Regtech Will Change Everything for Originators


BLOG VIEW: Viewed from the perspective of a mortgage sales professional, technology either helps one close loans or it doesn’t.

But occasionally, the mortgage industry experiences an innovation that changes the way people do business. Years ago, the fax machine did it. So did the Internet, automated underwriting, digital signatures and many other advancements.

Today, the mortgage industry is on the brink of a new innovation that will change how everyone does business, including loan officers.

And it couldn’t come at a better time.

Anyone who has ever used a loan origination system (LOS) for any length of time knows that not all the data that’s being fed into it is accurate or complete. It’s generally up to underwriters and processors to manually verify and validate information while using spreadsheets to work with additional details and complete calculations that are performed outside of the LOS.

When loan error rates rise, most lenders simply hire more staff, which does nothing for the human error factor already embedded in their processes. Instead, they should be looking for opportunity to add automation and optimize their human capital.

As part of this “checkers checking the checkers” routine, borrowers are being continuously asked for “just one more thing.” Often, they are questioned on data or documents they have either already submitted or were never asked to produce at the onset of the process.

A primary reason for this is the sheer volume of guidelines and requirements across investors. Either someone simply forgets to ask for something or additional information is needed because the lender decides to change the investor to whom the loan is being sold.

Borrowers don’t understand this and frankly don’t care. They want to provide everything that is needed up-front, one time and then be left alone until closing. Almost every borrower has complained about this back-and-forth process.

Exacerbating the issue are “after the fact quality control checks.” This involves another set of underwriters known as “auditors” who are checking that the underwriting has been done correctly and in compliance with investor guidelines, rules and regulations. When this is performed after the loan is underwritten, but prior to closing, correcting the mistakes and errors found often requires the loan officer or processor to go back to the borrower for “just one more thing.”

Quality control happens again after the loan closes, but prior to shipping to an investor, creating another chance where the lender might need to go back to the borrower. And, the possibility exists for more errors to be found as a loan is delivered to the investor and they perform their pre-purchase due diligence of the file. All this can lead to a series of frustrating conversations with the borrower whose loan is already closed.

The crux of the problem is that loan quality checks begin too late – often after the loan has been underwritten or closed. In other words, during points at which these checks will be the most frustrating for the borrower, creating further delays, difficult conversations and/or costly lender penalties.

So why not build loans correctly from the start and check quality real time as you go?

This, essentially, is what regtech does. Regtech defines technologies that help organizations comply with regulations and all investors’ lending guidelines more efficiently while reducing human labor. Using rules-driven technology, regtech can quickly analyze large amounts of data to automatically decision the loan, determine compliance and at the same time evaluate the potential risk of fraud.

This is critically important to protect margins and meet the expectations for quality in loan commerce. Investors now demand transparency related to how loans have been manufactured. This requires the verification and validation of the information used to make the lending decision, something that is difficult to do when calculations and data are housed in spreadsheets, the underwriter’s brain or a scratch pad next to their keyboard.

Instead, it should all be captured within a single regtech solution that collects granular detail at any time and from any source, performs comparison across sources and provides accessibility to the purified data of the loan file and specifically the details of how a lending decision was made.

For the people who work most closely with borrowers, this means two things. First, loan officers will spend less time tracking down information from borrowers because it was either never requested or because misinterpretation of the guidelines resulted in the request of the wrong information. Second, borrowers will be happier because they will be asked once, up-front for the appropriate information to satisfy multiple investors, while the details and requirements of the transaction are clearly controlled through technology.

This can result in the smoothest, easiest and quite possibly the fastest mortgage experience possible. And those satisfied borrowers will tell others about it.

Brian Fitzpatrick is CEO of LoanLogics, a provider of mortgage loan quality management software.

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