Evolutionary Automation

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Mortgage origination systems become multipurpose systems

By Howard Schneider

Mortgage loan origination systems began as tools to assist loan officers in filling out credit applications on the front end of the lending process. Joe Tyrrell, executive vice president of corporate strategy at the mortgage software and funding company Ellie Mae Inc. in Pleasanton, Calif., recalls when loan origination systems simply generated loan forms, and a mortgage loan’s status was monitored with a checklist stapled to the paper file.

“It’s a completely different environment,” Tyrrell says, compared to the technology available when he entered the mortgage business in 1990.
Today, a quarter century later, the systems have evolved to automate and manage much of the entire credit process from end to end. These loan origination-turned-processing systems now order credit reports electronically. They generate the necessary loan disclosures in the right sequence at the right time. And they make sure that forms are filled out completely and that no steps in the mortgage process remain overlooked.

Managers, loan officers and underwriters are alerted to any disruptions. Difficult loans are less likely to fall through the cracks, and compliance concerns are reduced by automating tasks.

More than tracking
Current loan origination systems can order services from outside vendors such as title agents, while providing secure communication and ongoing loan monitoring. The systems also can help lenders maintain profitability by creating business efficiencies and ensuring compliance, says Jamie van der Hagen, director of consumer lending at Wolters Kluwer, a compliance technology and services firm in Minneapolis. For instance, the systems provide electronic audit trails that show the options homebuyers were given, rather than only recording which loan product they agreed to.

Web-based loan origination and processing systems provide fast decisions for millennial borrowers who prefer online borrowing, says Mitch Lucas, head of lending product management and legal compliance at Toronto-based D+H, a core software and technology firm. “They can see rates, apply and get approved,” he notes.

compliance software to existing systems won’t have optimal results, van der Hagen advises. Regulatory steps shouldn’t be “treated as an add-on,” he contends. “It needs to be baked into a system to make sure front-line staff members are originating compliant mortgages.”

Perhaps most of all for community bank relationship lenders, Tyrrell says today’s loan automation helps community banks by “enabling their ability to focus on people, while the system takes the friction out” of the approval process. Origination and processing systems “organize and present data” as needed, he adds.

Portfolio loans and specialized products such as home equity and home construction loans also can be tailored through these systems, says Ben Wu, executive director of technology at Calyx Software Inc., a company in San Jose, Calif., that provides origination and processing systems.

Automation should make it easier to initiate or ramp up a mortgage program. Wu points out that a community bank can begin by selling mortgage production as a broker or correspondent. A robust platform later can support a multi-office retail lending operation, provide consumer direct online capabilities and enable an institution to purchase loans from third-party originators.
And portfolio lenders can create their own loan templates for portfolio products “without having to be software developers,” Tyrrell says.

Compliance and the future
Today’s systems don’t treat compliance as something to evaluate after a loan has been funded. Effective mortgage automation, van der Hagen notes, essentially embeds an institution’s policy and procedures manual into the software. These systems are proactive regarding compliance. Real-time checks are made as data are entered into the system.

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Compliance costs are certain to keep increasing. January 2018 is the implementation date for expanded reporting requirements under the Home Mortgage Disclosure Act, which also will be used to assess a bank’s fair lending practices. Moreover, automation helps ensure “a consistent and objective” mortgage process that can alleviate inconsistent lending decisions that can lead to fair lending problems, Wu says.

Today’s systems also protect consumer data while allowing branch employees to access a loan’s status for customers, Tyrrell comments.

Future enhancements could include software that makes online income and asset verification as simple “as pulling a credit report,” states Mary Kay Theriault, product management supervisor at D+H. She notes that automation allows community banks to process loans with fewer staff people.
However, D+H doesn’t anticipate taking loan officers out of the loop. Borrowers still need to know they’re dealing with real people, Lucas adds. Automating the mortgage process, he says, “doesn’t replace relationship building.” By taking care of many tasks, mortgage origination and processing systems let community bankers concentrate on tasks at which they excel.

Ellie Mae expects to include more analytic tools as its loan origination and processing systems continue to develop. Lenders who understand their customers better will be able “to reach out rather than waiting for the customer to contact them” about loan needs, Tyrrell explains.


Howard Schneider is a financial writer in California.

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