May 2016 - Rise and Fall

TheMReport — News and strategies for the evolving mortgage marketplace.

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30 | TH E M R EP O RT FEATURE became more generally available, cementing the LOS's role as the lender's automated part- ner rather than a mere clerical enhancement. The difference is as dramatic as switching from a '90s vehicle to a modern one— complete with antilock brakes, digital fuel injection, full airbags, collision avoidance systems, self-parking, and smartphone interfaces. Template systems are still out there, but rules-based processes in the LOS enable a far smoother ride for the mod - ern mortgage company. While templates provide some guidance on the forms, loan types, and programs, more modern rules-based methods can create a highly effective manufacturing process based on the specific data points of each loan. Examples of these additional data points that can drive file requirements include property type (single-family, condo, or planned-unit development), borrower type (borrow, co-signor, accommodation mortgagor, or U.S. citizen/non-resident alien), auto - mated underwriting system and other interface findings, income, and many more. Each of these can affect the workflow on the loan file, some requiring documentation that others do not, and much of it highly detailed. Property type, for example, can trigger homeown - ers association (HOA) monthly fees and covenants, but not on all single-families, and on most of the condos and PUDs. With rules firing elements of the workflow, processing knows to ask for infor- mation on these that not only are important to have in the file, but can impact basic eligibility criteria such as debt-to-income (DTI) ratio calculations. More importantly, the rules- based approach can keep errors and defects from occurring, and this is not a trivial benefit. Experienced lenders understand that even a minor error can re - quire significant resources to cure and can cost tens of thousands of dollars. Defects and errors can also: • Increase expenses by requiring a pool of resources to focus on cures that are not necessary when efficient and accurate processes are in place; • Become distractions for key managers and keep them from focusing on more productive objectives; and • Cut directly into profits. The costs to resolve these issues come straight out of net income, directly affecting a lender's bottom line. Superior Intellect, Piece By Piece R ules-based LOS systems are highly customizable for each lender's process model. They typ- ically include presets for industry best practices, providing usabil- ity right "out of the box." But tweaking them to fit your busi- ness can be surprisingly simple. Customizing a technology system generally makes managers think of IT specialists and software developers, but that is seldom the case with the best modern LOS software. Rules engines are designed for use by business-side subject matter experts rather than technology specialists. Readily understood If/Then steps are enabled so that lender custom - ization remains logical and nothing gets lost in translation. If dealing with a self-employed borrower, for example, then the standard best practices rules specifying tax returns are triggered, automati - cally listing them as a requirement during the interview process, and before taking the loan to under- writing. But what if a particular lender or investor has tighter tolerances for income from certain sources? The rules can be immedi- ately modified for the specific range and set to fire if needed. Logic prevails and time is saved across the entire origination process. In the broader view, rules-based systems provide: • More accurate file documentation right from the start of the loan process, enabling better service and fewer hours required to process each loan; • Quicker and more accurate generation of disclosures; • User restrictions based on employee roles that prohibit them from making changes to, approving, or funding a loan that could result in defects, providing an ongoing quality control safeguard; • More accurate loans delivered to the secondary market, resulting in a reduced number of staff hours to cure investor errors and omissions requirements; • Improved loan quality resulting in higher pull-through ratios and reduced secondary marketing revenue exceptions; • Reduced dependency on staff training and make new hire staff qualifications more manageable, as today's best systems accurately present the right information to the right user at the right time; • Efficient systems that increase staff productivity, retention, and collaboration. When a predictable and accurate process is in place, all staffers have clearly defined responsibilities and the tracking of requirements can be transparent; and • Help in recruiting top sales talent. Quality loan originators need a predictable and high- quality back office team in place to ensure service levels are high—resulting in great real estate agent and referral source relationships for increased business referrals. Value-Added Benefits: The Finishing Touches M any on the origination side of the house will agree that the LOS is the most impor- tant technology decision a com- pany can make. The smarter the system, the more effective the company can become, particu- larly if the logic can be deliv- ered directly to borrowers when they apply, and integrated with the lender's other vendors. Rules-based loan origination systems—possessing what amounts to a logical, native intelligence that facilitates decisioning—play well with others. Streamlining the initial interview process and collection of documentation is most efficient with a rules-based system. In ad - dition, virtually all lenders require third-party sources for pricing, verifications, credit reporting, and automated underwriting. Loan de- cisions and processing require input from these providers in order to keep the loan moving through the pipeline, and documents flowing in through a variety of means. Advanced rules-based LOS sys - tems are able to accept and largely manage the inflow of documenta- tion through most means, and then trigger actions based on their receipt. Communications can be generated to advise parties that the "Customizing a technology system generally makes managers think of IT specialists and software developers, but that is seldom the case with the best modern LOS software. Rules engines are designed for use by business-side subject matter experts rather than technology specialists."

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