improving loan quality and reducting risk through automation · models to place loan quality and...

NMP MEDIA CORP.

1220 Wantagh Avenue • Wantagh, New York 11793-2202

516-409-5555 • Fax: 516-409-4600 • E-mail: [email protected]

NationalMortgageProfessional.com

The ever-evolvinglending landscape isshifting,understandably tobecome more pro-consumer, but for

mortgage operations, this meansmore complexity, operationaldifficulty to implement on a timelybasis and leaves no margin forerror. These legislation shiftspresent a myriad of challenges formortgage lenders.

September 2017 will see the newUniform Closing Dataset (UCD),which will help promote accuracy,consistency and clarity around loantransactions. The data mustrepresent the agreed-upon terms ofthe loan and contain the mostaccurate information available atthe time of loan delivery.

This summer, the ConsumerFinancial Protection Bureau (CFPB)proposed updates to its “Know

Before You Owe” mortgagedisclosure rule, designed to helpborrowers understand the terms oftheir home financing transactions.The proposed changes are intendedto provide more clarity and preserveprotections for consumers.

These legislative reforms add tothe challenges faced by loanservicers striving to balanceprofitability, risk management andthe consumer experience–whichultimately manifests as overallcustomer satisfaction.

Mortgage banking is salesdominated–salespeople aretransaction and commission-driven,yet many companies allowsalespeople to make changes toloan data. Many of the topexecutives in the industry comefrom sales, and profitability is drivenby originating loans. Decentralizedprocessing and closing continues tobe endorsed, even though it is

much costlier, not easily automatedand efficiencies cannot be fullyrealized. The outcome is thatprocesses are “people controlledand defined” versus rules based,managerially controlled andexception focused.

In this new paradigm, winningfinancial institutions will be the onesthat transform their businessmodels to place loan quality andrisk management at the center oftheir operations. To facilitatecontinuous life-of-loanmanagement, inclusive of therequisite data transparency andaudit trails that support loan qualityand loss mitigation, theseinstitutions will implement andautomate a loan completionsystem. Such a process willmanage data quality and access toloan data and documentsthroughout origination, servicingand sale on the secondary market.

Improving Loan Quality and Reducing RiskThrough Automation By Jay Coomes

NMP MEDIA CORP.




Utilizing technology toturbocharge quality controlThe use of disparate systemscreates data transfer and reportingissues between loan originationsystems (LOS) and servicingsystems. While it is true that legacyLOS and servicing systems arecomprehensive databases of recordfor the transactions in the lendingchain, creating and maintaining aquality, auditable, saleable loan unitrequires more than just system-generated transactional data. Amarketable loan unit also requiressigned legal documents, plus thedocumentation and transactionaldata that prove and justify decisionsmade during the life of the loan. Asa result, lenders need an effectiveloan completion system that goesbeyond enterprise contentmanagement functionality to ensurea higher quality loan package bygoverning the capture of point-in-time origination, servicing and loandisposition events, and related loandocuments to support loan quality.

A loan completion systemautomates loan quality processesinto origination, servicing, lossmitigation and secondary marketingworkflows, and facilitates thehandoff and sharing of informationby providing the ability to view andcompare multiple loan documentsand records from a single view.

An effective loan completionsystem incorporates the followingfive vital components:l Capture: Enhanced capture

technology capabilities for

extracting keyword data fromscanned documents utilizingzonal OCR (Optical CharacterRecognition–the best enginescan “read” the documents andrecognize 80 percent to 85percent of the documents),intelligent templates, automatedindexing and full documentrecognition should be readilyavailable.

l Tracking: The tracking of anyloan conditions and theirdisposition for efficiency ofquickly processing and resolvingany outstanding issue, and forlater use as evidence ofcompliance.

l Data confirmation: Automatingthe traditional manual “stare andcompare” process of confirmingdata between multiple systemsand/or documents to systems.

l Compliance review: Ensuringthat the data being preparedmatches compliancerequirements by automatingsubmittal and compliance checksprior to delivery to help comply,reducing exception conditionsand thus processing time.

l Compliance review: Automaticsubmittal and compliance checksagainst compliance requirementsprior to delivery to help complywith regulatory requirements,reduce exception conditions andthus processing time.

l Delivery: Processes andworkflows should provide finalvalidation and verify delivery ofthe completed loan documents

to the correct destination.Delivery processes shouldensure requireddocumentation and collateraldocuments exist, are kept up-to-date, and assist inmanaging the relationshipbetween borrowers and thefinancial institution. Deliveryprocesses should supportmultiple destinations,including insurers (forexample, the Federal HousingAdministration and VeteransAffairs, investors, auditors andlegal entities).

By automating loan qualityassurance, the loan completionsystem ensures individual stepswithin the life of loan process aredefinable and traceable.Automation can assist in makingcertain that loan data meetsstandards at all quality gates andregulatory checkpoints. Ideally,the loan completion should beflexible and configurable solenders can design their loancompletion processes to meetever-changing regulatorydemands and specificinstitutional needs.

The loan completion processshould leverage automation togather and manage system dataand documents. By using a loancompletion system, lenders canbring tremendous efficiency to thisspace and eliminate riskassociated with nonstandardprocesses and multiple systems.

NMP MEDIA CORP.




The loan completion advantagecan be summarized in five distinctareas:l Standardized workflows:

Human-, document-, andprocess-centric workflows arecombined, along with enterprisecontent management and currentbest practices, to provide apowerful turnkey solution. A loancompletion solution automatesquality control processes intoloan origination, servicing,regulatory compliance andsecondary marketing workflowsto enhance and optimize end-to-end lending operations

l Automating manual datareview audit processes: Loancompletion systems allow for thereviewing of all available loandocuments at a glance.Documents are intelligentlyindexed with critical dataextracted for easy comparison.Unlike with error-prone manualviews, data mismatches areflagged early in critical processesto expedite corrections and helpmaintain the integrity of loan datafrom origination to completion.

l Audit trails: Loan completionsystems offer complete audittrails to facilitate compliance,make reporting capabilities morerobust and provide transparencyinto life of loan processes.

l Electronically categorize andtrack loan documents for allchannels of lending from asingle intuitive platform: Loantracking systems provide an

intuitive single-view interface thatcentrally store documentselectronically, as well ascategorize and track loanportfolio content for thecommercial and consumerlending space. They ensurecurrent loan documents, financialreports and collateral documentsexist, are kept up-to-date, andassist in managing borrower andloan portfolio information.

l Increased revenue and a betterconsumer experience: Loancompletion systems detectdocument errors and match datacoming from other processingsources, reducing processingtime and expense. This alsoreduces purchasing risk anddelivers a stronger customerexperience to the buyer.

Loan completion systemssafeguards loan quality and mitigates riskThe trends associated withmodern-day lending demand thatmortgage lenders consolidate andautomate to enhance the bottom

line and reduce regulatory risk.Without a material change inapproach, many companies willnot be economically viable.Siloed lending technologyinhibits loan quality assuranceand risk mitigation, and–inaddition to increasing operationalcost and risk–the use ofdisparate technology negativelyimpacts the consumerexperience with expectations forerror-free loan processing goingunmet.

Implementing loan completionsystems and taking a centralizedapproach to managing loan qualitywill define which financialinstitutions rise to meet the newchallenges presented by thecurrent increasingly complexlending climate. The loan qualityassurance facilitated by loancompletion systems will helpinstitutions overcome systemslimitations, leverage secondarymarket opportunity, help avoidcompliance issues and enhancethe life-of-loan experience forborrowers.

Jay Coomes is vice president of product managementfor financial and risk management solutions at FiservInc. In this role, Coomes directs the product strategy forenterprise content management products and processautomation solutions from Fiserv. Coomes has morethan 30 years of experience in software productdevelopment, process automation and solution design.