BLOG VIEW: In recent years, automation has helped mortgage lenders originate, underwrite and sell loans with greater speed, fewer resources and higher quality. Indeed, there are few areas of the mortgage production chain left that have not yet been touched in some way by technology, whether it involves origination, ordering credit, locking in interest rates, or sending out automatic notifications to borrowers, underwriters or third parties.
Yet, in spite of recent innovations, there is one component of the mortgage production cycle – arguably, its most critical piece – that sorely lacks automation. When it comes to complying with new regulations or investor requirements, the vast majority of lenders have continued to shun automation and instead have relied heavily on manual processes that are not only expensive but also risky. However, that will change in 2015, simply because it must.
To be fair, the pressures today's mortgage lenders are facing are unique. New disclosure forms, increasing audit demands and ever-tightening investor guidelines have caused per-loan costs to soar at a time when housing sales and mortgage origination volume are struggling. As a result, many lenders are ‘playing it safe’ and falling back on traditional answers to new lending requirements, such as hiring additional staff or outsourcing compliance to a third party. Such practices are not only expensive they're also dangerous.
Consider that the fastest growing area of mortgage fraud today is income fraud. There is not a lender of any size that has not been affected by falsified bank statements at some time, whether it was caught or not. The government-sponsored enterprises are paying strict attention to how lenders and servicers are gathering and verifying this information, too. Placing borrowers in charge of supplying their own financial information, and forcing lenders to hand-check copied and faxed documents for authenticity no longer makes sense. Yet it continues to happen today.
Automating compliance is also about removing as many touch points as possible from the origination and underwriting process, which reduces not only fraud but also the opportunity for error. It's really where the industry is headed, and the only way to get there is to be able to access data directly from the source, whether it's bank statements, identification, credit and other assets, without human intervention. The technology is already here. With their customers' permission, thousands of banking and investment institutions currently allow lenders to access banking records electronically. This is verified data from third parties that can't be altered by anybody – not the borrower or the underwriter.
It's important to point out that if lenders don't plan to streamline the verification of borrower income and assets through automation, they will quickly find out that borrowers are going to demand it. If you think the next wave of homebuyers – the 80 million Millennials who grew up learning how to buy anything they wanted on their cell phones – wants to fax or copy their bank statements to get a mortgage when they know there is an easier way, you're never going to capture that market.
What automation has done for origination, underwriting and the secondary market was very simple. It allowed all parties to do more with less – and do it better. Today lenders only need to extend this philosophy to their compliance challenges. In my opinion, 2015 will be the year automation transforms the manner in which lenders verify borrower qualification and eliminate fraud, and it could one day even prevent the type of crisis we lived through seven years ago.
John Sheppard is president of FormFree Holdings Corp., a provider of automated financial verification solutions.
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