BLOG VIEW: At the heart of a lender's operations is the loan origination system (LOS), a software application that facilitates the loan process, from application to packaging. Today's LOSs integrate a number of features, including document and conditions tracking, services ordering, and rules engines to meet the variety of needs lenders have. But as the mortgage industry has experienced dramatically different market conditions and increasing regulation over the past several years, many lenders are re-evaluating their reliance on the LOS for specific functionality, such as document management.
Most lenders mistakenly believe that the information contained in an LOS is a ‘source of truth’ for loan data. In fact, an LOS is primarily a ‘system of record,’ capturing, storing and listing information that can be mistyped or manually changed over the lifecycle of a loan. This means that reconstructing exactly where the source of information came from that is used to make underwriting decisions, or purchase decisions for correspondent lenders, can be difficult. If information has been updated several times in the LOS, is the current data value in any field truly the most accurate one? What are the sources of the final set of data used to make underwriting or purchase decisions? The inability to determine the ‘source of truth’ for the data threatens the integrity of a loan and can lead to loan defaults, or buybacks.Â
Lenders invest a lot of time and resources playing the ‘stare and compare’ game, in which a human being compares information across multiple loan documents to spot discrepancies and also compares the information on the source documents to the information in the LOS. Whether the lender uses in-house staff or outsourced labor to complete the task, this practice is time-consuming, error-prone and costly. And, in most cases, this quality control (QC) is done late in the process, or even after the loan has closed, limiting any possible corrective actions. With more comprehensive document management technology, lenders are able to implement QC throughout the lifecycle of a loan, and not just at the end, which leads to better-quality loans and better business decisions. And, with advanced document management technology, it's possible to efficiently QC every loan, not just a small sample.Â
Given today's more competitive and regulated environment, many lenders are beginning to realize that integrating a best-of-breed, purpose-built document imaging and collaboration platform with their LOS gives them the best of both worlds. An advanced document imaging and collaboration platform provides the ability to extract data from loan documents and to validate that data across any number of loan documents, while always maintaining a link to the original source document.
Maintaining the link to the source is critical. An LOS can extract data for rules engines and other purposes but loses the connection between that data and its source document.Â If multiple versions of the same document are submitted for a loan, it is difficult to tell which version of the document served as the source for the data value that is in the LOS. With best-of-breed document management technology, the lender is always able to link from the data to an electronic image of the source document, so the source can be validated and is never in question.
What's more, a comprehensive audit trail is created for any changes made to the data values, while always maintaining a link to the source documents. An LOS creates an audit trail of changes made in the system, but, again, the link to the original document is lost. If a regulator were to come knocking, lenders should have the confidence that the tools they use to run their businesses will help see them through an investigation rather than send them to a warehouse to sift through stacks and stacks of yellowing documents, and possibly never find the source document required to validate a business decision.
In addition, a more advanced document management platform gives lenders the ability to securely collaborate with co-workers and third-party service providers as the loan moves through the process. An LOS may provide collaboration capabilities, but not secure ‘workspaces’ where lenders can invite co-workers, or trusted service providers, to exchange documents and collaborate through the loan process. Emailing or faxing documents that contain sensitive information in the clear should be a thing of the past, and a best-of-breed document management platform offers a secure, more efficient alternative.
LOSs do many things well but, in some cases, lack the advanced functionality that today's lending environment requires. A best-of-breed document management platform can fill the gap to give lenders the tools they need to increase operational efficiencies, fund better quality loans, purchase better quality loans and meet new regulatory requirements with ease.
David Sohm is chief operating officer of Capsilon, a provider of cloud-based document management solutions that enable mortgage lenders and investors to increase productivity and lower costs, while ensuring compliance. The company's flagship product, DocVelocity, is an imaging solution that provides document capture, collaboration, delivery and retention, eliminating the inefficiencies inherent in paper-based processes.
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