Game Change

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Feature a paperless mortgage workflow. Instead of moving to a datacentric process that eliminated documents along the way, lenders instead used digital "copies" to replace physical copies. The documents were still being generated and printed, but now the computer served as a copy machine. Instead of trying to push the closing documents to paperless formats, the path to completely digital mortgages will come one step at a time, beginning with data-driven operations on the back end and moving to replace documents with digital XML files. The Problem with PDFs W hile both data-driven documents and PDF documents achieve the same thing—a legally bound loan document— there are significant differences between the formats that affect efficiency. A data-driven loan file is XML-based and designed to be created, viewed, and stored in a Web environment. An eSigned PDF document is an electronic document in a PDF format that is sealed with a digital signature. PDF documents are viewed either within a Web browser or through the standalone Adobe Reader. eSigned PDF documents are the most widely used format by mortgage lenders, even though most investors do not accept them. The appeal is easy to understand: PDF documents are easier to implement, and they present a consistent display across all Web applications. In addition, all eSign providers can electronically sign PDFs. PDF documents are also easier for the borrower, since Acrobat is preinstalled on most home computers, allowing borrowers to easily receive, view, save, and print the documents for their own records. But a PDF document is static. It is difficult to extract data from PDFs, and the PDF format also provides no embedded audit trail except for the electronic tamper seal, which makes it more difficult to audit the document's loan data integrity. XML files, on the other hand, are data-driven and independent of any proprietary software. The format makes it easy for lenders and investors to automatically extract loan data. Additionally, data-driven documents can programmatically audit loan data and verify its integrity. Purging Paper from the Back Office C ounter-intuitively, the best path to eliminating paper from the mortgage workflow is not to begin with the end-borrower documents but to eliminate paper on the back-end first. Once an application is entered into the loan origination system (LOS), all data should be instantaneously available at every step of the loan process. By relying on data over documents, lenders have the freedom to work on pieces of the loan they want without being confined by a sequential, functionby-function or role-by-role based approach. The result is substantial reductions in process cycle time. By building the workflow around a central data-centric electronic loan file on the back-end, the lender enables multiple departments to work on the loan at the same time. Data-focused origination also provides clearer transparency and more accurate risk analysis. As soon as an application is filed, underwriters should be able to evaluate the automated underwriting results and apply approval decisions. Investors should be able to automatically scan for adherence to their guidelines and evaluate risk and pricing. All of this happens while the closing department is pulling the loan documents and submitting disclosures. Automated for the People T he key is to use automated business rules to streamline the data entry, manual evaluations, and quality checking at each step of the mortgage's journey to closing. Mortgage technology should be able to automatically evaluate data within the context of business rules, thresholds, and other data to render a decision. This saves manual work on the loan and for those loans that do not meet standard criteria or have other issues that need a more nuanced decision. Once an automated decision is made, the system should be able to take one or more of several actions: clear the check or condition, create a new task, request or obtain more data (e.g., additional property valuation or income verification), or computing technology. Since the introduction of Apple's iPhone in 2007, phones, tablets, and laptops have become centers of apps, all built on a base operating system. This philosophy works just as well in the mortgage industry, since no lender has the exact same technology requirements as another. Instead of an older or legacy LOS, which dictates the third-party software it works with, lenders can now implement a "mortgage operating system," or MOS, to meet their specific needs. Lenders can add and remove loan apps without affecting the functionality of the MOS and its remaining apps. Once the mortgage process on the back-end is paperless, it becomes By relying on data over documents, lenders have the freedom to work on pieces of the loan they want without being confined by a sequential, function-by-function or role-byrole based approach. notify someone of the decision. Implementing a data-centric loan platform can trim as much as 30 percent off the time and cost needed to close the loan. Of course, one of the challenges of building a data-driven back-end is the current architecture of LOS programs. Most platforms come packaged in preconfigured settings that must then be customized to meet the lender's specific needs. This can be costly, as a change to the LOS can also mean a change to auxiliary software to ensure a strong integration. An App for That A more productive model is one that has become the dominant platform in personal much easier to push those benefits through the final step to the borrower. Many homeowners still wish to hold and sign physical closing documents, but as Generation Y reaches home purchasing ages, more will embrace digital signatures. The beauty of a data-driven system is that the final step is simple regardless of the borrower's wishes. XML loan files can easily generate custom documents and disclosures directly from the MOS in either printable or electronic format. Paperless is not a pipedream. The technology to support e-mortgages exists and is affordable for most lenders. Take the first steps by eliminating paper from the back-end processes and prepare for the day when consumers are ready for electronic closing docs. The M Report | 23

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