the beneficial effect on the industry from this push for data integrity and speed is palpable. It stands to transform every mortgage lending organization into a tighter, more reliable and more homogenous operation. 

With the industry having this long-term goal of reliable, quick data, the mortgage process will continue to be modernized to fit the growing customer needs and industry standards. The applications of better data are limitless. 

For example, open banking solutions could provide lenders with a more reliable look at the inflows and outflows of a borrower’s bank activity. This would result in the ability to leverage more in-depth data beyond credit score and gross income to determine the risk of any given mortgage application. This data can be used to better evaluate borrowers who have non-traditional jobs, such as the rapidly growing gig economy which does not provide a steady monthly income. 

Data will continue to drive the regulatory environment, as well. Regulators are already moving away from spot-checking lenders in their audits and using data analysis tools to quickly review all a lender’s loan data. This additional data can result in a more accurate picture of a lender’s compliance, but it also requires lenders to ensure that loan data is accurate and secure. 

Day 1 Certainty is just a first step in what will become a fully digital data-driven mortgage industry. The data economy is here, and mortgage lenders who are not able to collect, analyze and leverage data will quickly, and in automated fashion, will fall behind their peers. 

To thrive in the new decade, mortgage lenders must embrace data automation and the new data economy.

Leonard Ryan is founder and president of Laguna Hills, Calif.-based QuestSoft Corp., a provider of automated compliance review software for the mortgage industry.

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