You generally have to take surveys conducted by tech companies with a grain of salt, given the mission of the research sponsors. But there were some findings in Xerox (XRX)'s eighth annual "Path to Paperless" survey that are eye catching, since they reveal discernible anxiety about mortgage regulations that's impacting the pace of innovation.
Xerox's findings on the growth of automated closings demonstrates robust adoption. More than 43 percent of the lenders believe that more than half of all loans will be closed electronically within the next four years, up from 28 percent who believed that in 2011. More notable is the 90 percent of origination, underwriting, archiving, investing/funding and servicing professionals who cited access to an audit trail as an important benefit of going "paperless"; and the 88 percent who consider how well a "paper reducing" tech product supports compliance when shopping for a solution.
"If you look at the last couple of years there's been a lot of turmoil…you need to be accountable. The survey revealed [lenders] are under pressure to comply with standards," says Nancy Alley, vice president and general manager for Xerox Mortgage Services.
Mortgage laws, regulations and standards are evolving in a direction toward tighter lending controls, broader and more detailed disclosures and more standardized methods of delivering information to consumers, investors and regulators. "Lenders want an audit trail, and help in disclosures to borrowers," says Alley.
Mortgage regulations abound. A partial list of regulations in progress includes the Federal Housing Finance Agency's Uniform Mortgage Data Program, which increases electronic data delivery of documents to the government sponsored enterprises (Fannie Mae and Freddie Mac) for loans and appraisals. As part of that program, lenders faced a deadline this summer to deliver loans consistent with the Uniform Loan Delivery Dataset (ULDD), which leverages the Mortgage Industry Standards Maintenance Organization (MISMO) Version 3.0 standard
Additionally, the GSEs plan to further tighten standards for some groups of homebuyers and the Dodd-Frank law will include more mandates to expand disclosure requirements as part of the Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA), the laws that broadly govern mortgage lending in the U.S.
Adhering to these rules requires more data , documentation and document delivery, as well as agility, since new mortgage regulations are subject to almost constant change. Thus, some lenders are turning to greater automated processing to increase speed and tighten workflows by reducing errors that can result from added manual processing.
Jim Connell, CIO of Sierra Pacific Mortgage , a Folsom, CA-based lender that originated about $5.3 billion in residential mortgages in 2011, says his company tries to automate as much processing as possible. The lender uses a private, internally hosted cloud to store and manage data, and combines its proprietary, internally-built workflow with a Xerox product called BlitzDocs that serves as an electronic folder for mortgage documents. "We can track files at any point … and monitor work queues to figure out how long tasks are taking," Connell says.
Connell says the lender's goal is to reduce closing times, which can be up to 45 days, while adhering to regulations. "To verify employment, for example, I used to have to send the borrower a form in the mail, someone at the employer had to sign it and write in how much the borrower makes and send it back. Through automated closing, all of those steps can be done and delivered electronically," Connell says.
While the new regulations require more disclosures, Connell says automated collaboration enables multiple staffers to view and work on mortgage documents simultaneously within the lender's workflow, which can save time. "Staff can pick up the mortgage's electronic folder, look at it and get right to work on their particular part of the process, and everyone is speaking the same language. All of this fits right into the idea of building a uniform process," he says.
Xerox's findings are seconded by Ellie Mae (ELLI), another tech company that offers process automation through products such as Encompass. "The things that folks are most focused on are the changes and regulation and compliance, and the detailed scrutiny and enforcements that are likely coming," says Jonathan Corr, chief operating officer at Ellie Mae. "The next big area is the demand for quality and verification by investors…that is why you're seeing the increased use of tech that monitors for compliance through the process."
Corr also says the costs of closing loans have increased. Industry estimates vary, ranging from $4,000 to as high as $5,000 for a $200,000 loan, which is up from around $3,000 as late as 2009. "Where you see these costs is in the labor and back office fulfillment. That's where you'll see more banks and credit unions embrace automation to bring costs down," Corr says.