Tighter regulations are leaving less room for error when computing and disclosing how much mortgages cost.
"The industry will be held accountable for mistakes that, in the past, were simple annoyances to the borrower. Today, they're illegal," says Jan Clark, vice president of sales and marketing for Ernst Publishing. Ernst sells technology and closing cost data to mortgage market players. Its clients include nine of the largest ten originators and servicers and the largest five title insurance companies.
Ernst Publishing, which is not related to the accounting company, has received a U.S. patent for its recording fee and tax calculator, called "System and Method for Generating and Tracking Field Values of Mortgage Forms."
The Consumer Financial Protection Bureau is tightening rules for good faith estimates (GFE) to narrow the tolerance for variance between the GFE and the actual cost to near zero.
"Any credible tool like this that makes the closing process more accurate and transparent, and less manual, is beneficial. Manual is costly and you don't want to do that going forward," says Christine Pratt, a senior analyst at Aite Group.
The good faith estimate is required by the Real Estate Settlement Procedures Act (RESPA). Lenders and brokers must produce an itemized list of fees and costs associated with the loan. This list must be delivered within three business days of applying for the loan. By narrowing the tolerance between the GFE and the real cost of a mortgage, the CFPB (which is making the changes to RESPA) is placing more pressure on lenders to produce accurate estimates, since they face financial penalties for non-compliance. Also, as fees change over time, the GFE must change accordingly.
"Now you have to give them that [estimate] exactly. It's hard to do that without technology," Pratt says.
The patent covers the method Ernst uses to seek out closing cost fee information and delivery to clients. The Ernst Monitor, a key part of the patent, enables lenders to track fee changes for the life of a GFE. "If a recording jurisdiction changes its fees, it may have a very costly impact to the borrower," Clark says.
The Monitor alerts the lender that the fee has changed, and performs a recalculation that enables the lender to update its GFE. The information is gathered from databases spread over more than 3,000 jurisdictions, and it is designed to promote accurate closing cost data for the GFE and HUD-1, a form that itemizes settlement charges for a government-affiliated mortgage. "In the old days, the originator had to provide a great deal of information and then wait for the data to be gathered to calculate the recording fees and taxes due in different jurisdictions. Today, our software calculators make use of geocoding and user pre-configuration to make it easy for the system to know what jurisdiction is involved without the loan officer, title or closing agent entering more than just a few pieces of information," Clark says.
Clark says the technology can be hosted locally by its clients, accessed through XML or co-branded in websites, or used directly over the web. "We're seeing more XML-based solutions hosted by us or the lender these days, but we still deliver custom search engines lenders deploy behind their firewalls. One of the more common existing delivery models has been sending the data to mobile devices via custom mobile apps that Ernst builds for its clients. In this way, a lender or title underwriter can set up a system and then deploy it across a national workforce, with the company's branding and look and feel baked into the app," Clark says. Ernst's competitors include Closing.com, which did not return requests for comment by Wednesday afternoon.