Mortgage lenders have to follow lots of rules — and five years after the mortgage crisis began, these regulations are still changing. For smaller originator The Bank Mortgage Network, the struggle to stay legal and in business has led to a strategy that includes a nod to high-tech manufacturing.
"It works like automobile manufacturing. We take components from all over…it's a virtual world," says Tom Hughes, president of The Bank Mortgage Network, a unit of the Henderson, Ky.-based, $130 million-asset Bank Trust Financial Corp., formerly Bank of Henderson.
TBMN, which process and closes mortgage applications for a network of community banks in Kentucky and surrounding states, has developed a largely outsourced workflow in which mortgage applications are processed and loans are underwritten and closed like cars on an assembly line. TBMN uses external technology to execute steps in processing and to check the accuracy and compliance of loans at different stages of the process.
The company is using ISGN, a mortgage business process outsourcing company, to aid in processing and vetting the work. TBMN collects what amounts to a broker's fee from its network of originating banks — mostly smaller banks and credit unions — and pays ISGN based on production volume.
The institutions submit applications through software that TBMN has installed on site. There's a processing flow that starts with the loan officer originating the loan package, pulling credit reports, running a GSE automated underwriting tool and collecting supporting documents. That's followed by several more steps covering Real Estate Settlement Procedures Act (RESPA) disclosure forms, a review for missing documents, processor and underwriter reviews. ISGN provides the tech for a review of documents, as well as ordering additional documents such as title, tax transcripts, flood certification and appraisals. An additional ISGN-aided closing workflow also includes steps such as sending the closing package to title companies and attorneys, transfers to MERS (the Mortgage Electronic Registry Service), and finally to a TBMN shipper who delivers the loan to a secondary market investor for sale and servicing.
Along the way, TBMN uses software hosted by ISGN to perform nightly checks of pending loan applications, verifying documents such as pay stubs or tax records for accuracy and compliance. Loan officers and other pertinent staff can view a dashboard-style pre-closing review that verifies the existence of these documents, allowing for updates as these documents are added or corrected upon review.
"The older model was you checked the work on a loan after it was done. So I thought about that a bit, and if I was making a part for an engine, I couldn't wait until the hood was closed to see if it fits or not," Hughes says.
Hughes says that business process outsourcing enables the TBMN to tap a regionally diverse mix of onshore and offshore mortgage processing experts at ISGN, which in the past year has processed more than 1.5 million mortgage applications. ISGN, which competes in a mortgage processing market that includes technology companies such as Mortgagebot, Calyx Point, and PC Lender from Lender Processing Services, employs more than 1,500 mortgage closing specialists in five domestic and two international locations. "We're able to work on a 24-hour clock, checking applications overnight and knowing in the morning whether it's a 'pass' or 'fail' in terms of the documents," Hughes says.
Hughes did not say how much it costs to process an average loan, though the consensus among mortgage tech providers is it currently costs about $2,500 to process and close an average conforming mortgage. This cost has gone up, lenders say, because of an increasing regulatory burden.
"The processing cost is mostly based on production," Hughes says. "If you have to employ all of the people it would take to perform these checks, it would take the work of about six people to produce a loan. That's six salaries plus benefit plans plus vacations and all of the things that go into that [for an in-house employee]. With outsourcing, I'm paying by the loan and hopefully we'll be able to keep growing and kicking loans out."