REQUIRED READING: The benefits of a paperless mortgage process have been discussed for years. As far back as 2005, accelerated turnaround times, decreased costs and better customer service were cited as important benefits of implementing paperless solutions. And while many strides have been made toward paperless processes and seamless collaboration, today's mortgage industry still has challenges to overcome – particularly when the loan hits the secondary market.
With the different responsibilities, technology requirements and other unique needs of each party involved in the loan process, the ability to work together in a successful electronic process comes to a halt after origination. In order to achieve true electronic collaboration through the entire life cycle of a loan, the following three hurdles must be overcome:
- The purchase process of the closed loan lacks transparency and requires re-keying, making it too time- and resource-intensive;
- The origination sector is still heavily document-centric and cannot easily or readily share the data with downstream partners; and
- The limited investor acceptance of electronic notes (e-notes) prevents best execution.
Even with advances in technology, there has been an increase in time to fund in recent years due to an onslaught of rules and regulations, market uncertainty and increased scrutiny. Today, document classification and stacking orders are creating a backlog in many office environments, with lenders dotting their i's and crossing their t's, only to have the investors go back and do it again.
To help promote consistency within the secondary market, investors have specific requirements for how they want to receive loans. Unfortunately, many lenders continue to deliver single PDF files (often referred to as ‘blob files’) that require restacking. Others attempt to deliver files in accordance with the specifications, but documents are often slightly out of order or not delivered exactly as requested. To manage both scenarios, many investors have resigned to flattening and restacking all incoming packages.
The result is that both lenders and investors are losing time completing manual processes. The lack of incentive to deliver accurately stacked packages negates the primary reason for adoption, and the loss of time and resources on both ends makes it clear that the process is disjointed and cumbersome.
Once the document-classification process improves, the next hurdle is acceptance and ingestion of data. For years, the Mortgage Industry Standards Maintenance Organization (MISMO) had a standard data format available, but until recently, it was not readily collaborated on, and different data files were being reviewed. Once the final package was delivered to the investor, the various pieces of data had to be rekeyed, often resulting in inconsistencies and errors. More importantly, the entire process lacked transparency.
Now, with the advent of the Uniform Loan Delivery Dataset (ULDD), the industry is forced to move to one data delivery standard.
To ensure compliance and speed the process, investors and lenders are turning to business process outsourcing (BPO) providers to extract more from – and get better use out of – the data and ensure it is rekeyed accurately and in a timely fashion. Using advanced technology like optical character recognition (OCR), which electronically translates scanned images of handwritten, typewritten or printed text into machine-encoded text, document data extraction can be performed at a high rate of accuracy, thus avoiding unnecessary manual review.
OCR technology can extract predefined data elements from specific documents and create an ingestible XML file. The file, which can be created to MISMO standards, helps to normalize data so that any investor can easily manage it.
For investors not yet able to ingest files that are in compliance with the new ULDD standards, the BPO provider can normalize the data to their current custom specifications – including file type, document naming, proprietary data structures and more. Once it is ready to ingest ULDD-compliant files, the BPO provider can seamlessly make changes to how the investor wants to receive packages.
To provide further peace of mind, OCR can be combined with a human review to ensure complete and accurate data sets that investors can trust. Using BPO providers for OCR and manual review maximizes efficiencies, eliminates ‘stare-and-compare’ and keeps investor resources focused on high-value tasks. In addition, lenders avoid costly integration projects to each investor's specifications.
According to the recent ‘Path to Paperless’ survey sponsored by Xerox Mortgage Services, more than 50% of participants believe the industry will process more than 50% of all loans as an e-mortgage within the next few years. If that is the case, tighter delivery to investors will be crucial, the origination sector will have to take steps to be less form-reliant and more data-centric, and investors will have to open up their systems to readily ingest and manage the data.
Adoption of e-notes
Many loan process participants believe that once the document classification and ingestion of data have been fixed, the loan process will be seamless. However, there is one last hurdle: the adoption and acceptance of e-notes. With e-nNotes, the documents and data become one, thus ensuring the greatest level of transparency and removing the need to ‘stare and compare’ data multiple times throughout the loan's life cycle.
Currently, widespread adoption of e-notes has been limited. While there is some acceptance with the government-sponsored enterprises (GSEs) and correspondent investors, many require a lengthy approval process. Due to the limited takeout options, many lenders are pigeonholed to stay with paper notes to ensure they can obtain best execution.
So, who moves first on e-notes? Even if both GSEs began accepting them tomorrow, the impact would be limited to a small segment of the industry, since much of the market sells to correspondent buyers. Lenders could start first, but a grassroots effort could prove risky for many, as a number of loans would lose the option of best execution until e-notes garner widespread adoption.
Therefore, the industry needs to push several investors to first accept the e-note. If key investors can get approval to sell e-notes to both Fannie Mae and Freddie Mac, a tipping point will occur. Once e-notes gain acceptance, lenders and investors could be free to move forward to making the loan process truly paperless.
When the disconnect between the secondary market and the origination sector is fixed, the mortgage industry will be better equipped to collaborate electronically and get steps closer to a true e-mortgage. Not only will it benefit the secondary market by removing excess time, resources and steps in what is often a manual process, but it will also benefit all phases of the loan process.
By relying moe on data and less on documents, true collaboration can speed and simplify the loan process, support compliance initiatives and drive a real return on investment for all parties involved. And, by finally achieving the transparency the industry has been seeking, mortgage participants will gain true insight into the quality and status of loans.
Nancy Alley is vice president and general manager for Xerox Mortgage Services, based in Alpharetta, Ga. She can be reached at (678) 460-2460.