TheMReport — News and strategies for the evolving mortgage marketplace.
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cover story Tech Connect Want to improve your efficiency and productivity? The industry's emerging technology tools are imperative to staying ahead of mortgage banking's rapid evolution. H as the residential housing industry moved into the 21st century? How about the 20th century? The major industry advances in the late 1980s and early 1990s were automated underwriting machines, which decisioned loans within credit constraints. Applicants could be approved, but not rejected. Those who were not approved were "referred" for human review. Both Freddie Mac and Fannie Mae were leaders in developing the automated decision tools along with mortgage insurers, who were re-underwriting loans to meet their own guidelines. At the same time, appraisals shifted from actual inspections to drive-bys to electronic valuations. Using machines to make decisions dipped into—or grew from—automated processes for other forms of lending. The Dime Savings Bank of New York in the early to mid-1990s invested in a series of ALMs, automated lending machines, which were advertised as having the ability to make a lending decision inside of 10 minutes. The machine avoided human judgments that were often unrelated to creditworthiness. Dime used the machines to evaluate applicants for lines of credit, overdraft protection products, and preapproved auto loans that could be used if the auto met certain loan-to-value criteria. In an age of smartphones, technology follows a different path. 26 | The M Report "The residential housing industry is both app-ready and app-friendly, but cautiously so," said Phil Huff, CEO of Platinum Data Solutions. "It's easy for people to say the mortgage industry is full of Luddites, but taking a closer look, you'll see that the industry isn't resistant to technology in general; it's simply cautious as to which technologies it is ready to adopt." The recent housing collapse, Huff added, is holding back technology. "The housing industry is emerging from one of the most devastating crises in the history of this country, and no one is in a hurry to implement technology simply for the sake of being progressive," he said. "There are still some processes in the mortgage industry that should be manual. Each transaction in the housing industry represents hundreds of thousands of dollars, and we aren't at the stage where we can trust 100 percent of the lending decision to technology. We can arm our underwriters with technologies that make their decisions much more informed—technologies that verify the data on which they're basing a decision is factual—but we can't replace the decision itself with technology." The housing industry, he said, is unique, which also impedes technologic advances. "Some industries are inherently tech-forward, like the communications industry, where virtually every action can be conducted or improved with technology," Huff said. "The housing industry is different. We still need some subjectivity. It's like the carpenter who could improve processes by using a power saw rather than a handsaw, but could never use technology in place of the imagination it takes to make a home a real masterpiece. It's similar with the housing industry. Perhaps someday in the future, decisioning technologies will get sophisticated enough to make a decision without human consideration, but until then, the housing industry is understandably cautious about implementing unproven technologies." There are, said Frank Pallotta of Loan Value Group, limits to the effectiveness of technology in the housing/lending sector. "From a collection and loss mitigation standpoint, one of the most effective tools of late is not a 'tech tool' at all," he said. "Counseling and an informative outreach and education campaign has had a tremendous positive impact on borrower behavior. The proper application of a 'carrot and stick' approach with a consumer has proven to be an invaluable tool in fighting losses." And Kelli Himebaugh, corporate VP at Mortgage Builder Software, in Southfield, Michigan, suggested other opportunities. "Some of the most effective tech tools for 2013 involve improvements in pricing and workflow for [loan origination] systems," she said. "We are focusing on refining those areas for greater service levels, because as we've all learned, positive borrower experiences are tremendously important for competitive advantage in originations. Online tools, mobile devices, and automation that make decisions happen faster are all improving for 2013." Servicing, she said, offers another opening for technological advances, but added a caution. "Loan servicing software [LSS] systems have to be moderate in cost and robust in automation in order to fit the business models of mainstream lenders," she observed. "Moreover, they have to cover the CFPB [Consumer Financial Protection Bureau] rules regarding reporting and streamlined borrower contact capabilities."