Electronic Mortgage Bottlenecks, Part 5 – Consumer, Security, and Regulatory Consequences (A manager’s view on the adoption implications of straight-through mortgage processing) -- June 5, 2007 (Also appearing in the MBA Tech NewsLink)
Those individuals with a foundation in program management are very familiar with the “triple constraint” concept – simply stated, when faced with three equally important categories (e.g., quality, schedule, and costs) one must be permitted to be adjustable. Although in the embryonic and evolving environment of electronic mortgages, this “trade-off” may be inappropriate to meet the consumer, security, and regulatory requirements.
Cy Brinn, President of Metavante Lending Solutions, was asked what are the most compelling security benefits or challenges experienced that must be overcome? “If local governments adopt the technology for eMortgages, they may act as catalysts to accelerate adoption across the industry.”
Tim M. Anderson, Vice President of eMortgage Services at Stewart states that, “The benefits reside with the ability to prove that the transaction is more secure and hence harder for fraud then the unsecured paper world is a given – but we have not seen a fully documented case. There is a real opportunity to document workflow and process as compared to the current non-secure paper processes. The challenge is developing a proven secure, scalable eMortgage platform and meeting ongoing regulatory compliance is not for the faint of heart and definitely will be a market differentiator over time for those companies who can sustain and maintain. Additionally he states that there are several regulatory and compliance issues to overcome including “GLB, SOX, SAS, FIRREA and most recently FFIEC, not to mention the various regulatory requirements depending upon the type of institution you are (e.g., OTS).”
Foundationally, the adoption of electronic mortgages will streamline the delivery channels resulting in clear “winners and losers” beginning in earnest during 2008. The traditional channels and those organizations that profited from their cross-industry fragmentation will continue to dispel the viability and sustainability of electronic mortgages. However, with the underlying technologies continually being improved, both from capabilities and ease of implementation, the merits of the essential “e” components are now firmly recognized. The result is an acceptance of the long-debated standards and operational benefits touted by the industry committees and leaders.
Diana Helander, Group Manager for Worldwide Standards for Adobe Systems adds that, “Recent guidelines from MISMO and MERS should be a confidence booster for lenders that were considering e-mortgage adoption but wanted more clarification on their technology and document options. For those who have been watching and waiting to do something, recent announcements by MIMSO and MERS give definitive guidelines which lenders can consider when moving forward. Many lenders have been particularly eager for such clarification because they have heavy investments in PDF in other parts of their business.”
The opportunity and challenge for organizations today is deciding what discrete requirements must be met and how these align with the existing processes, personnel, and procedures already in place. However, a common mistake continually being made with adopting organizations is that they begin by selecting technologies capable of supporting discrete items such as signing pads, reporting requirements, interfaces, record retentions, and data mappings. By failing to define and quantify the implications of selection beforehand, the risks of an incomplete or inefficient electronic mortgage solution set are significantly escalated.
“The benefits of e-mortgages are numerous,” professes Diana Helander. “They ensure that important closing documents are on time, accurate, secure, and compliant. Digital signatures, documents and identities can all be verified online. The manual steps involved with credit scoring, underwriting, and pricing are substantially reduced. It complies with industry standards and leverages existing systems while streamlining routing to include all necessary participants.”
Whereas much has been made about the legality and security of electronic mortgages, organizations must address a critically important question – are the consumers prepared? Armed with a focus and studies on back-office throughput efficiencies, internal implementation teams and executives are pushing forward with long-awaited initiatives. However, given the nominal electronic mortgage volumes to date, there is limited empirical data projecting how the diverse consumer base will react to “electronic processes.”
Cy Brinn, believes that “Most consumers are so unfamiliar with the mortgage origination process that the change to eMortgage won’t matter to them. If there is a time or cost benefit to the consumer, smart lenders will focus on it as a competitive differentiator and market it to their consumers.”
Nevertheless, politicians armed with a perceived directive to protect the mortgage consumer, as foreclosure rates rise nationwide, may increasingly take reactionary stances depending upon initial consumer responses. Many of these responses will be highlighted along state, district, and local lines, resulting in a patchwork of implementation functionality and maintenance requirements.
According to Tim Anderson, ”Security and scalability of the platform are going to be real issues for most companies. SAS 70 II compliance is a big compliance cost that few have gone through. This takes a major investment by established players that already have to justify it and do it for other reasons not only eMortgage.”
Architectonic Enablers
The subtleties and implications of adopting robust security and regulatory practices are increasingly being left to specialists within these vertical disciplines. Whereas one person was a generalist within a broad segment of compliance, encryption, or securing signing, specialized technologies and support processes have evolved into sub-niches mandated to address standards, recommendations, and standard operating procedures (SOP). For organizations seeking to acquire technologies or a competent partner, a new challenge has arisen involving the investigation and due diligence of solution sets proposed by vendors, outsourcers, and application providers.
With the electronic mortgage solutions being sometimes referred to as the “last of the mortgage frontiers,” there has been a rush of providers seeking to offer the market their “new and improved” solutions. Given the legal ramifications and operating margins at stake, organizations must approach solution offerings with a buyer-beware attitude.
So what should be done to enhance the chances of successful and sustainable implementations?
- Go back to the voice of the customer to understand the critical needs and issues that may impact behaviors and buying habits.
- Baseline your vendors, outsourcers, and suppliers in an effort to rate and rank their ability to deliver, sustain change (e.g., new standards models and demands), and adherence to defined “as-is” and “to-be” functionality.
- Assess the organizational ability to adopt robust security and regulatory compliance offerings against required production demands and volumes.
- Where applicable, partner with clear leaders for the short-term, while adoption progresses supported by comprehensive arrangements, obligations, and SLA’s.
- Examine the scalability and adaptability of all elemental components within the electronic mortgage delivery channels and prepare complete BCP (business continuity plans) / contingency plans as part of SOP (standard operating procedure).
While functionality is a key driver to application and technology selection, organizations must thoroughly examine vendor viability, depth of offering, ability to adapt, and even how many real FTE’s are on the payroll versus external contractors. Sounds too simplistic? With the perception of a large market valuation, you can be assured that many new faces will be joining the discussions and conferences in 2007 all hoping to generate sales. Customer, security and regulatory functions and operations will become an architectonic enabler for all of the adopted electronic mortgage predicated processes. If they are weak, so may the solution set embedded within your corporate offerings.
Tim Anderson was additionally asked how organizational leaders should prepare the internal processes and personnel for adoption changes. “Since most have not been involved, I would strongly recommend bringing in an outside consultant, (and there are very few qualified) to engage in the process. There is already good documentation on current paper / process bottlenecks where a consultant can devote project management and focus towards.”
When dealing with front-line customers and needed 24 by 7 support for highly complex security and regulatory requirements, is the vendor or advisor able to demonstrate depth and subject matter expertise? Remember, far reaching change of this magnitude can be thought of as controlled chaos. Therefore, any vendor or partner has to be funded (i.e., in the case of start-ups) or organically sustainable, to meet the changes for not just the industry, but for your particular enterprise’s customers, operational demands, and guidelines.
Diana Helander, concludes, “eMortgage PDF documents look like familiar paper forms, increasing both the applicants’ and employees’ comfort with online processes. Also, with the introduction of virtual signing rooms, customers will have an added convenience of signing documents between multiple parties online, with portals used to secure information. The process of finalizing thereby becomes faster and efficient for the homebuyer, not to mention for the lender and recorder.”
* * * * * * * *
This series of five articles on electronic mortgage implications has provided supplementary insight and thoughts for those enterprises seeking to materially profit from the adoption of “e” standards and repeatable processes. Regardless of real or perceived adoption rates, the efforts to realize lasting straight-through processing benefits will become part of every organizational culture seeking improved margins and operating efficiencies.
Successful stories will be written by those individuals who take the lessons learned from within and across industries, and directly and incrementally apply them to their existing environment. Coupled with this rationale for adoption, the “secret recipe” will be the organizational ability to deal with implications of planned and sustained change. I’ll close this series with a question posed to me, “what do you think the real, not theoretical, value would be if we could process and sell mortgage notes all in the same day? Is that not worth the effort of adoption?” While time will tell, adoption will be measured in volume and profit…
For 2008 MBA entries, click here