April 2016 - Tech Revolution

TheMReport — News and strategies for the evolving mortgage marketplace.

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22 | TH E M R EP O RT FEATURE F ear of runaway information technology (IT) costs is holding many mortgage bankers back from implementing strong internal control struc- tures and related process improvement changes that might be necessary not only to remain compliant but also to remain viable. Excessive tech- nology costs often serve as a convenient excuse for not making vital changes to strengthen operations, internal controls, and auditing. Saving money sometimes takes precedence over prudent infrastructure adjustments. "In the past we avoided doing the right thing when it came to strengthening controls and back-end procedures because our IT staff touted the need to build robust support systems that cost mega dollars," said one senior finance executive at a prominent residential mortgage loan provider based in the Southeast. "Never did we hesitate to invest technology monies for new business development and related loan origination volume increases. It was always the 'back-end' process that took a [back] seat. As time went by, we started to look at things more simplistically and began realizing that doing the right thing from an infrastructural perspective was not as costly as it seemed." After being fined a few times, it became clear that it might be less costly to invest money up front to make the needed internal control changes. A Necessity, Not a Luxury I n today's marketplace with stringent regulatory oversight and a seemingly constant flow of new regulations, brokerage firms, banks, mortgage originators, loan servicers, and other financial services firms must be ever mindful of their internal processes and procedures. Having a sound and robust internal control infrastructure is not a luxury; it's a necessity. Recently, a series of regulatory requirements were enacted to help reign in the "bad guys" and offer protections to consumers nationwide. Guidelines enacted by the Consumer Financial Protection Bureau (CFPB) were principally aimed at the mortgage banking industry, making it more costly for firms to partake in inefficient residential mortgage loan lending and servicing practices. However, certain CFPB guidelines and directives, such as the recently- enacted TILA-RESPA Integrated Disclosure (TRID) rule, have made it more difficult and costly for both originators and servicers to operate in a truly compliant fashion. Given all this change, an increasingly larger number of firms in today's mortgage market have begun to realize that a certain degree of time and investment is required not only to survive, but to keep pace with the competition and remain compliant. And today, the more savvy players are no longer succumbing to the myths and fears that excessive IT spending is necessary to survive. Keep It Simple T he solutions may be simpler than they first appear. A little out-of-the-box thinking combined with some relatively inexpensive technology tools— many of which may be resident on the office desktop—may be all that is needed. "We realized that all these new regulations placed an increased onus on us to get in shape; spending lots of money on IT was not an option. We had no choice but to shore-up our controls and related processes," said a senior manager at a mid- size mortgage banking firm on the West Coast. His firm was able to get the technology in place that was necessary to continue doing business and remain in control relatively inexpensively. "We were initially told by our IT department that costs would range anywhere from $800K to $1MM to put in place the necessary tracking mechanisms, metrics, and modified forms to conduct business in line with the new regulations, and that programming and testing would take a minimum of six to eight months to complete," he said. However, he eventually came to the conclusion that what he needed was not rocket science, and he found a much less costly solution. "We [the senior line managers] huddled and quickly No Need to Break the Bank Shattering the myth that strong internal control structures are wildly costly, mortgage firms are beginning to find many of the solutions are right in front of them. By Vincent Spoto

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